Determining the selling price of a candle (diffuser/soap/cream) involves considering several key factors, including the Cost of Goods Sold (COGS), labour costs, OPEX (operating expenses), and the market price.
When you are just beginning, it is very tempting to exclude key price indicators, such as labour, however you can fall into the trap of undervaluing your time and then it will be difficult to include this cost in the future as your business grows.
Here’s a step-by-step guide to help you set a competitive and profitable price for your candles:
1. Calculate the Cost of Goods Sold (COGS)
The COGS includes all the direct costs associated with producing your candles. This typically involves:
Raw Materials: Costs of wax, wicks, fragrance oils, dyes, containers, wicks, wick stickers and labels.
Labor: Wages paid to workers who produce the candles or wages you should be paying yourself.
Overhead: A portion of the costs related to utilities, equipment, and workspace dedicated to candle production.
Example Calculation:
Wax: $2.00
Wick: $0.10
Fragrance: $1.00
Container: $1.50
Label: $0.20
Labour: $0.50
Overhead: $0.70
Total COGS per candle: $6.00
2. Determine Desired Profit Margin
Decide on a profit margin that ensures your business remains profitable while being competitive in the market. Profit margins for candles typically range from 25% to 50% or more.
Example Calculation:
Desired Profit Margin: 50%
Profit per Candle: $6.00 (COGS) * 0.50 (50%) = $3.00
Investigate the prices of similar candles in the market. Consider the following:
Competitor Pricing: Check prices of candles with similar quality, size, and fragrance.
Market Segment: Identify if your candle is positioned as a luxury item, mid-range, or budget-friendly.
Example Market Research:
Competitor A: $8.50
Competitor B: $10.00
Competitor C: $9.50
4. Adjust Based on Market Positioning
Based on your market research, you may need to adjust your target selling price to be competitive while maintaining profitability. Ensure your price reflects the perceived value of your product.
Example Adjustment:
Market Price Range: $8.50 to $10.00
Adjusted Selling Price: $9.00 (falls within the competitive range)
5. Finalize the Selling Price
Consider additional factors such as promotional pricing, seasonal discounts, and bulk order pricing. Ensure the final price covers all costs, meets profit goals, and aligns with market expectations.
6. Regular Review
Periodically review your pricing strategy to account for changes in COGS, market conditions, and competitor pricing. Adjust as necessary to remain competitive and profitable.
Summary
Example Final Selling Price Calculation:
COGS: $6.00
Desired Profit Margin: 50%
Initial Target Price: $9.00
Market Price Range: $8.50 to $10.00
Final Selling Price: $9.00
By carefully considering COGS, desired profit margins, and market pricing, you can determine a competitive and profitable selling price for your candles.
