Pricing Based on Perceived Value

Last post, we talked about a basic formula for pricing your products.

Cost of Good X 2 = Wholesale Cost
Wholesale cost X 2-2.5 = Retail Cost

Since I am a gourmet food producer, the formula works well for me.  I know exactly what my costs are, how much time it takes to make a batch of sauces/jam etc., and I know what the market will bear.  But if you handcraft your products, pricing based on perceived value may be the most important factor in your pricing.

Let me give you an example:  Pricing Based on Perceived Value

One of my friends on LinkedIn makes jewelry out of recycled products.  According to her website, she “gathers old metal objects such as copper and aluminum from abandoned buildings, old car and appliance parts, radiators and irrigation pipes.”

If she used the formula I listed above, she would be giving her products away at a ridiculously low price!  Since her material costs are low, she needed to price based on perceived value — meaning, positioning her products as “low impact”, ” Eco-conscience” and, thus, invaluable!!

Confused about “perceived value” and what it is?  Here are comments on “perceived value” and how it relates to pricing:

  • “Pricing isn’t just about following a formula, though. It’s very much based on perceived value. People often have a preconceived idea of what an item should cost so you have to find a balance between what you think your item is worth and what buyers are willing to pay.” — Handmade Artists blog
  • “Increase the perceived value of your work. The more information you share about your collection, the better. Add value by skillfully telling your story and describing your technique. You might talk about the scarcity of your materials, or what makes your artwork so unique. Don’t forget to focus on the benefits to the customer; after all, customers care most about what’s in it for them.” — Arts Business Institute
  • “If you charge too low, you are not only cheapening the perceived value of your own work, you are also cheapening the work of others because the public learns to think that some jewelers who charge what they are worth, are charging too much.” — Handmadeology

As you can see, pricing based on perceived value is not as cut and dry as using a simple formula.  My friend with the low impact jewelry suggested you start with sharpening your pencil and figure out your exact costs. From there, check what the general market value of products similar to your own.

Perceived value is further developed through your marketing material, your packaging, and the way you present your handcrafted items.

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