How Do You Calculate The Price Of A Candle?

Understand Your Costs

The main costs involved in pricing a candle include:

• Cost of wax/oils – This is usually the biggest expense. Popular waxes like soy, paraffin, beeswax, and vegetable waxes can range from $1-5 per pound wholesale according to Brambleberry.
• Cost of wicks – These range from a few cents to over $1 per wick. Pre-tabbed vs non-tabbed, cotton vs wood, and wick diameter all factor into cost according to Candle Wic.
• Cost of fragrance – A key component, fragrance oils can range from $1-20 per ounce. Purchase in bulk for best pricing.
• Cost of dye – Liquid and color blocks average $3-8 per ounce according to The Flaming Candle.
• Cost of packaging – Jars, tins, boxes, labels, wraps, lids, and other packaging components need to be priced in.
• Labor costs – Consider the hours spent designing, pouring, curing, labeling, and packing. Factor in hourly rates.

Adding up these expenses calculates the base cost to produce each candle before markup. Keep detailed records and adjust as supply costs fluctuate.

Overhead costs refer to expenses that are necessary to operate your candle business but are not directly tied to production. When pricing your candles, you’ll need to factor in key overhead costs like:

Rent – This includes any rent you pay for your retail store, workshop, or office space. Monthly rent is a fixed cost that must be accounted for.[1]

Utilities – Expenses like electricity, gas, water, and trash pickup keep your business running. Though variable, budget average monthly costs.[2]

Insurance – To protect your business assets, consider costs of property, liability, and other insurance policies.[3]

Shipping Costs – Whether shipping supplies or final products, these delivery and handling expenses should be included.[1]

Advertising – Marketing and promotions like print ads, online campaigns, and trade shows are critical for sales.[2]

Factor in Overhead

Determine Desired Profit Margin

When determining your desired profit margin for a candle making business, you’ll need to consider industry standards as well as your own business goals.

According to sources, the average profit margin for handmade candles is around 50%, although it can vary slightly based on factors like materials, production costs, and pricing strategies. Many experts recommend aiming for at least a 25-50% profit margin when pricing homemade candles [1] [2].

However, your specific profit goals may differ depending on the scale of your business and your long-term plans. For instance, you may opt for a lower margin initially to attract customers and gain market share. Or you may set a high margin from the start if you are focusing on premium, high-end candles. Consider your target audience, brand image, competitive landscape, and growth objectives when setting your desired profit level.

Ultimately your profit margin will be determined by subtracting your production costs from the final retail price you set. Track your expenses accurately, do competitive research, and analyze the market demand to set a profit margin that enables you to be profitable while remaining competitively priced.

Consider Competitor Pricing

Researching competitor prices for similar candles is an important step in determining your pricing. Look at candles that are the same size, wax type, fragrance, and packaging as yours. Check prices on sites like Etsy, Amazon, and small business sites selling handmade candles. For a 12 oz soy candle, prices typically range from $15-$30.

For example, a 12 oz soy candle on Etsy sells for around $18.99 on average. The Pacific Candle Co. sells a similar 12 oz soy candle for $32. Trinity Candle Company’s price for a 12 oz soy candle is $19.99.

Take note of competitor candle specs and pricing tiers. This gives you an idea of price ranges for different candle features so you can determine appropriate pricing for your products.

Calculate Base Price

To calculate the base price for a candle, you need to determine the costs per unit and divide that total by the number of units produced. The costs per unit include both variable and fixed costs.

Variable costs are those that change based on production volume, like materials and labor. Fixed costs remain the same regardless of how many candles are made, like factory overhead and rent. Add up the variable and fixed costs per unit to determine the total cost per unit.

For example, if materials cost $2 per candle, labor costs $1 per candle, factory overhead is $5,000 per month for 10,000 candles, and rent is $1,000 per month, the total cost per unit is:

Materials: $2
Labor: $1
Factory overhead: $5,000/10,000 units = $0.50
Rent: $1,000/10,000 units = $0.10
Total cost per unit = $2 + $1 + $0.50 + $0.10 = $3.60

To calculate the base price, simply divide the total cost per unit by the number of units produced. In this example, the base price would be $3.60 per candle. This covers all costs and provides no profit margin.

“Calculating the cost per unit is an essential step in pricing any product. By understanding your costs and dividing by production volume, you arrive at a base price that can then be marked up for profit.” (Source: https://flow.space/blog/cost-per-unit/)

Add Markup for Profit

To calculate the price of a candle, you’ll need to factor in your desired profit margin on top of the base cost. The profit margin is the percentage of the selling price that represents profit. To apply the profit margin, you’ll use a markup percentage. This is calculated by dividing the profit margin percentage by 100 minus the profit margin percentage. For example, if you want a 30% profit margin, the markup percentage would be 30 / (100 – 30) = 42.9%.

To calculate the markup amount, multiply the cost of goods (your base candle price) by the markup percentage. Using the example above with a $10 base price and 42.9% markup, the markup amount would be $10 x 42.9% = $4.29. The final selling price is the cost plus the markup, so in this case $10 + $4.29 = $14.29. This results in a $4.29 profit on a $10 cost, or a 42.9% profit margin. The markup brings the base cost to the final selling price that includes your desired profit.

According to Freshbooks’ markup calculator (https://www.freshbooks.com/tools/markup-calculator), the markup percentage is calculated by subtracting the unit cost from the selling price, dividing by the unit cost and multiplying times 100.

Round Up the Price

One common psychological pricing strategy is to round up the price to ending numbers like 0 or 5 (also known as charm pricing). Research shows that customers tend to perceive round numbers as being lower than they are. For example, a product priced at $19.99 will seem more affordable than the same item priced at $19.97. The rounded number gives an impression of being tidier and more complete (Source).

Rounding up candle prices to numbers ending in 0 or 5 can make them appear more attractive and also easier to calculate. A candle priced at $19.95 will sell better than one priced at $19.88. The rounded price looks cleaner and gives the impression the candle costs “around $20” rather than “almost $20.” This psychological pricing tactic takes advantage of customers’ preference for prices that are rounded (Source).

When rounding prices, be careful not to round up too much. Increasing a $19.97 candle to $20.00 crosses the psychological $20 threshold, which could deter buyers. Aim to round to the nearest 0 or 5 ending while keeping prices just under key numeric boundaries.

Add Taxes

Most small businesses need to charge sales tax on the products or services they sell. Sales tax rates vary widely by state and municipality. For example, combined state and local sales tax rates range from 1.76% in Alaska up to 9.53% in Tennessee.[1]

As a small business owner, you are responsible for researching the sales tax rates in all areas where you have a physical presence (known as a “nexus”). This includes any states or cities where you have a retail store, warehouse, employees, or other facilities.[1]

You must collect sales tax on taxable sales made to customers in those areas and remit those taxes to the appropriate state and local tax authorities. Failing to properly collect, report, and remit sales taxes can lead to audits, interest, and penalties.[2]

When calculating the price of your candles, you’ll need to add the applicable sales tax rate to the base price. This ensures you collect enough from customers to cover the sales tax and avoid losing money. An accountant can help you understand sales tax compliance and build it into your pricing model.

Consider Discounts

When pricing candles, it’s important to consider offering discounts for bulk or promotional orders. Bulk order discounts are common when selling candles wholesale. A standard wholesale discount is around 50% off the retail price [1]. This allows the retailer to sell the candles at full price and still make a profit. Some crafters recommend adding an additional 60-75 cents to the wholesale price to account for shipping and handling [2].

Promotional discounts can also help move inventory. Running periodic sales or offering coupon codes are great ways to promote candles. Discounts of 10-20% off are common. It’s important not to devalue your product with discounts that are too deep or too frequent.

Perform Competitive Analysis

When calculating the price of a candle, it is important to research competitor pricing to understand the competitive landscape. This ensures your pricing is competitive but still allows you to make a profit. There are a few key steps to performing a competitive analysis:

First, identify your direct competitors and find out what types of candles they sell and at what prices (1). Look at candles that are similar in size, shape, ingredients, scent etc. Compile this into a spreadsheet so you can easily compare.

Next, you’ll want to calculate your competitors’ price ranges, average prices and price points for different candle categories, like jar candles, pillars, tealights etc (2). Identify price trends – do your competitors use psychological pricing ending in 9 or 99? This gives insight into customer expectations.

Now you can determine your price position – undercut competitors, match the average price or differentiate with premium pricing? Set a profit-margin target to aim for. You may need to experiment with different markups across your product line.

Lastly, keep monitoring competitors’ pricing periodically and adjust your own prices accordingly if needed. The goal is to be profit-driven yet price-conscious when determining your candle pricing.

(1) https://www.competitiveintelligencealliance.io/how-to-do-competitive-pricing-analysis/

(2) https://www.qualtrics.com/experience-management/product/competitive-pricing-analysis/