The Double Keystone Rule: How Prices Skyrocket in Supply Chain #shopify

The Double Keystone Rule: How Prices Skyrocket in the Supply Chain #shopify

When navigating the complexities of pricing your products, one concept you might encounter is "double keystoning." This principle essentially asserts that the sticker price of each product should at least double at every stage between manufacturing and the end customer receiving it.

Direct-to-Consumer Sales

Let's explore a scenario where you're making products at your dining room table and selling them directly to consumers using your website. Suppose it costs you $ 10 to make one product. Under the double keystone rule, you'd need to set the retail price of that product at a minimum of $ 20. This ensures that your business remains sustainable while providing adequate margin.

Involving a Manufacturing Partner

Consider you have scaled your business and now have a manufacturing partner to produce your products. Not only are you selling directly to consumers, but you also want to wholesale your products to other stores to expand your market reach.

In this case, if it costs your manufacturing partner $ 5 to produce each product, they will likely double that cost and charge you $ 10 per unit. After acquiring the product at $ 10, your next step is to follow the double keystone rule for your wholesale transactions. You would sell your product to other stores at a minimum of $ 20 each. These stores, in turn, will follow the same principle and sell the products to end consumers for at least $ 40.

Conclusion

The double keystone rule is a vital guideline that ensures each intermediary in the supply chain — from manufacturers to wholesalers to retailers — achieves a sustainable profit margin. Understanding this principle can help you price your products appropriately and ensure the profitability of your business, whether you are selling directly to consumers or working with various partners along the way.

Keywords

• Double keystone rule
• Pricing strategy
• Supply chain
• Manufacturing
• Wholesaling
• Retail price
• Profit margin

FAQ

Q: What is the double keystone rule?

A: The double keystone rule is a pricing strategy that suggests the cost price of each product should double at every stage between its manufacturing and its sale to the end customer.

Q: How does the double keystone rule apply to direct-to-consumer sales?

A: If you're making the product yourself and selling it directly to consumers, you should at least double the manufacturing cost to determine your retail price.

Q: What happens to the pricing when involving a manufacturing partner?

A: When a manufacturing partner is involved, the cost of production set by the manufacturer is doubled when charged to you. Then, you should double your acquisition cost when selling wholesale, and finally, the wholesaler doubles the price for the end customer.

Q: Why is the double keystone rule important?

A: This rule ensures that each entity in the supply chain earns a sustainable profit margin, thereby ensuring business sustainability and profitability at every stage.