As a business owner or a potential one, the price that you decide to sell your goods at is a major decision that can affect the outcome of your business.
Having the lowest price or always being on sale might not be the best strategy. The price of an item is used to indicate it’s worth. If everyone could afford a mansion, it wouldn’t be a daydream for many people to live in one.
On the other hand, over-pricing your items will dissuade some people from buying it.
There is a delicate balance to make sure that you are priced high enough to make a profit but low enough that people are still buying your inventory.
When first starting out you may want to offer steeper discounts to build your customer base and your contact list. When people know they can get normally a high-priced, luxury item from you for a discount, then they will return to buy more. This is one reason why VIP groups in LLR circles are so revered. The benefits of being in one are amazing.
Trying to get new customers is difficult and can be very costly. You first have to find them, this can sometimes be the hardest part. Once you have found them and made contact, your next step is to convince them they need to buy something. Lastly, you need to have them complete a purchase. All in all, it is a long process with lots of opportunity for failure.
On the other hand, convincing someone you already know and who has purchased something before, is comparatively easy. After some time, this too can be difficult. You will one day reach customer saturation. This is the point when a certain customer won’t purchase anything more for awhile, either because their desire to purchase has been satiated or they don’t have the ability to purchase more.
Therefore, a successful business strategy is twofold: Try to get old customers to purchase again and get new customers to purchase for the first time.
One way to get return and new customers is to have pop-up parties hosted by your friends, family, and customers. These events are great networking tools in the purse of a LLR Consultant. The person who is hosting should invite people you have never met before which introduces new customers and you can invite old customers to buy again.
An important factor to consider is the Hostess gift. From an accounting perspective, you want this gift(s) to be as low in value as possible in order to increase your profits. From a marketing perspective, you want the gift(s) to be valuable enough that people are lining up to host the next pop-up. The goal is to find the right gift(s) that isn’t so costly that you lose money but high enough in value that there is motivation to host a party. A good idea might be to give the hostess a tiered reward. Meaning that the more sales that occur, the more or higher value gifts they could get.
Based on the calculations done in the first post in this series, Initial Investment, the LuLaRoe model has about a 60% gross margin. Meaning that when you make a sale, the cost of the article of clothing was about 40% of the sales price. That is fairly close to the industry average of clothing stores, which have a gross margin of 48.46%. This gives you some leeway in deciding how much in discounts you want to give out.
The Bottom Line
If you are unsure of how to price your inventory items, a good place to start in the suggested pricing the LLR provides. When starting it is a good strategy to offer discounts. As you business grows, those discounts might need adjusting.
So what do you think? Do you think that the LLR pricing structure is too high?
Which is better, Gold Fish or Cheez-Its?
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Statistical information for clothing store industry gathered from Free Industry Statistics at http://research.financial-projections.com/IndustryStats-GrossMargin.shtml