One of the most challenging aspects of running a handmade soap making business is determining how much you will charge per handmade soap that you are about to sell.
Going too low might not cover your handmade soap recipe costs or worse, it might correspond to losses on your end, like taking away quality fragrance oils from your recipes.
Pricing handmade soap making kits too high, however, might turn off your potential buyers, too. To find the sweet spot in pricing your merchandise, determine and calculate how much it will cost you. For starting a handmade soap business or any business, the universal formula to be used is:
(Raw Materials + Fixed Cost + Labor Cost) x Markup = Retail Price Per Piece
To achieve the minimum base production cost, add up the raw materials, fixed cost, and labor cost. This basically gives us an idea of how much the handmade soap is worth.
On the other hand, the markup or profit is the amount added on top of your base price to arrive at your selling price. To give you a better idea of each component, check out the 4 pricing aspects you should always consider:
1. Raw Material
Find out what type of handmade soap you want to sell in the first place. Your choice will ultimately be the baseline on how to price your products.
Will it be a bath bomb or an organic handmade soap? Perhaps it’s a fruity one or one with essential oils? This will also determine what method you are going to use. Will it be melt and pour, cold/hot process or milling, DIY bath bomb?
Each type will require different handmade soap supplies that may raise or lower your overall cost. See below for a sample breakdown of raw materials for a purple lavender handmade soap:
|Packaging (Wrapper, Jute String, Logo Print Out)||$10.00|
$ 58.50 / 75 pcs = $ 0.78
(Total Raw Materials / Number of Bars = Raw Material Cost per Bar)
2. Fixed Cost
Basically, fixed cost is the cost of running any business. This covers electricity, rent, and other utilities required to produce your handmade soap products.
Fixed cost may vary from month to month depending on your manufacturing consumption so it is important to accurately compute this to cover your monthly recurring expenses.
Assuming you’re working at home, here’s a sample calculation below, omitting the room/store rental:
|Equipment (i.g. Mold, Tools)||$45.00|
(Monthly Fixed Cost / Number of Bars = Fixed cost per bar)
3. Labor and Manufacturing
Never ignore your own labor costs. Determine how much per hour will you charge for yourself and establish how many hours it would take to complete a batch of your handmade soaps.
Don’t forget to factor in your prep time, cleaning up and doing your own packaging. These would already give you a rough estimate of your own monthly rate. Here’s an example:
|Making the handmade soap||$15.00|
2hrs & 30min x $10.00 per hr / 75pcs = $0.33
(Hours x Hourly Rate / Number of Bars = Labor cost per Bar)
After figuring out how much your handmade soap bar costs, it’s time to include your revenue per product sold or your markup. Adding this to your base production cost will ultimately give you your final retail price. Experts recommend markup of 150%-200% or multiplying the base cost by 2.5 to 3.
Based on our sample above, here’s the final selling price of the lavender bar handmade soap:
(Raw Materials $0.78 + Fixed Cost $0.40 + Labor Cost $0.33) x 2.5 Markup = Retail Price Per Piece $3.78
All these aspects are what makes up the overall pricing of your handmade soap making business. Keep in mind to work on a trial and error basis by adjusting your costs and experimenting on your mark up in order to find the right price for your homemade handmade soap products.
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