Friday, January 05, 2007

Pricing - A Cautionary Tale













Ahhhh...the smell of money. As intoxicating and seductive as a gorgeous natural perfume....but....your business skills have to match your blending skills, and your PR skills may also be called upon if you're caught with your pants down, and your bottom line down even further due to bad planning.

Pricing your product is a tricky business, and
you have to take many current and future variables into account:

Materials
Labor
R&D
Loss
Rent & Overhead
Advertising
Website
Contract Manufacturing
Employees
FICA, taxes
etc., etc.

So many homegrown businesses start to fail when
they start to grow because the owner didn't
factor all of the above, plus some I've forgotten
to list because I'm jotting this message down in
between many errands today, so, basically, their success kills the business.

Many of us won't reveal how we arrive at our
price point. It's just too complicated, too
personal. If you're really serious, and you wish
for your business to grow beyond microbusiness
size, you have to be realistic, and I'd advise seeing an accountant. Early on.

This message comes from a very public, very
heated debate going on in the perfume forum world that eruped a few days before the end of the year. A well-respected niche perfumer (not a natural perfumer) had to raise the price of one of his most beloved perfumes 100% overnight. He realized that even though he used Excel spreadsheets, he had vastly underestimated the cost of production and distribution, among other factors.

The debate was quite heated on several forums.
True, it is a small handful of folks who are making a big stink over it, but
thousands read these forums, and mostly don't comment. They're there, though.

We all who know this man and know the business know
he made a strategic error in correcting a
problem, and it's very public, which has an
"ouch" factor to it. We who know him feel that
this is hurting him on a very personal level, as
he is a thoughtful, sweet, kind person. I feel
very sorry for him, and wish there could have
been a better way that he could have handled
this. In hindsight, I'm sure he feels the same way!

Many artisan natural perfumers state that they
want to make their perfumes affordable, and the
bottom line is we all want our perfumes to be
affordable, but they're fooling themselves by
pricing their juice low.

I don't care if they buy
the 30 bottles from Sunburst to keep costs down
(btw, stuff from Brosse of Pouchet can be had for
$3 - $8, so it's not an elitist move to use them)
handwrite the labels, bottle and pack and ship
everything themselves, they MUST build in the
cushion factor. Don't, and you may be doomed.
I've heard of many soap and toiletry makers that
have folded their businesses over this.

If the fevered backlash can sting him, a very
well-liked and respected perfumer on those
forums, it can happen to you. Perhaps if you're
not as well-known as him, if your business
hasn't grown as fast, you're not well-known in
the blog and forum world, you won't get fierce
feedback. But if you're not known in the blog and
forum world, your business probably didn't grow
as fast as his anyway, that's just reality. He
blogged, moved around the forums, made friends
and customers there, and his misstep is very
public. Yes, you may survive it if it happens to
you, as I'm sure he will, but the hassle and
the criticism will linger in many's minds.

My advice is be prepared, get your business
finances in order first, and avoid this kind of problem.

Otherwise, your customers might think you're a stinker.

3 comments:

  1. You are a wise one, Anya.
    Very good at expressing what needs to be said...

    As always, I appreciate your know-how, and how freely you share it.

    Kisses to you, and thanks.

    ReplyDelete
  2. Yes, with the costs involved, it can be really daunting. I really wonder if it's even possible to make the highest quality with the best ingredients "affordably. Especially dealing with very precious materials, for one thing. Possibly in the case of which you are making an example, he felt he would basically "give" it away, to create a market and an audience and interest, and then once off the ground, realized he had to start charging what it was worth to cover expenses and make a reasonable profit for full time work. But I think without making a radical change in packaging, look, name or a new fragrance, it is difficult to make that leap without alienating the original fan base. As often mentioned at the Sniffas, we wonder why don't perfumers make "half" sizes for a lower price - that would be good for people who want to use a lot of different perfumes and also more feasible to take a chance on something more than a sample size.

    ReplyDelete
  3. Hi Chaya
    Thank you for the kind comments. It is hard to write about the pitfalls in a public forum, but this needed to be out there.

    Kisses back at you

    Lucy, my dear, you hit the nail on the head. My business plan is to constantly tweak and improve the product and lower prices if possible. Since I'm such a small niche perfumer, I'll always try to keep in touch with my customers and offer them little goodies, bonuses, discounts, etc.

    ReplyDelete

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