Sourcing and Defining Volume Pricing Is an Absolute Must for Aspiring Consumer Product Entrepreneurs

I have been mentoring a young female entrepreneur for several months. She is not a client of my Consumer Product Branding and Marketing Consulting Techniques firm. This earnest lady has a very interesting concept in the Infant and Juvenile product space. Like so many aspiring first time business owners she is confused about how to best organize her enterprise and move from a hobby project to a fully commercial model.
As we discuss her projects status she states that her cost of goods is too high. This is because she is producing in very low volumes and utilizing domestic manufacturing sources. The test marketing and focus groups she has conducted are thus flawed. In order to gain proper due diligence from which to construct an accurate Sales Model, entrepreneurs must be able to ascertain an absolutely tight Cost of Goods.
Short run, hobby business-like volumes represent a distortion of the Sales Model. Unless the entrepreneur wishes to operate a low volume artisanal business it is vitally important to find the best sources of supply and manufacturing and to develop the accurate cost of mass production in hand with the chosen supplier.
We ask our sources of supply for dead-net Cost of Goods pricing for production runs that would approximate mass market distribution models. Dead-net Cost of Goods includes the total amount charged to fully assemble and package an item, plus international freight, customs, duties (if any) and local freight to a Fulfillment center.
The young lady I am mentoring has made the very common mistake of utilizing the much higher Cost of Goods she is currently absorbing based on low volume production and trying to force her Infant travel accessory items to market at a price point that is not viable. Test markets are only useful if the data received is based on solid Marketing fundamentals. Most test markets are not conducted with a goal of making profit. They are laboratories to learn about consumer acceptance, pricing objections, Branding effectiveness, etc. Test marketing saves time, money and mistakes when a product is finally launched after alterations to Marketing Strategies are made.
Take a simple component such as a 12 ounce plastic food bottle. The purchase of a stock Boston Round bottle in quantities of one hundred for testing might be $.25. In purchase volumes of 25,000 the price may drop to $.15 per unit. This type of Business Law Group Colorado Springs differential, when applied to every component listed on a Consumer Product’s Bill of Materials will reflect a huge pricing differential. This has a massive effect on the ultimate optimal retail price that consumers will pay for the product.
One of the reasons usually stated for not obtaining a mass production Cost of Goods is a lack of knowledge. The entrepreneur does not know of specific factories or sources of supplies. The internet, social media and business directories today make this work so much easier than when I started my first business 36 years ago. The information and networks exist that actually make this process straightforward today.
Unless pricing for a full channel of distribution is not gleaned none of the assumptions that are used to create a business model will hold up. Sales projections, Business Plan elements, procuring investment from Venture capital sources, Marketing Strategies and many more enterprise building blocks will crumble. Take the time and expend the energy to diligently uncover the most accurate Cost of Goods for your products.

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