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Selling Both Wholesale and Retail

Selling Both Wholesale and Retail

Many times artists choose between selling on a retail basis or on a wholesale basis. You can do both, but you need to avoid a few pitfalls when you sell both wholesale and retail.

 

Galleries often prefer to work with artists that only sell on a wholesale basis and don’t sell at any retail venues. That way, the gallery is assured that customers can only buy the products from them or another gallery. However, when you have been selling retail and then want to venture into the wholesale market, you may want to be able to sell both ways.  You will need to reassure galleries that buy wholesale from you, that your retail prices will not undercut their pricing structure and that any customers who approach you personally after seeing your work in a gallery will be sent back to the gallery for the sale.

I have said this before but it won’t hurt to repeat it. Your pricing needs to be consistent. You can’t sell at a retail show for a lower price then what the galleries can sell your work after buying at wholesale. Your prices at retail shows should be made by marking your wholesale price up by 2.3 – 2.5 or higher. Keystone (the amount that stores mark up a wholesale price) used to be 2.0 but it is really hard to make a living any more with that low a markup. Most galleries mark up around the 2.5 mark. So if you are going to sell your work wholesale, you should not be selling your work in any retail venue for less than 2.5 times your wholesale prices. This includes retail shows, online sales or any other retail venue where you sell your work.

Developing a good relationship with your galleries is important if you want to continue to receive orders and business from them. You need to check with customers who contact you directly where they first saw your work. If they saw your work at a gallery, that gallery needs to get the sale or a commission from you if you sell directly to the customer. Perhaps the gallery doesn’t have a specific piece that the customer wants to buy. You still need to have an understanding with the gallery that if you sell “their” customer a piece, you need to give them a commission or a portion of the sale. They are promoting you and your work and you need to be supportive of them. Work out in advance what their policies are about commissions and special orders. The selling percentages may be different from the normal pricing structure. Again, if you get to know the gallery representatives, this will be a big help when issues arise.

I know that some galleries refuse to work with artists that sell their work in online retail venues. Customers are computer savvy. They can get your name from a tag on work in a gallery, google it and find all the online venues where you sell your work. Many customers then attempt to get a better price from those venues or directly from you. If your work is priced the same or higher than it is in the galleries, these issues won’t be a problem for you. So as long as your pricing is consistent, selling retail and wholesale is a viable option.

 

Pricing – The Formula

Pricing – The Formula

There is no perfect formula for pricing. What works for one person might not work for another. The formula presented today is in standard use and even if you don’t end up using this method exactly, figuring out your prices this way will give you a baseline from which to start.

Here is a basic pricing formula:

Materials + Labor + Overhead + Profit = Wholesale Price

Wholesale Price x 2 = Retail Price

To have a complete understanding of the formulas, you need to understand what each of the items in the formula above include. Materials are the raw supplies that you use to make a product. Fiber art materials might include wool, fabric, silk, dye, textile detergent, thread, resist materials, paint, embellishment fibers etc. If you are making work in a different media, whatever raw materials that you use to create your piece should be included. A nuno felted scarf might cost $3.00 for wool, $10.00 for the silk fabric and dyeing costs of $2.00 for a total of $15.00 material costs.

Labor is the value of the time needed to make an item. Many newbies do not include a labor cost in their pricing structure. I think this is a big mistake. What would it cost you if you had to hire someone else to make the item? When estimating labor costs, the lowest you should choose is minimum wage. Estimate an hourly wage and then determine how long it takes to make each separate item. For example, if your labor cost was $10 per hour and it takes you three hours to make a scarf, then the labor cost you use in the formula above for the scarf would be $30.

Overhead is costs that do not directly relate to a specific product. Many people who work at home tend not to include overhead costs. However, if you use water, electricity or other utilities, overhead expenses are necessary to include in the formula. Overhead could include rent, utilities, repair and maintenance on any equipment, telephone, computer use, credit card fees, bank charges, legal and accounting fees, subscriptions, memberships, continuing education, advertising, print media, packaging and shipping supplies, insurance and selling expenses. Selling expenses are things like show fees, display costs, travel, photography, samples and sales commissions. You can figure out these numbers by looking at your bills for one year’s time. Then figure out how many hours you work in a year and divide the total overhead by that many hours. This will give you an hourly overhead cost. This can be added to your hourly labor wage or you can apply it proportionately to each product.

Profit is not a bad word. Everyone should be making a profit from what they make. If you leave this out of the formula, you will never be doing more than breaking even. Your profit might be as low as $1-2 on each item but it still needs to be calculated into the formula.

Once you’ve figured out your labor and overhead costs, you’ve got the bulk of the work done. You only need to review these on a yearly basis to see if they need to be changed. For example, if you stay with the $10 per hour labor charge and come up with a $7 per hour overhead charge, the formula for a scarf that takes three hours to make would look like this.

$15.00 + $30.00 + $21.00 + $4.00 = $70.00 wholesale price

$70.00 x 2 = $140.00 retail price

Go ahead and work out the pricing for all of your items that you make. Compare these prices to what you currently have your items marked? Is there a big difference? Can you see items that don’t really make sense to make in that they take an inordinate amount of time? Are there certain items that you think you can increase your profit margin?

A quick word about the wholesale versus retail price. Many people sell their items at the wholesale price in retail venues. They skip the last part of the formula. This is a real pet peeve of mine, when artists come in and tell me they sell work at local shows at a certain price but that is the same price “they need” from me before I mark it up in the store. It will be impossible to sell these items in a gallery because the customer will just wait until the artist is selling at a local show and the customer will get the item for half the price they would pay in a gallery. Galleries will be unwilling to work with you if you price this way.

Next time, I’ll discuss other pricing methods and some general tips for pricing. If you have any questions, please feel free to ask. I’d love to hear your comments about how you figure pricing and what seems to work best for you.

Everyone’s Least Favorite Subject – Pricing

Everyone’s Least Favorite Subject – Pricing

I have owned a craft gallery now for over 14 years and I haven’t met one artist or crafts person who likes pricing their work. Many have no understanding at all at how to price their items and many artists, especially newer ones, under price their work significantly. I’ve never had anyone say that they thought pricing was easy even if they’d been doing it for a long time. I’ll be taking several of the next few Marketplace Monday posts to talk about various aspects of pricing. I hope that you’ll be able to glean some information to help you in your pricing strategies.

For these articles, I have consulted several books and I’m also drawing on my years of working with hundreds of different artists. I would check out your local library to see what books they have available about selling your “crafts”. The two that have been the most helpful for me are Handmade for Profit by Barbara Brabec and Crafting for Dollars by Sylvia Landman. These are both older books and I’m sure that there are many more out there.

‘Price is the figure something sells for. Value is what that item is worth to a buyer. Quite often the two have nothing to do with one another.’  (Excerpt from Handmade for Profit) There is no perfect formula for pricing and what the marketplace will pay is a very large factor. There are many aspects that will affect what a customer will pay and the value that they see in your work. My point here is that if you continue to work on your pricing and tweak your system as you learn what works and what doesn’t, you’ll become more profitable in your business.

You should always research and study your marketplace before beginning to tackle pricing.  Check out how other work similar to yours is priced. I’m sure you’ll find a wide range of prices, but you’ll be able to find an average price for a similar product. Make sure that you are comparing the same markets. What someone will pay in a small rural town will be completely different from a customer in a pricey boutique in a city like New York City. The internet makes the world a small place but not all markets are the same. Keep a notebook of various prices that you see at art fairs, online and in galleries.

Another thing to think about before starting your pricing system is whether or not you are really paying wholesale prices for your supplies. It is impossible to make a business profitable when you buy your supplies at retail price. The more you can cut your expenses and your labor in making a product, the higher your profit margin will be. Streamlining your production is very important and if you are truly a business and are planning on producing multiples of the same type of item, the time required to make an item will determine its profitability.

Next time I will be discussing the cost of labor, raw materials, overhead, selling expenses and profit. I’ll give you a formula for basic pricing and how to use it. So get your research done, cut your expenses down and next time we’ll get into the nitty-gritty of pricing.

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