Friday, November 28, 2008

Free-Enterprise Friday

(Continuing the sharing of my failed and successful experiences at getting a new product created.)

Once I received feedback from the Innovation Institute that my product idea in their opinion had a Mixed Feasibility score, I had to seriously consider their advice and decide if I was going to pursue this product or scrap it.

One of the concerns mentioned in my review was that I was selling the product for too much. After all, removable labels with an educational graphic can be home-made. They wouldn't be as nice or durable, but I had to find a price that would be "worth it" to these crafty-type moms too. Crafty-type moms are part of the demographic I am selling to, so I have to consider how to make my product appealing to them. The fact that mine were done by professionals would not be enough to get parents or teachers to plunk down $25 for 30 labels when they could make shoddy ones for 1/4 of that. So, I had to go back to the financial drawing board.

First, I looked to where I could cut costs. My cost sheet had items like Advertising, Storage, Packaging, Manufacturing, Internet, Legal, Office Supplies, and other miscellaneous costs. The greatest expense is manufacturing, so I began there.

NOTE = The manufacturer of my product also handles the packaging.

Was there a way I could decrease the per unit cost without sacrificing quality? Yes! I could increase the number of labels I ordered from the manufacturer. If I asked the manufacturer to make 5,000 labels instead of 1,000, I could reduce my manufacturing per unit cost significantly since the company I deal with decreases the per unit price the more I order. If your manufacturer is unwilling to offer discounted prices based on quantity, then you need to find another manufacturer.

Now, 5,000 of any product is a lot. You will not sell all 5,000 any time soon unless you get very, very lucky. You should plan on most of them sitting around for a while. With that in mind, depending on the nature of your product, you may not be able to store that many without added costs. However, in this case, labels don't wear down or take up much space, so I can easily store a large number without fear of damaging the quality of my product. I won't have to pay extra for storage or maintenance. Increase number of product manufactured = check!

Another significant savings would be to offer fewer labels per pack. Originally, I had designed 30 different labels. I reduced that number to 20 to further decrease the per unit price. Now, I had 20 labels per pack. Decrease number of labels per pack = check!

My wholesale price went from $12.00 per pack to $4.50 per pack.

Next week I'll explain wholesale versus retail prices and how I calculated profit.

1 comment:

Don said...

Fascinating. I really enjoy these evolutionary business posts. You are adaptable and determined. Go, Baby, go.