4 MINUTE READ
If you have a passion for making gift baskets, you may have thought about starting your own business. While there are many elements to consider when starting a business, one important decision you will need to make is how to price your gift baskets to sell.
Whether you are already in the business or would like to get into it, developing a successful pricing strategy is crucial to your success. The price of each basket should cover all of your costs and generate a profit for your business, but it should not be so high that you are unable to attract customers and compete in the market.
This may seem like a difficult balance to achieve, but there are some simple steps you can take to help make the process easier. The main components of developing a pricing strategy include knowing your costs and knowing your market.
Know your costs
The first step in knowing how to price your baskets is to keep a detailed spreadsheet of all your business expenses, divided into categories. Be sure to account for all of your costs, right down to the tiniest detail, as these all impact your bottom line.
An obvious cost to running a gift basket business is physical materials. This includes both the gift items themselves, plus all the materials used for assembling and decorating, such as containers, fillers, wrapping, and bows.
Expenses that are not physical but are necessary for running your business are called overhead costs. Things like rent for your workspace and utilities such as a business phone and internet connection fall in this category.
Another behind-the-scenes cost to running a business is marketing and promotions. How do you plan to spread the word about your business? Any costs associated with managing a website or running ad campaigns should be included here.
Shipping and delivery
You should also factor in the costs of getting gift baskets to your customers. This includes not only the actual price paid to the shipping company but also the cost of any additional packaging material needed. If you are making deliveries, include a standard mileage rate in your delivery area. Or, you may choose to add this on as an extra fee outside of the price.
Lastly, don’t forget to account for labor costs. If you have employees, record their wages as an expense. If you are the only labor force, be sure to include a personal wage for yourself, too.
Once you have recorded all of your costs, add them up and divide them by the number of baskets you have created. This is your breakeven point or the minimum price you need to charge for each to cover your costs. Then, you need to decide how much to mark up each one to generate a sufficient profit.
This collection is pictured with a 10 in x 8 in x 2½ in wooden gift basket crate by Carpenter Core.
Know your market
Determining prices for a gift basket business is different than other businesses. Instead of deciding the markup on a single product for resale, you are pulling together many items from many different sources, and using your skill to put them together beautifully and creatively.
For gift basket businesses, profit margins are generally between 30-50% on average. You can typically reach this by applying a 100% markup or doubling the direct labor and material costs, including the container, gift, and wrapping materials. Deciding on an exact pricing strategy requires knowing your market well.
Start by identifying your competitors and learning about their products and pricing. While you won’t necessarily know their exact costs and profit margins, you should be able to estimate the value of their baskets and who their target customer is.
Find your niche
When determining your pricing, you may choose to position yourself at a lower price point with a lesser profit margin to attract more customers and sell more pieces, or you may decide to add more value to your baskets and position them at a higher price point to make more per piece. You may even choose to offer different tiers in size or quality in your product offerings to appeal to a wider range of customers.
By knowing your competitors and your market well, you can identify the areas where there is a need to fill, and tailor your product offerings and pricing to meet those needs.
Pricing gift baskets
Once you have established a method for calculating costs and understanding the market, determining a strategy to price gift baskets to sell becomes much clearer. The key is to fully know all of your direct and indirect costs as well as your competitors and your customers. From there, position yourself in a way that provides value and generates a profit. Over time, you’ll continue to find new ways to serve customers and keep growing.