Monday, May 10, 2010

Pricing: The Dollars and Sense and What Would Happen if I Die

What goes into the price of a product?

First and foremost, we pay the artists a fair price for their labor. We buy the materials they need to make their products. Some of our artists pay rent for a place to work, so that gets covered. We also pay for the other costs of running their businesses including transporting the pieces to port, packaging materials, etc.

After the pieces are made, we have to pay to get the pieces to the US. Since the stone pieces are so heavy, we almost always ship by container. Shipping often doubles the price, sometimes even more. If we shipped in less-than-container loads, shipping could easily quadruple the price.

(On my first trip to Zimbabwe, I picked out a small sampling of pieces, no more than two boxes. When I got back to the States I asked them to ship them to me. They said it would cost $600. That was 8 years ago. This is why I ship by container; otherwise prices would be much higher than they are right now!)

The type of product I sell influences the warehouse space I need to pay for. The earrings don't take much space at all, but the stone pieces take quite a bit of space. Then there's more packaging material, all the costs associated with running a business (utilities, etc. etc.), plus the money it costs to pay someone to pack all of the boxes and actually run the company. Granted, at this point I'm the one who does most of this, and I'm very cheap labor, but as we grow, we need to pay someone so that we can keep up with demand and get orders out in a timely manner.

Sometimes there's the cost of a rep commission or other marketing charges. Then the pieces need to be shipped again. And after all of that, the store needs to put their mark-up on the piece so they can keep their lights on, too!

So all of the money doesn't go back to the artist?

No, but they are paid first and are paid a fair wage. Keep in mind that a fair wage in Kenya is very different from what would be fair in the US. The price structure allows us to pay them a fair wage now, and one that they can rely on in the future should we sustain the business over time.

It's the last point, the sustainability point, that I need to remind myself of. It is very important to me that this business is sustainable. I want Venture Imports to be a viable business so that no matter what happens to me, my customers and the artisans with whom I work will be OK. There are lots of good reasons why people get out of business (family issues, etc.), but should anything like that ever arise for me, I want to make sure that someone else could pick up the reins and the company would still run smoothly.

Right now the only person I'm not paying the correct amount of money to is myself, and I'm OK with that, but the company's sustainability should not hinge solely on this sacrifice.

I also sell to stores whose owners and managers sacrifice a great deal as well (I know! I've visited many of you and talked to you at all hours of the day and night!). They need to mark the product up, just like I do, so that they can keep themselves in business. Even stores that are completely volunteer-run have to pay rent and utilities.

In my opinion, this is good. When we're all taking care of our businesses, we're ensuring, as much as possible, that we will continue to be able to buy from the artisans for years to come.

I like working with stores for many reasons. I am continually impressed at your dedication and the amount of work you do! You are marketing your businesses, educating customers, sweeping floors, running reports, and on and on. I love that we're all playing a part in helping to keep people employed all over the globe.

So why are you raising prices?

As I alluded to earlier, I always have to keep three things in the back of my head, especially when making pricing decisions:

1) How does this affect my artisans?

2) How does this affect my customers?

3) How will this affect the long-term sustainability of the company (and the long-term relationship with my artisans and customers)?

When I took over the Kisii stone line, I found that there were some pieces that cost more than my sale price. This is partly because of the great cost of shipping. Obviously this is not sustainable and would quickly put me out of business, leaving the artisans with no orders and the customers with no product!

There were some pieces for which the demand was not terribly high. They were tying up dollars and warehouse space leaving me less able to buy better selling products. I dropped those pieces. I also worked on ways to make the process more efficient - ways to cut shipping costs, etc. When I'd exhausted those ideas, I had to raise prices to a level that will hopefully still be good for the customer, but also allow me to continue buying from the artisans.

What difference do preorders make? Why do you like talking to store owners so much?

Well, there are lots of reasons I like talking to store owners and managers! I love getting feedback, and I want to give you the best selling product ever so we can keep this thing going!

But specifically regarding the preorders and/or ordering patterns of customers, this is huge for me. One of the hidden costs involved in pricing is the cost of unsold merchandise. As I mentioned before, to keep prices low I have to order by container load so that the cost of shipping will be spread out over a large number of pieces. The more pieces I can fit into a container, the lower the shipping cost per piece will be. But the more I fit into a container, the more I have to pay up front and the longer it takes to ship.

While shipping by container load helps keep prices low, it also causes a lot of problems. It takes a long time for the artisans to make that many pieces (we're working on ways to cut this time down, but inevitably hand-made products will take some time to make). I pay for the pieces 6-8 months before I ever receive them. That means I have to order what I think I will sell 6 months to a year in the future.

Of course I look at my reports of what I sold last year, but for some products (new products for me like the Kisii stone), I don't have a lot to go on. Since I have limited capital, I have to do my best to order only what people will want in 6 months to a year. If I know that stores are loving one particular piece more than others, I'll spend more money to load up on that piece. That way I don't waste money and warehouse space on products that don't sell, and artists aren't wasting time making pieces we don't need.

Of course I know that store owners/managers don't always know what's going to happen with their stores 6 months from now either, but the more information I have, the better decisions I should be able to make.

Will it ever get easier?

I sure hope so! :-) And I believe so, too. The more business we do, the more often I'll be able to order. If I'm continually ordering containers, then we won't have to wait for one piece to be done before we ship a container. For example, nativities take a long time to make, but they can't get bumped to a spring container, because we really need them for the fall. If I had a container coming every month, I wouldn't have to hold up a container for one piece like that.

And the longer history I have with a product, the more data I'll have to make decisions.

If we to continue to grow, there are a number of efficiencies I hope to take advantage of and pass on to my customers.

1 comment:

  1. Jen, you really hit the nail on the head. I really wonder if we'd ever see a write up like this (and to feel the your anxiety about raising prices) from execs at factories mass producing products we buy and use child or sweatshop labor. Doubtful.

    As I work with our artisans in South Africa, also struggling to ensure they are paid a fair wage while still keeping my expenses as low as possible to make the price point such that a retailer can sell it in their shop, there is a fine line with what is and what isn't sustainable. Selling fair trade products at a loss (to you, not the artisans) is really not sustainable because as you reference in your post, if something were to happen to you, it will be hard to find someone else willing to take over your business if they aren't getting a decent salary.

    It's tough, no doubt, but it sounds like you have some amazing retail customers who understand the need to share WHY it's important that we support fair trade and the complexities behind bringing products to market!

    Good luck, Jen! Thank you for sharing!