Tips For African Fashion Entrepreneurs
Know your market
Look around and see what people are paying for similar goods and what your competitors are charging. This is a risky method since you are not considering your costs when applying this.
Work out your cost.
At the very least you want your earnings to be more than what it cost you to produce the goods in the first place. This includes your labor, cost of electricity, cost of fabric(if you are the one providing it. Might be different if customer is bringing their own).
This method will also require you to know your business well. Good record keeping is your friend. Determine the average number of orders you get per month. If you get 100 individual orders in a year, this gives you an average of about 8 orders a month
Determine your fixed cost for the month. E.g. cost to rent shop, salaries, etc. For example, if your fixed costs total up to 10,000 and you have 8 average monthly orders . Then the fixed cost of one good produced will be 10,000/8. This gives you the base of your pricing model.
Determine the variable cost to produce the product. For example if extra embroidery work was done, consider adding cost of thread, needles, electricity and labor.
Add these figures together and that will give you the break-even amount. This the amount that your business will need to stay afloat (not necessarily making a profit) However one has to be careful not to stay in this status for too long.
Cost- plus pricing model
This method adds a mark-up to your break-even amount.So if your competitors are pricing their goods at Ksh. 5,000 and it cost you Ksh. 3000 to produce a similar good, you can price it similarly (a 2,000 markup )to be competitive.
Additionally you can mark up the breakeven point by a percentage that you deem acceptable. Eg if you think making 15% on your breakeven price is sustainable for your business. You can add that 15% to the frice. 3000+ (15%of 3,000)= the price of the good.
Consider your growth goals when using this method. Make sure you allow for money to grow your business.
Consider payment terms.
If the product you are making can be paid for over a duration for time e.g wedding dress. You can agree on payment terms with your customer. You can give incentive for the client to pay early by discounting or charge them more for the convenience of paying over a duration of time.
Remember to consider factors such as VAT or seasonal demand changes and act accordingly. Your prices should change to reflect the demand for your products as well as improvements on quality or high volume seasons of the year.
Lastly, it is important to keep yourself informed of the trends, your costs and your comeptitors. Prices never stay the same for too long. Make sure you talk with your customers to keep your prices competitive. Shift your prices with changing markets and most importantly, keep data! You will learn a lot more over the duration of time in terms of patterns and trends.
Don’t be afraid to test out new prices, how else would you know your customers are ready to pay more for your products? Especially if you are the best tailor in town? Be smart, be strategic, be brave.