ï»żE98 Transcript
Think about the last price you set on something. How did you land on that number?
If the answer is "I don't know, it felt right," you're in the right place.
Weâre in the fourth part of a 6 part series on pricing and for some of you, this may have been an eye opener. Stay tuned!
In the last episode, I ended by asking what exactly the âNo Anchorâ maker is flinching at.
And The answer⊠is nothing. There's no number there to flinch at, because this maker never had a reference point to begin with. That's the third of the four pricing traps, and it's the one we're taking apart today.
Let's start with what it means to have âno anchor.â You ask this maker how they landed on their price, and they can't really explain it. There's no reasoning behind it. It was something that felt close enough at the time.
Notice what's missing from that picture. There's no fear in it anywhere, and nobodyâs protecting anything. The cause is missing or wrong information. The reference point was never there.
Here's the simplest way I can put it. There are two different numbers. The first is what it costs you to make the thing. The second is what someone will pay for that kind of thing. So to price something correctly, you really need both. The No Anchor maker usually has neither, or has only one.
And that matters, because a price with no anchor can't be defended, can't be adjusted, and can't even be judged right or wrong. You can't tell if it's too high or too low. You just have a number.
Just like the other traps weâve discussed, there are several types of people who live here. Three personalities can be found in this trap. The Guesser, the Chaser, and the Time Card. Letâs take a look at how they fit.
Our first one is the Guesser.
The Guesser picks a number out of thin air. The same item might get a different price at a different venue, and there's no real reason for it. Prices get set by how they feel that day. Or they use a formula they picked up somewhere, like materials times two or times three, and they couldn't tell you where it came from. Or they ask a friend or a family member what they'd pay, and go with that. I have heard these makers say âI asked my sister what she thought is was worth and she said she wouldnât pay more than $30.â And there it sits. Is it the right price â no one knows.
Now, letâs talk about a beginner. If you're just starting to sell, you have no sales history, no feel for the market, and no way to know yet. Your first price is going to be a guess. That's normal, and you're allowed to do it. Nobody starts out knowing.
Time fixes that one, as long as you use the time to collect information. Write down what you charged, what sold, how fast it sold, and what people said. Did it cover your costs, by how much? That's your reference point, and you build it by selling.
Here's where the difference is. The beginner who is guessing for now is just at the start. The maker who has been selling for years and is still guessing is choosing that. They've had the time, and they kept the guess.
When I started, I went the other way. Letâs take napkin sets, for example. I looked up what napkins were selling for elsewhere. I checked the pack sizes, whether it was 4, 6, or 8 in a set. I looked at how they were made. I checked every number on my costing page, I did a time study, and I ran a bunch of rounds of "if I charge this, I make that" before I landed on a price. That's what finding the second number looks like.
You may have to guess at the beginning and thatâs fine. But donât stay there. I worked for one design house early, early in my career. I was astounded to learn that they prices things at market by the âwhat can we got for itâ strategy. And I use that term loosely. They literally got a group together before market, help up the sample and asked the room, âwhat do you thin k we can get for it?â As a recent college grad, I found this strange, but who was I to question it. Needless to say they didnât last long. Shortly after I moved on, they closed. No wonder.
A guess is fine as a first draft. The trouble starts when it becomes a habit.
And I think I know why some people stay there. Not knowing gets comfortable. If you find out, you might have to face a number you don't like. The guesser usually does have a slight clue about what they spent getting there, so they arenât totally working in the dark like the Ostrich from episode 96
But here's the difference. The Ostrich won't do the math. The Guesser has done some of it, and has nothing to compare it to.
So here's the fix. Go find three to five real prices from makers who make what you make or something similar. Not a general market average, and not someone in a wildly different tier. Compare like for like, the way I did with the pack sizes and how the napkins were made. Then put a date on your calendar to look at your price again. I review my own numbers once or twice a year, and that habit works here too.
Next up is the Chaser.
The Chaser locks onto one competitor's price and sets theirs just under it. It doesn't matter whether their costs or their quality look anything like that other maker's.
If that sounds like the Follower from last time, here's the difference. The Follower stays inside a band of what everybody charges, to avoid standing out, and fear drives it. The Chaser picks one person and tucks in just under them. The Chaser is driven by missing information. They didn't have a reference point, so they grabbed the closest one.
And that's why some beginners land here as well. When you have nothing to compare to, the easiest thing to grab is the person at the next table. Beginners often do this while they're finding their spot.
The problem is that you inherit another maker's number, which could have been a guess too. It could come from different costs, a different quality level, or a different kind of customer. Priced just under a guess is still a guess.
And here is a huge piece of advice: trying to do this chasing business against factory made goods is a huge mistake. That is a contest handmade can never win.
Now, being aware of what other makers charge is useful. But donât make the mistake of having that your ONLY source of information.
Widen it. Look at three to five comparable makers, not one. Compare their costs and their quality to yours before you decide where you sit. And count the non-money attributes too, the design, the materials, how it's made. Your target audience (which is another episode entirely), the packaging. There are a lot of things that can set you apart from other makers. And remember, once youâve done your own research, stop chasing!
Next is the âTime Cardâ
The Time Card counts hours literally and turns them straight into a price. "I spent 40 hours, and I want to make $25 an hour, so it's worth $1,000 in labor."
The math is right. What's missing is the check. Will anyone pay that? And do 40 hours show up in what the buyer can see? Effort gets treated as the only input.
I think this one comes from hours being the one thing the maker is certain about. You can prove what you did, so the number feels fair. Labor is a real thing, and in the pricing world it is sometime the first piece that gets short changed.
Here's where it gets tricky. Take a zipper pouch. Say you add beautifully bound interior seams, and it takes an extra hour. If the buyer can't see it, appreciate it, or use it..it adds beauty put not valueâŠthat hour adds nothing they're willing to pay for. So, I recommend you design backward from a target price and cut any hidden labor the market won't pay for. Donât over-engineer it.
Now, I said labor is usually the first thing that gets shortchanged. Hereâs why. In the United States, we have a range of hourly wages we consider acceptable. Weâve also gotten used to paying as little as we can for what we buy. So we want the most pay for our own time and the lowest price on everything we purchase. Fair enough. But when you make things by hand, thatâs a hard fight to win. If you over-engineer a piece until the price canât cover your labor, you end up lowering your own wage to make it work.
Then there's speed. Letâs say a beginner takes five hours to make a bag and charges for five hours. Years later it takes an hour and a half. If youâre a âTime Cardâ and stick to pure hours math, becoming an expert is a pay cut. You can charge a flat labor fee, or you can raise your hourly rate. This is where at the beginning stages you may want to start at a lower rate than desirable and raise it as you get better. I do this. I donât; ever want to get to the point where I am being punished for getting good.
Labor is a real part of the formula, and your time counts. The problem is when hours are the only input.
So check your hours number against what people pay for that kind of item. Then ask which of those hours a buyer can actually see or use.
So whatâs the common thread in all of this? And even better â how do we fix it? All three are missing the same thing. A real second number. Nobody here is afraid, and nobody is protecting an image. They're working with incomplete information, and that's fixable.
The problem is the same across all three. The price lands in the wrong place by accident, and you can't tell if it's too high or too low.
If you're a beginner, the first guess is allowed. The only requirement is a date to check it against real results.
The fix has the same thread as the last two episodes, with a new piece. Build the second number from real prices, then decide on purpose.
Not knowing is fixable. Of all four traps, it may be the easiest to fix, because nothing emotional has to change first. You just need information. And you can get that in spades.
Now next week, weâll talk about our last group, the maker who isn't in any pain about their pricing at all. Theyâre the ones who think they have it right. Back in episode 95 I said these are the most fun to work on, because they don't think they need this conversation at all. And remember, I told you fear can ride underneath some of these. Yeah, bit this next group.
Iâll see you back here next week.
