If you google “how to build a business” or “how to open an etsy shop,” the majority of the answers you’ll get back suggest that the #1 thing you need to focus on (after you’ve setup up the basics of your site, of course), is figuring out how to drive traffic to your shop.
But here’s the thing, turning a product idea into a profitable business takes more than a solid marketing strategy and a website or Etsy shop.
You can drive all of the targeted traffic in the world and have a great conversion rate, but if you haven’t learned how to set profitable prices BEFORE that traffic starts coming, you’re putting yourself on the fast track to burnout and a business that costs you money to run. I’m betting that’s not what your business dreams are made of.
Not sure how to set profitable product prices?
First, avoid the 5 major mistakes new (and seasoned) sellers make.
Then, follow the steps outlined later in this blog post to make sure you’re setup to watch the dollars roll in once you have your traffic driving strategies in place.
So, without further ado:
Mistake #1 - My competitor is charging $X so I'll sell mine for the same amount or maybe $2 less
Did it catch you by surprise that this one is on the “mistakes” list?
Here’s the deal - you DO want to have an idea of how much top sellers in your niche are charging for their products. And I’m willing to bet that you’ll find a pretty wide range of prices.
What you DON’T want to do is pick one of those prices (or worse, a price smack dab in the middle), because you’re not sure what to charge and you’re assuming your competitors already know something you don’t.
Spoiler alert - they probably don’t.
And even if they do know how to set profitable prices, you don’t know how much their products cost them to make or what their pricing strategy is - are they trying to be the lowest price? Or high priced with the best materials / customer experience? Or maybe they’re going after a discount strategy where they encourage customers to spend X and get a $ off.
The point being, if you aren’t sure why they’re priced the way they are and you don’t know if your business is setup to support the same prices, copying their pricing structure puts you at risk for building an unprofitable business.
Mistake #2 - I'll just ask for pricing suggestions in a free facebook group I joined
While it can be super tempting to crowdsource your prices from other business owners, if you don’t know them personally and don’t know for a fact that they are running a profitable business with a well thought out pricing strategy, you risk getting recommendations from people who fall prey to all 5 of the mistakes in this post.
And even worse, they aren’t going to know much about your business so they’ll be making recommendations based solely on their opinions instead of any hard numbers (like your material costs or how long it takes to make your product or whether you make it in a factory or with a team or by hand.)
If you really want to poll an audience, instead of asking “how much would you pay,” ask them to share their favorite resources for setting product prices. That way you can do the research yourself, using what you know about your own business, and make fact-based decisions about your prices.
Mistake #3 - Math hurts my brain. So I'm just going to charge $20 because that feels like a reasonable price
This is one of my favorites. I totally get it. Math can be overwhelming, especially when you don’t know where to start and you can’t seem to find the right resources. But pricing this way (willy nilly without a strategy) is a sure fire way to build a business you can’t sustain. No money to pay yourself. No money to hire help when the business picks up. And no time to go back and fix your pricing.
You and your business deserve better.
Mistake #4 - I would only pay $X for this item if I was buying it so I can't charge more than that
As human beings (and this seems to be especially true if you’re making your products by hand), we tend to undervalue our own work and we struggle to charge prices that lead to us being fairly compensated for our efforts.
Sometimes we struggle because we have a hard time spending money on ourselves, which then makes it hard to understand why our customers would want to spend money on our product.
Sometimes we just don’t feel like our work is good enough to sell.
But here’s the thing. At the end of the day, if you’re working hard to deliver value to your customers, you deserve to make money off what you're doing. You wouldn’t work a full time desk job for free, so why is it ok to work on your own business for free?
Your talents have value. Your products have value. And there is nothing wrong with asking someone to pay you for that value.
Mistake #5 - My friends / family / spouse love my work, I'll just ask them how much they'd be willing to pay
A LOT of business owners make this first mistake, so if you are one of them, please don’t feel bad - you aren’t alone! It’s so easy to assume that because our friends and family love the work we’re doing, they’ll be great resources when it comes to figuring out the right price to charge.
What we don’t realize when we ask people how much they’d want to pay is that we all have own biases when it comes to thinking about how much we’d be willing to spend on something, especially when we’re asked out of context (e.g., at the dinner table instead of out shopping for whatever the item is.)
People have a tendency to respond to money questions conservatively - “I’d rather not pay more than $30” or “I’d probably we willing to spend $20.”
But the reality is, our willingness to spend money is dependent on so many factors - how much money we have in our wallet that day, whether we’re searching on Amazon or Anthropologie, how lux the packaging is, whether or not the lifestyle presented in the product photos is the kind of life we really, really want to have, etc.
Ultimately, our willingness to spend (unless it’s something like toilet paper), has less to do with how much we’re willing to pay, and a lot more to do with how much we value the experience we believe a product will give us. And that value is hard for people to put a number on.
Last August I was getting ready to launch a new product - super soft, personalized baby blankets. I was really excited about them so I brought a couple of samples to my girlfriend’s house to share and, out of curiosity, asked what she’d be willing to pay for a personalized blanket.
Her response “probably around $30.” At the time she had a new baby so, in theory, she was my target audience. But it costs me $22 to make that blanket - there was no way I could charge anywhere close to $30 and build a profitable business.
Want to know what I sold them for (and continue to sell them for today?)
That’s more than 50% higher than what my friend said she’d be willing to pay.
And you know what?
Not only did that very same blanket become an Etsy bestseller within 4 weeks of launching, I also have customers who come back every month to buy a new blanket for their next baby shower and they have no problem paying $48 over and over and over again.
They understand the value of the blanket (because I’ve communicated it clearly) and they love the experience of gifting their friends a beautiful, super soft, personalized baby blanket.
To get to that $48 price (and feel comfortable charging that much), I first needed to understand how much the blankets cost to make + how much I needed to make in profit to run my business (without running myself into the ground.)
How did I know to price it for $48?
I followed my step-by-step system for profitable product pricing and now you can follow it, too, with my free roadmap.
Just click the pink button below to grab your free copy and get started on the path to a more profitable business (so you can FINALLY build the profitable business you’ve been dreaming of!)
I'm Michelle and can't wait to help you build the product-based business of your dreams.