Are you holding the line on the prices you charge or are you passing on the increased costs?

I increase prices according to the prices I pay, but I'm keeping a closer eye on the shipping costs vendors charge, not just adding a flat percentage. Some shipping has gone down because people negotiated a better price, but others have gone up because of the price of gasoline. And handling! Oftentimes we forget to look at that stuff, and then all of a sudden realize we're being charged a handling fee. I haven't had to do anything on top of that. We've been able to keep our own expenses in line. But I've been watching my margins for the past six months and they've started to go down. So I've had to reassess my pricing strategies. Plus, I watch what the vendors are doing, if I have to put things on sale … it's something I force myself to do. We're creative people, not numbers crunchers. I'd rather be out on the floor creating a new vignette than in my office, but it's a necessary evil for cash flow, and it's all about cash flow, baby.

Translated, the question is, “Do you want to keep paying your electric bill?” If our wholesale and overhead costs rise, so do our retail prices — there simply isn't much wiggle room. Areas where we determine the price (our in-house design service, for example) have the benefit of greater control. If there's a show special, free shipping, or any other element that impacts the bottom line in a positive manner, we pass that along, feeling it helps offset the items that continue to climb. The one thorn in my side these days is pre-priced product, whether cards or boxed goods. My hard cost of any item is the combination of product and freight. Pre-marked items prevent us from recovering the freight portion. While this may be a convenience for larger stores, for small boutiques like mine, it really cuts into the bottom line.

We use a standard keystone markup. That includes shipping costs, of course. We've found that keystone is enough to keep up with our other expenses, such as rent and insurance. What's made that feasible for us is that our sales have increased every year of our existence, so our income has kept pace with our expenses. As we get increases, we pass them on: we change prices when prices change for us. There have not been any large increases. Nobody we work with does across-the-board increases at one particular time of year. They phase them in, so we do them item by item, as they happen. If we didn't do that, we'd have to use a bigger markup to start with — which we don't want to do — or end up in the wrong color ink.