Selling Price Equation

DjDale

A long time ago I pitched a new product idea to a local large chain store and got a no, because they wanted to buy the product at 1/4 the retail price minus two dollars.  That was BELOW my manufacturing price.
If a product let`s say has a suggested retail price of $24.95, what would a buyer expect to purchase the product for?  What is a good equation for determining suggested retail and selling prices VS tooling costs?
Dale
 
 DjDale2007-4-26 11:32:0

cutts

Hi Dale
It depends on so many factors such as the type of industry, type of products, freight terms, return policies, warehousing costs, marketing allowances etc. Car dealers for example make 300-400% on a lot of their insurance products, whereas other retailers are lucky to make 20%. So their is huge variability.
I took a product to a mass merchant who negotiated hard on their price only to find they discounted it below my recommended retail price. So you need to careful.
So the first step is to research the industry and identify the typical margins on offer. Equally you need to be aware that large chains will hit you harder than small businesses, but in turn they can move substantial volume.
Most small retailers would be looking for 80-120% markup on a product. So if RRP is $24.95, then your selling price in some industries would be around $11-14. If you then plan to add in distributors and agents to do the distribution work for you, then you may sell to them at say $9.00 and let them negotiate the final pricing.
Again, there is huge variability and you need to do your homework on what is normal in this industry.
Hope this helps
SC

Ashton

Dale,       Good advice from SC and Grillcharmer.  I think Grillcharmer is right regarding the two basic methods of pricing strategy.  It does vary by industry, but a general rule of thumb is a product is marked up 4x to 5x from manufacturer to retail, as Grillcharmer has suggested.  In thinking from a top-down approach, whereby you assess the value to your consumer--you want to think about how you can get your perceived value as high as possible.  I did a blog post on this topic based on an interview with Barbara Carey (a very successful inventor).  I think she said it better than I can--you can read it here: http://productglobal.typepad.com/gss/20 ... view_with_ _1.htmlHope this helps.  By the way, you want to not only look at tooling costs but your unit costs.Ashton

EKErrandsExpress

Hello everyone!
I am glad to have found your forum!  I am posting on behalf of a friend who has a new invention and we hope that you all can help us with some basics.  I am helping him with the press and marketing of this invention.
My friend has invented an alarm which is able to be installed on air conditioning units to deter theft and vandalism.  He has gotten his patent on it.  There is nothing out there like this invention and with theft of air conditioning units on the rise to sell the precious metals for scrap this is a product that has huge potential!
We released a press release on Tuesday through PRWeb and as of right now he has over 35K hits on it with high pdf downloads, ebook and regular prints.  Home Shopping Network saw the press release and called him!  He has also already had numerous phone calls from contractors wanting to buy them.  At first he just figured it would be selling them locally however based on the press release he is starting to get calls and emails from all across the US expressing interest in buying them wholesale. 
After speaking with finance people, attorney, companies that help grow businesses, we know that we need to get a business plan together but how can you project the sales of a product when there is nothing like it out there?  Where would we begin to find a manufacturing company to produce them?  We have so many questions but really can`t afford to to hire expensive experts to help us. 
We would greatly appreciate any advice that any of you would have! 
Thanks in advance for your responses!
Jackie

Ashton

Jackie,      Congratulations on your growing success.  My company helps businesses, start-ups, and inventors tap overseas resources to develop and manufacture products.  If this sounds of interest or you just have some questions you want to bounce off of someone, you can visit our website at www.productgss.com to learn more about us.  Or, contact me via the information below. Ashton

GrillCharmer

Hey Jackie, welcome to the board!  If you`re going overseas, I`ve worked with Ashton and he`s good people!  For domestic manfactuing go to www.thomasnet.com</A>
Good luck!!!

Innovator7

"they wanted to buy the product at 1/4 the retail price minus two dollars.  That was BELOW my manufacturing price"This is most unusual, IMHO.  Why not make the product and sell them direct on the internet for lower than their retail price?OT: I`ve been to Home Depot and needed a swicth cover plate for 4 switches. They price them at about $4!  That`s something that costs Leviton less than $0.40 to make by injection molding, of a simple piece of plastic with 4 openings.  Likewise they sell screws at over $1  for a pack of 10-15 screws, or 10 cents each.  They don`t even sell them by the box after they acquire their local competitor Yardbird, where I used to buy a box of 100 for $3-4.  I knoiw I can buy 10,000 for about $66!  BTW an internet retailer sells the same box of 100 screws for over $10 !!!!!  Good luck with that!Moral of how big retailers are pricing their ware: just because they can get away with it, for lack of competition.  I`d say: let`s use the internet to give them a run for their money.

Innovator7

Stephane brought out some good points.  My former partner and I disagreed on pricing of our niche product of high end audio.  For such a market my guy prices products wholesale at barely 2X cost.  Well, they`re still struggling.OTOH, Chinese mfg price their stuff barely 15% over cost.  That`s why many US businesses have their product made in China.  Shame on me too because I have my electronics made in China too.  If I have them made in US, my price would be much higher and I can`t sell as much.