Sometimes the hardest part about owning a candle business is setting prices for your products. Go too low and you risk losing money. But if you go too high, you might not be able to keep up with your competition.
Pricing candles is an overwhelming experience for many business owners. However, this post will guide you through pricing your handmade products to make it as painless as possible.
Steps for Setting Candle Prices
Pricing candles can be time consuming, and unfortunately, there's not a quick way to do it correctly. However, it's one of the most important parts of running a successful candle business. We'll cover each step in more detail, but here are the basics:
- Calculate your costs including materials and overhead.
- Determine your ideal customer, which will help you decide how much to charge.
- Account for the perceived value of your candles.
- Decide what you want your profit margin to be.
Step 1: Calculating Cost for Materials and Overhead
The first step to setting your prices is to understand how much per candle you're spending on materials and overhead. You add your materials and overhead together to get a total cost.
Materials (Variable Costs)
Raw materials would include any component you use to make each candle. In some candle pricing formulas, these costs may also be called variable costs. This is because the exact materials will vary from one candle to the next. Material costs may include:
- Wax
- Wicks
- Fragrance
- Additives (like dye)
- Containers
- Lids
- Candle boxes
- Product labels
- Printer ink for your labels
- Warning labels
Only include materials that the customer receives when they buy your candle. You don't need to include tools you reuse such as wick bars, your melting pot, or other equipment. Things like this would usually fit better with upfront business expenses.
If you sell online, don't forget to account for things like shipping boxes, bubble wrap, tape, and other physical shipping items.
Overhead (Fixed Costs)
Your overhead is the amount you spend to keep your business running. This includes things that you need to pay for regardless of what products you're making. Because overhead is usually more static, it is often called a fixed cost. Examples of fixed costs include:
- Website maintenance fees
- Studio space fees and/or utility fees
- Marketplace fees such as Etsy listing fees
- Credit card fees for transactions
- Business insurance
- Advertising fees
- Average shipping cost*
* Depending on what you sell, shipping costs may fit better in the Variable Costs section. If you mostly sell items that are similar in size/weight, you may end up paying a somewhat static amount for shipping. If you sell a wide assortment of things, you may need to consider shipping costs for each type of item separately. However, depending on your approach, shipping costs might actually fit better in your profit margin calculations (see last section).
Some candle making cost calculators will tell you to include labor in your fixed costs. You only need to do this if you are actually paying for labor or paying someone's wages. For example, you can account for labor if you have a virtual assistant or your business is large enough to have staff members.
Many pricing strategies over-complicate things by having you set an "hourly wage" for yourself. Quantifying how much you should make per hour is extremely subjective as a small business owner. Nevertheless, you can do this and include it in your fixed costs if it makes the calculations easier for you.Â
Total Cost Per Candle
After you determine your material and overhead costs, add them together to get your total cost. You can either determine the total cost per candle or your overall cost per month for the number of candles you plan on making. If you make a lot of candles, pricing might be easier when you look at your cost per month instead of what it costs to make one candle.
The best way to organize this information is in a spreadsheet. Keeping tabs for each individual product will help you quickly access all your pricing information.Â
Step 2: Determine Your Ideal Customer
Making candles that appeal to every customer would be great. However, it's unrealistic that every person will want to buy your specific candle. Pricing your candles will be much easier if you have a hypothetical customer in mind. When envisioning your ideal customer, consider things such as their:
- Age and gender
- Where they live
- Income level
- Hobbies and interests
- How much they're willing to spend on your product
The price of your candle alone can make it stand out to customers or turn them away. Some people are willing to pay a lot for candles, especially if you brand your candles in a way that adds perceived value. For example, using luxury fragrances or designing high-end labels will make a candle feel more expensive.
On the other hand, some customers are only willing to spend up to a certain dollar amount. If your ideal customer doesn't want to spend what you're charging, you could end up missing a lot of sales based on price alone. Keep in mind some people set price filters every time they shop, which could keep you out of the results entirely.
Step 3: Consider Perceived Value
Calculating your out of pocket expenses and envisioning a perfect customer is a relatively straightforward process. In the third step, everything is subjective.
Customers can choose from literally millions of different candles. Making your candles stand out can seem impossible. However, the wonderful thing about making candles to sell is that there's a niche market for essentially anything you can imagine.
If your candle solves a problem for a customer, it's instantly worth more than it was before. For example, maybe you offer customization on your labels - such as adding someone's name. It might only cost you a few extra pennies to print a special label, but to your customer, it's a far more valuable service.
Looking for ways to add intangible value is a great way to boost your profits for minimal effort. As an added benefit, most things that add perceived value don't significantly increase your out-of-pocket expenses.
Step 4: Determine Your Profit Margin
After going through the first three steps, you should have a much better idea of what your candles cost to make and how much they're worth. At this stage, you need to determine how much you want to make selling candles. This is your profit margin, which some people also call your product markup. It might seem obvious, but this is a crucial step so that you actually make money instead of just breaking even.
The amount you mark up your candles will vary depending on whether you want to sell retail (direct-to-consumers) or wholesale. Wholesale pricing is always lower than direct-to-consumer pricing because wholesale customers expect a bulk discount. This allows them to make a profit when reselling your items.
Many different techniques exist for calculating profit margin. Using a standard profit margin calculation is the simplest method for new candle businesses:
- Wholesale prices are usually double your cost per candle. Take your total cost per candle and multiply it by 2. This is your wholesale price.
- Retail prices are usually triple your cost per candle. Take your total cost per candle and multiply it by 3. This is your retail price.
As an alternative, you can use more of a market price approach. If you're willing to dive into some data and evaluate your competitors, you might prefer this method.
To sell at market prices, you will need to thoroughly research what competitors charge for candles similar to yours. Once you analyze this, you can adjust your pricing accordingly. You will get better results by comparing businesses similar in size to your own. If you're a sole proprietor and try matching candle prices at Target or Walmart, you'll almost certainly lose money.
Although it's good to be aware of products your customers might be comparing with yours, be careful using this as your only pricing method. You have no idea what the variable and overhead costs might be for your competitors. When pricing your candles for the first time, try different methods to ensure you're actually making a profit.
Account for Sales & Offers
When setting your desired profit margins, it's a good idea to give yourself some wiggle room to run sales and promos. For example, to offer free shipping while still making a profit, include the cost of shipping in your product prices. Likewise, if you plan on offering regular discounts, make sure your prices allow you to still make a profit during sales.