September 5, 2011

Pricing Products for interiors

Pricing Products for Interiors

This article shows a method of determining how you can go about pricing products for interiors. If you are trading as a decorator or designer in this industry then this is an essential tool and if you are not then its a useful exercise in getting to know your retail clients. The more they think you understand their business the more they will have confidence in your abilities.

Simply this is an exercise in calculating the direct costs of your materials, your labor and then marking up the cost of the materials and labor to recover your overheads and provide yourself or your company with a profit.

For Example in Retail

You have a cost of the materials to be sold. ( Example – furnishing fabrics) this is easily going to be $150,000 to $500,000 over the course of a year.

Let’s say its somewhere between the $150,000 and the $500,000

Cost of materials $375,000

Wages (labor) $35,000

Overheads for the year $100,000

And the desired profit $80,000

Total of other costs and overhead to recover is $590,000

Therefore our mark-up required on the goods is determined by dividing the overhead into the cost of materials $215,000/$375,000 =57%

You will need to mark-up all goods to be sold by a minimum 57%

Exercise (A) Pricing Products for Interiors

Purchased materials is expected to be $225,0000

Wages for you and a part time staffer $80,000

Overheads for the (rent, power, phone Insurance etc) $50,000

Your desired profit $80,000

The total of the overhead to be recovered $210,000

Your mark-up required is at the bottom of the page. Don’t look until you’ve done the exercise hint $210,000/$225,000

Exercise (B) Pricing Products for Interiors

Calculate the mark up required for each product

Expected wages $50,000

Expenses $30,000

Profit $70,000

Over heads are to be allocated differently for two items that your design retail shop is going to sell.

Roles of curtain lining get 2/3 allocation and item B Roles of silk curtain fabric get a 1/3 allocation

Purchase of curtain lining $120,000 and purchase of silk curtain fabric $150,000

To work this out we total the overhead and then allocate the 2/3 and 1/3 of the total overhead to each of the respective products and do the division that we learnt in the previous example.

we have a total overhead of $150,000

2/3 x $150,000 is $100,000 and a 1/3 is?

Therefore the curtain lining must have a greater mark-up than the silk curtain fabric. The answers are at the bottom of the page.

There are many systems that give an answer to markup but a simple table illustrated here gives you the idea at a glance. Mark up as much as the market will bare. There will be a time when you need to give the perception of discounting or have different prices for the public and those for your wholesale customers. This become part and parcel of your marketing strategy but more about that later.

% mark up on cost % profit margin

10% 9%

20% 17%

25% 20%

33% 25%

40% 29%

50% 33%

67% 40%

75% 43%

100% 50%

Of course this system works equally well for all businesses but the examples should help you relate it to your own for interior design and interior decoration traders.

Answers to Questions Above

(A) 93%

(B) 83% and 33%