EP335: How to Handle Inflation and Pricing Without Creating Price Resistance
Everything is a percentage of your sales price. So if your costs go up, you have to raise your prices to maintain your margins or cut your expenses somewhere else.
In this podcast episode, I'll be interviewing Jason Ayers. He is a mindset coach in our Momentum program, my life partner, and an amazing business coach.
He works with $1MM to $10MM companies to help them optimize and streamline their business to increase their profit margins and live a better life doing what they love.
Today, we have a complex and overwhelming topic, and it's about inflation and how that affects your pricing strategy as a jewelry business.
So Jason will help us break it down and simplify it as much as possible.
Just a quick backstory about our topic…
One of my consulting clients has a very successful business and has nearly half a million dollars in sales, but she's making zero money. In fact, she was really struggling to even pay for business license renewal. And she couldn't figure out why, so we dove deep into pricing.
I know pricing is one of the most sensitive topics and one of people's biggest struggles in the jewelry business.
So today, we're going to help you address this head-on.
We explain how you should be pricing your jewelry and how you can feel confident in raising your prices without feeling like you're going to repel your customers.
What is inflation?
There are some beliefs that you could be holding on to or operating in the background. And they can turn into your “creativity crushers” or “success crushers.Inflation is essentially a decline in the purchasing power of a given currency over a period of time. So your money buys less over time if there’s inflation.
Let's look at a real quick example.
In the 1980s, one pound of bread cost $0.50. Then in 1990, it was $0.75, and in 2000 it was $1.99. By 2010 that same bread cost $2.99.
So that means something that used to cost $50 in the 1980s cost $300 in 2010.
Now, let's say you're retired and have a fixed income that's not adjusting for inflation. And you have your money sitting in the bank. Your money is going to buy less and less every year if inflation occurs.
This is what a lot of people call a hidden tax. Even though you aren’t cutting a check for it and technically not sending money directly to the government, the government is essentially taking wealth from you through the inflation of the currency.
Now, three factors cause inflation. These are demand-pull, cost-push and built-in inflation.
So imagine that there are 100 high-end designer handbags on a limited run sold globally. Are they going to be more expensive or less expensive than if you were to make 10,000 of those?
Of course, they will be more expensive because there's more demand and it's scarce.
That's why in the art world, when an artist is deceased, and if they're famous, you're going to have a bunch of people essentially fighting over their art.
That’s because they're not going to make any more art, and there's a finite quantity of that art. People will pay more to own one of their pieces. So the price goes up merely because the demand goes up.
Let's say that you are a semi-fine jeweler and silver goes up by 50%. You have to factor that into the sale of your $100 ring.
So say you have a pair of scissors to identify and cut up the factors from the ring.
You'll have to cut off a piece for taxes, cut off a little bit for the labor that went into making it, and a little piece for advertising and another piece for marketing.
So if your costs go up, and you want to put some money back into your pocket, you have to raise your prices.
You have to raise your prices to maintain your margins, or you have to cut your expenses somewhere else.
You might have to become better at marketing, or better at sales, or better at advertising to be able to do things more efficiently in order to offset the increase in cost somewhere else.
This is where wages go up because the cost of living has increased.
For example, lately we're seeing fast-food restaurants offering $18 an hour plus a signing bonus. Normally, you wouldn’t see signing bonuses for entry-level jobs.
Whatever it iWe were recently out in California, and I was looking out off the coast of Long Beach pier, and there was a huge line of ships.
There's a supply problem within the United States because the supply is just sitting off the coast. This means we can't buy those things until they get through customs and get put on trucks and trains and everything else and shipped everywhere.
And that creates the demand-pull. Then the supply chain bottleneck is causing a rise in the shipping cost.
Now, we're seeing the cost of materials going up, labor going up, and fewer items going around. Or basically, all three factors that impact inflation.
On top of that, the government has added (printed) about 24% more money by sending checks to aid the economy so that people can afford more goods.
So if you are a producer of goods like a jewelry maker, what are you going to do with your price?
I want you to take a really good look at this, especially at the beginning of the year.
This is an excellent time for you to check with your suppliers and deeply analyze your pricing and costing structure. You have to make sure you are properly pricing your products, or you're going to put yourself in a terrible situation.
This is what happened to my consulting client. She was selling her items for retail and reducing the prices to sell wholesale. So she wasn't getting a proper wholesale margin, which is very important.
If you sell to stores, you need to make sure that you're making the correct markup on those prices. Or else you will go out of business.
And there's a reason for this. When you're selling bigger or volume orders, there are a couple of factors in play.
We buy materials way before we get paid. It might be 30 to 120 days from the time that the order is placed. There's a lag, but you have to buy supplies, pay the manufacturer or the labor to get those orders placed.
Now you might be saying; I take the credit card when I ship the order. But, because of the lag, and if you don't have enough margin, you'll end up in a cash flow deficit, which is really challenging for the business.
You see people who rack up their credit cards to finance their orders, they get lines of credit, and then they end up completely broke because they have no way to pay off those bills. And even though they're selling a lot, their profit margin sucks.
It happened to me in 2008. When the market crashed, gold prices spiked tremendously. But we were pricing goods based on old prices.
I had orders, and you know, like a 90-day window, but during that time they placed the orders, the commodities market completely spiked.
Diamonds were up; gold was up, precious metals and semi-precious stones spiked up, increasing my cost. In fact, I probably shipped some orders that I lost money on, and I didn't even realize it at the time.
That's why you should make sure you get the correct cost of goods sold, whether you are selling for retail, direct to consumer, or selling wholesale.
You can join us for our free live Jewelry Makeover Bootcamp, where we’ll dive deeper into some of the topics we're talking about today.
The other thing that I think is important is understanding perceived value.
The reality is, transactions occur at that point where the buyer feels like they're getting more value than what they're giving you.
I've interviewed Allyson Hayes from Precious Design Elements in my previous podcast episode #326. She is a sterling silver designer and primarily sells at in-person shows. And she couldn't figure out why people were walking into her booth saying her pieces were beautiful but would make a face after asking about the material and looking at the price.
She had been pricing things too low, and they would say something to her like silver can't be this cheap.
So in the middle of the show, she tore all the price tags for her jewelry and increased prices — and sold out every single piece.
Do you know why? It’s because she elevated the perceived value of each piece with what the customers thought the piece should cost.
It's especially true if you've created a bunch of demand around it using The Desired Brand Effect. You create a story around it and this entire brand that they get to be part of and discuss with their friends.
They feel it's worth more than what's in their pocket, and that's the price you're charging.
You're going to give them their ring, and they're going to give you more money, and they're going to tell their friends a great story. They're going to feel like they got a great value.
They're going to give you more money for your ring because they can be part of that great story, tell their friends about it, and they're going to feel like they got a great value.
The high-end luxury goods market creates a lot of demand for their products using perceived value.
You buy their product, and you get an increased status symbol. You feel better when you buy it. There's also this association that it must be better if it's more expensive. They've built status into their product.
Raising Prices and Sales
I get it you may be afraid to raise prices and say, I'm going to lose sales or lose overall sales. Or although I might make a little more margin, I'm going to make less overall because I'm going to make fewer sales.
So I want you to consider that maybe if you're getting price resistance, those aren't the right people for you. Those people probably aren't your dream customers and not the people who are necessarily supposed to be buying your jewelry.
I saw this Instagram reel a couple of weeks ago, and it says, “don't tell me that my prices are too high; tell me that it's outside of your budget.”
Because that's really what the case is, and it's not really about you.
But of course, there's a threshold where you might be overpricing your jewelry. You can't charge a million dollars for a silver ring, and no one's going to buy that unless, you know, like Picasso made it.
Confidence is Attractive
We all know that confidence is attractive, while insecurity is unattractive.
One of the challenges when you're raising your prices, especially if you're starting, is that people tend to conflate the designer and the design or the creator and the creation.
Maybe you feel like…
If I offer this, and someone rejects it, they're rejecting me. Or…If I increase the price, and they reject it, they're rejecting me.
And I would invite you to consider that you are the creator, but you are not the creation. You create different things.
You interact with the marketplace and put things into the market to see how people react to those. Then you need to make adjustments to the product.
So maybe platinum is more popular than silver or vice versa. The only way you'll know is to put it out there and get feedback.
But sometimes, many people will sit at their bench and try to perfect things, and perfect things. But what they're really doing is avoiding rejection.
So, I would invite you to consider that you are not being rejected.
Someone might object to the price or material, but that's just feedback. Use that to dial in to find where that happy medium is between what the market wants and what you can offer. Find the way to build a lot of desire from the market you want to have.
Don’t Shortchange Yourself
And you have to remember that you need to pay yourself a salary. You need to compensate and reward yourself for the work and effort you're putting in. Don't shortchange yourself.
You can say, hey, look, everything's going up because of inflation which means I need to raise my prices.
That said, I also highly encourage you to make that separation between yourself and your products.
And finally, you have to overcome limiting beliefs because your belief systems ultimately shape your external reality.
Listen to the full episode and discover easy to implement marketing strategies to sell more jewelry without creating price resistance.