Industry sector: Manufacturing

Furniture maker: Pricing policy

Getting the price right is very important. You must make sure that the difference between the cost price and the selling price of your furniture items is at least enough to cover all of your operating costs, including your own drawings.

Try to earmark some income to invest in new equipment and technology. Not only must you be able to replace machinery when it breaks down but also you might want to buy labour-saving equipment to help you to keep your unit costs down.

Your two largest items of expenditure are likely to be on:

  • raw materials, such as timber, upholstery materials, components and so on
  • staff costs, including specialists such as external polishers

It is very important to monitor your raw materials costs and to make sure that your workforce remains productive, that wasteful processes are reduced as far as possible and the number of returns kept to a minimum. Bear in mind that you may have to replace items on a regular basis if they have suffered damage during delivery.

To monitor your performance you could regularly look at the relationship between your raw materials costs and your turnover, and your direct labour costs and your turnover. If you intend to produce high-end bespoke wooden cabinet furniture then labour costs are likely to be considerable - craft production like this is very labour-intensive.

Don't forget that if you plan to sell to both trade customers (such as retailers) and members of the public (via mail order or online) your trade customers will expect a trade discount from the recommended retail price.

If you do sell direct to the public and you have a shop and an e-commerce website, think about whether or not your prices will be different for each. If you offer a lower web price, will you price match for customers in the shop who ask you to? If you also sell to the retail trade, be sure not to undercut your stockists' prices with your own web prices if you want to keep them on board.

Special offers and discounts

You might decide to offer various promotional discounts to your retailer customers such as:

  • early settlement discounts for prompt payment of invoices
  • retrospective bonuses or rebates based on the volume of purchases they make over several months
  • bulk discounts for buying in large quantities
  • free delivery

Keep a close eye on any discounts and special offers you do make to be sure that they're working for you. After all, these kinds of promotion may encourage extra sales, but they'll also affect the amount of profit you make on each sale.