Thursday, July 12, 2012

The Dirty M Word Part 2: How to use your average item price

Good Morning Class! Did you all complete your homework?

If you didn't, perhaps go back to this post and see how to figure out your average item price.

So let's discuss some questions you may have about how your average item price may/may not affect your sales.

1) How does my average item price affect my sales?

In short, it doesn't. What it does affect, is the type and quantity of work you make. It is merely an means, or production strategy to your end result, or your sales number.

2) My average item price is very low. How do I change it?

There are two ways to raise your average item price. The first is to make more product. This is a double edge sword because you'll have to make much more product. Let's take a look at the example I used last time, where our average item price was $10 and our sales were $1000.

Remember: SALES = Quantity(Average Item Price)


That meant, you would have to sell 100 pairs of earrings with an AIP of $10 to have $1000 in sales. Let's say you adjust your inventory to your next show so your AIP is $20:

100(20)= $2000

Let's look at the ways we can increase our AIP:

a) Make MORE product of a higher price point. While a piece of jewelry that is lower priced may sell easier, you have to make a least twice or more of it to equal the same as selling one piece that  is more expensive.

b) Use more expensive/exclusive materials that can demand a higher price point. If you're producing in a large quantity, you can often buy more expensive materials in bulk without deeply cutting into your profit margin, but the market will dictate a higher price because you've used more costly or precious materials.

c) Check your inventory to make sure it is well rounded. Your average item price could be low because you've overproduced your more inexpensive items and overlooked more expensive items.

3)Should you always try to raise your AIP?

No, it may not always be to your benefit to raise your AIP. As an artist, you should look at all of the shows and sales you make and analyze both the sales, the show, and the type of customers that not only attend but also PURCHASE. If you sell at mostly church bazaars and small local shows, it may not be in your benefit to RAISE your AIP, because those shows may not bear the weight of a higher AIP. In contrast, those types of shows may also not have the SALES or Customers to justify the QUANTITY of a lower AIP.


What questions do you have about SALES that I can help answer???


stacilouise said...

There is not enough coffee in my cup to absorb this;) (I kid) I think its wonderful you are posting this information. Many of us artists do view this stuff as a "bad word". But it is helpful. I have used this to estimate how much I will need to make a certain $$$ amount at a show.

Julie Holmes said...

Very helpful information Barbara! Thank you!

Artisan Beads Plus said...

Wow! I don't think I can be this efficient. Pricing is always very difficult particularly when selling online. There is so much competition with similar items that I'm not sure how to adjust my pricing. I try to fall anywhere between what I perceive as very high and very low. I've only done one VERY small show and in comparison to a couple of other people selling very inexpensive (and materials were as well) items, mine looked even higher to someone who does not really know the difference. Does that make sense?

Linda said...

This is a very interesting series, and I hope you will continue. I'm certainly designing higher priced items than when I first started out, but it is hard sometimes to find/court the customers who will pay the higher price point because they want something unique, handmade and of higher quality. I was at a recent local Etsy Team show where people kept oooing and aaahing over one particular bracelet that had several art beads in it. As soon as they saw the price, they would put the bracelet back down I know you have to choose your shows carefully, but even so, lots of people balk at higher price tags.

Barbara said...

I get that totally MaryAnn and I think that falls in to a completely different category about choosing the right shows.....hmmmm. another post?

mairedodd said...

very good information - i think it allows one to stand back a bit and see how their work hours, materials and vision are viewed by themselves... makers have a hard time pricing... i know though that i do not believe that it is strictly a labor cost + materials cost equation (nor do you, barbara)... knowledge and vision play into it as well - and as these are not measurable, it just gets us more confused! thank you for all of the time you have put into these posts... for those who are looking to make a certain amount a day to live, it surely is helpful...

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