Starting a soap making business requires research, choosing soap making supplies, manufacturing handmade soap and of course, making a profit out of it.
Now, before going out there and finally getting soap making kits available for purchase, make sure to correctly price the handmade soap to cover the costs and still make enough revenue out of quality soap recipes.
Here are the different pricing methods one should take note of to maximize the business’ profit margin, before arriving on the final retail selling price:
1. Penetration Pricing
The biggest challenge in launching a new handmade soap into the market is intense competition. To be given an opportunity for the customers to try your new soap handmade soap, one way to go about it is to price it relatively low and thus enter or penetrate the market. This tactic is setting a low initial entry price or what we usually see as an “introductory offer”.
On a short-term basis, introductory offer may not generate your soap business with surprising revenue increase due to the low profit margin. However, in the long run, being able to induce trial and capture a huge market share will reap long-term profitability.
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2. Fixed Amount Strategy
By the name itself, this method is all about determining and adding a fixed amount on top of your cost to arrive at your retail selling price.
This approach is widely used since those starting a soap business will know for certain the amount of gross profit margin each sale will generate. The con however, is that the amount may not reflect competitive pricing within the market. Here’s a sample formula:
Unit Cost X Markup % = Selling Price
$ 10.00 x 150% = $ 15.00
3. Psychological Pricing
This technique is used to assign certain price points where buyers may think they are getting a bargain for the handmade soap. This is based on the theory that certain amounts give a psychological impact on the purchasing behavior of buyers. Usually these target customers are looking for value for their money.
As an example, a potential buyer might think your soap priced at $15.00 is too much. But they might buy your item for the cost of $14.99 thinking this is cheaper.
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4. Bundle Pricing
This strategy is basically putting together two or more of your soap handmade soaps and selling them at a certain price that would be relatively lower if sold individually. This is a known method in selling out your slow-moving items by bundling them at a lower price altogether which can give a notion to your customers that you are giving them something for free.
You can also pair up a less bought soap with your bestselling one to induce trial for your bestselling soap patrons. Here’s a sample scenario:
Lavender Soap (Bestselling Item) = $10.00
Milk Soap = $8.00
Special Bundle Offer for Lavender + Milk Soap = $14.00
Take these strategies into consideration to make sure you still make a profit out of your soap business. Study the homemade soap industry and determine which method would best fit your handmade soap. In the long run, it’s all about having the tenacity to implement various methods in order to arrive with the pricing strategy that works for your business model.
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