January 5, 2011 AT 9:24 am
“Ten Rules for Maker Businesses” by Wired & DIY Drone’s Chris Anderson Chris Anderson
“Ten Rules for Maker Businesses” by Wired & DIY Drone’s Chris Anderson via Adafruit forums.
Thus the rule of 2.3x. You should price your product at at least 2.3 times its cost to allow for at least one 50% margin for you and another 50% margin for your retailer (1.5 x 1.5 = 2.25).
That first 50% margin for you is really mostly covering the hidden costs of doing business at scale that you hadn’t thought of when you first started, from the employees that you didn’t think you’d have to hire to the insurance you didn’t think you’d need to take out and the customer support and returns you never expected. And the 50% margin for the third-party retailers is just the way retail works.
(Actually most companies base their model on a 60% margin, which would lead to a 2.6x multiplier, but I’m applying a bit of a discount to capture that initial Maker altruism.)
So your $20 kit should have been priced at $46, not $25. It may feel steep to you now, but if you don’t get the price right at the start, you won’t be able to keep making them, and everyone loses. It’s the difference between a hobby and a real business.
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