Rules to follow when
setting a price for your perfume
In brief —
The price of a perfume depends on the environment in which it is sold.
The price must cover all costs and leave you with a profit.
Working backward, you discover what you can afford to pay to produce your perfume – and if you can't produce it for this cost or less, profit becomes impossible.
There is a formula for setting a retail price for your perfume. This formula won't give you an exact retail price but it will give you a tight range within which to set your price. To work this formula you first must gather up some data.
Lesson # 1 — The retail price you can set for your perfume is limited by the environment in which is will be sold
This means you have to look at where your perfume will be sold and what fragrances are being sold in that same retailing environment. If your perfume is being developed for high end boutiques, you have to look at how others are pricing their fragrances in this market. Your price should fall somewhere in the range of what others are charging. Why? Because this is what buyers expect.
If you're selling in a middle market or a bargain shopper market, again you must look at what others are charging. This tells you the price range buyers find acceptable. Pricing your fragrance higher or lower puzzles buyers. They start feeling you're doing something wrong, that you don't understand what you're doing, and they become suspicious. This hurts sales.
Lesson # 2 — Selling environment is just the starting point
From your planned retailing environment you can make an estimate of how your perfume should be priced. But this is only an estimate. Now you have to work backwards from that estimate to establish the most you can afford to pay to produce a bottle of your perfume.
To get this number you start with your anticipated retail price. Then you subtract the portion of that price that you will not receive, the discount that will be given to retailers, which should range from 40 to 60 percent, depending on the relationship you are able to develop with stores. Don't count on everyone paying you the same price. You may want certain stores to take your fragrance for the prestige. In other cases you'll just offer a "standard" discount and hope that you can get it. Now for distributors.
If you plan to distribute your fragrance widely, you will use various distributors and jobbers. Now you must allow for the discounts they will want. Then – take a deep breath – you'll want to allow yourself some money for advertising, administrative costs, and returns. After these considerations you must still allow for the cost of producing your perfume – and your profit.
As you take each of these costs into consideration, you begin to understand just how important your production cost has become. Now looking at these obligations, you begin to ask yourself, "Can I do it? Is it even possible for me to make a profit?"
Lesson #3 — Eliminate all non-essential production costs
Some of the lessons: alcohol costs less than perfume oil. Don't go overboard using oil when you could be using alcohol (In most cases this will please your buyers. They don't really want a heavy fragrance!) Water is less costly than alcohol. Don't use pure alcohol when you can use a pleasant alcohol/water blend. Don't aspire to a custom bottle when so many good stock designs are available. Women will prefer a spray pump over a splash bottle. For men, splash is a good choice and a cap is a good deal cheaper than a spray pump (although a sprinkler neck bottle may cost you a few pennies extra.)
And the fragrance itself. "All natural" is good but presents some challenges. Some natural ingredients are cheap but the really lovely ones are quite expensive. That is why the industry has struggled to develop excellent synthetic substitutes. That may sound like heresy to you but, unless you're marketing your fragrance to a very aware, picky audience of people who will pay more, avoid those beautiful expensive naturals or blend just a tiny bit with your synthetics to give them more character.
When you've finally got it together and whittled your cost down to something reasonable, look at where you stand on potential profit. After you've covered the cost to produce your fragrance and all the costs mentioned above, how much profit are you going to squeeze out of every bottle you sell? That's the number you have to look at when you decide whether or not to go ahead with your project.
If you want to read more about trimming costs and producing your fragrance at a cost that will give you a good markup, read Creating Your Own Perfume With A 1700 Percent Markup! It's available as an instant pdf download and, as a photo-illustrated softcover at Amazon.
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