Product pricing when insurance and web hosting is expensive

[LilyJane]

I started my soy candle business last fall, and my profit margin was good enough that I could sell wholesale at half the price of retail. But once I got insurance ($450 a year) and a Shopify website ($29 a month) and divided the costs out as best I could to factor them into the price of each candle, my prices are no longer profitable – ie, for wholesale, I would have to charge almost $50 for a 10 ounce candle to even make a small profit. All my other expenses are fairly low: wax and FO are both under $2 per candle, and the container and lid together cost less than $4 per candle. Even if I was only using cheap mason jars, I wouldn't be making a profit via wholesale. These are high-end/luxury candles, but I don't want to charge more than $36 or so.

 

My question is, do you factor your insurance cost into your product price? If so, how do you make it work?

 

[BusyBee]

Have you figured out your monthly production capacity?  There are a lot more things you need to look at when it comes to candle business accounting.  

 

1.  Direct raw material costs:  Wax, FO, wick, container, labels, dye, additives, wick glue

2.  Inventory cost:  Raw material inventories, Work in progress inventories, Finished goods inventories

3.  Labor to manufacturer a candle cost:  Labor in dollar figures per candle (How much does a candle maker employee makes in your area?)

4.  Labor to operate candle business cost:  How much does a candle company operation or sales people makes in your area?

5.  Employee tax, work comp & benefit costs:  Pretty soon you will need to hire extra hands.

6.  Indirect material costs:  Container cleaning supplies, paper towels

7.  Packing material costs:  Packing box, Shipping box, Packing material

8.  Shipping or delivery costs

9.  Business registration and license fees:  In California, it takes about $1,000 per year to register candle business as LLC.

10.  Insurances:  Business liability, Product liability, Asset protection (Home based business: Is your home insurance covered when you run candle business at your house?), Auto insurance(I am pretty sure that you will be using your car for your business.), Work comp if you have employee

11.  Rent:  Even if you are home based, this applies because we need a space to make candles.

12.  Operating costs:  Utilities, Phone, Internet, Auto gas, Maintenances, Repairs, etc.

13.  Accounting fees:  About $800 per year when you are small.

14.  Research and Development cost:  Ask other candle makers how much they have spent on this!

15.  Marketing research cost:  It seems like this does not cost anything since we are getting most answers from online search.  But it takes man power to do this.  Labor costs plus internet fee!

16.  Marketing fees:  Brochures, Free samples, Advertising, Online marketing

17.  Domain and Web hosting cost

18.  3rd party online sales platform fees:  This is the killer!

19.  Credit card processing fees:  Another silent killer!

20.  Bank fees

21.  Office supplies

22.  Machineries and equipment costs plus maintenance:  Computer, Printer, Wax melting machine, Pouring devices, Storage and racks

*And there are many other small and totally unexpected business running costs!

 

You will need to figure out all of the above and start calculating.  Your targeted market and material costs will be most important part of your candle pricing strategy.  Most other fixed overheads and operating costs will give you the number of candles that you will need to sell in order to stay afloat.  That's when your production capacity comes into a factor.  Can you manufacturer enough to cover the cost and being profitable?

 

Even if we start very small and have low overheads, there would be no profit for about first 200 to 500 candle sales(depending on your profit margin) per every month due to fixed overhead and operating costs.  That's a lot of time and effort you will need to spend without making any profit.

[kandlekrazy]

I would just like to add that "wholesale" on really anything does not have to be 50% off.  I purchased soap wholesale for many years and wholesale was between 25-30% in most cases.  I sold candles & melts wholesale at 30% off my retail, what the buyer sold at was higher than my retail.

[TallTayl]

Welcome to the complex side of a candle business. It is good that you noticed early how thin margins really can be. now course correct and actually become profitable by confidently raising your product prices.
 

your calculations above are a small snapshot in time to measure business health. The hardest part is to create a business plan to become aware of all the costs, both very obvious like materials, and hidden like overhead. Once you know your overall cost to operate without selling a single candle, then you can begin to understand how the old guideline of wholesale being cost x 2 and retail at cost x 3 are really out of whack with reality! Here would never be any money to reinvest if we look only at that! 

I pared back hard on wholesale since they eat into overall profitability. The reseller always makes more profit and has none of the risk.  order volumes need to be quite high and margins thick enough to not lose money. I would rather sit on the couch watching Netflix and petting my dog than work for what amounts to free. 

 

[TallTayl]

8 minutes ago, kandlekrazy said:

I would just like to add that "wholesale" on really anything does not have to be 50% off.  I purchased soap wholesale for many years and wholesale was between 25-30% in most cases.  I sold candles & melts wholesale at 30% off my retail, what the buyer sold at was higher than my retail.

Agreed! The half of retail is expected but not a rule. It comes down to how unique your product is compare to the marketplace. 
 

Most products I don’t offer wholesale because it is just not financially worth the time, risk or trouble for me to do it.  I would need to raise my retail prices to even consider growing the wholesale side  again. 
 

[BusyBee]

I am doing wholesale only, and my pricing is strictly based on wholesale.  This is my pricing chart.

*Note:  If you are starting out and you are the only one in the company, then "Cost of Manufacturing Labor" is your profit also until you hire a helper.  This cost can be reduced by 40% if you invest in $2,500 wax dispensing gun system.  And other city's labor cost would be a lot lower than my city, which is Los Angeles CA where cost of labor is high.  It will cost me minimum of $18 per hour plus employee tax and benefits to hire a helper in Los Angeles.

 

 

I work with very thin margin on 14oz tins.  But it is okay because they usually order 300 to 2,500 per order from each account.  9oz jar would be 100 or 200 per order, and 13.5oz Tumbler would be 10 to 50 per order.  12.5oz Status Jars are my newly developed candle for new targeted market.

 

Study your targeted market and figure out the targeted retail price and possible sales volume first.  My "Target Retail Price" is the pricing & container design that would work well for my each targeted markets in Los Angeles.  When you know those figures, then you will kind of see whether your manufacturing cost would work for you or not.  

 

Container cost would be the most expensive part of manufacturing cost, and I had to find the one within my budget that would work well for my targeted market. 

*Appearance is important too, but pricing & budget strategy should be higher priority!

[LilyJane]

@BusyBee Yes, I've factored all of those things into my pricing already as well. However, I don't give myself a salary because I can't afford to yet. I'm barely selling anything right now. Thanks for the helpful spreadsheet!

Edited March 25, 2021 by LilyJane