This is one that not a lot of people want to think about for that same tired reason we have trotted out so many times before, people don't want to appreciate that their band is a business. Simultaneously they want to be the band who has the cheapest merch. So they really just don't bother to think about what their margins look like, how it can impact their sales and what they need to be doing in order to optimize their brand and band performance. I know that this can be tricky and I know that it's not something most of you want to think about, you want to be rock and rollers, but if you've stuck with this blog thus far then you realize that being a rock and roller isn't all that matters and sometimes you need to put your reading glasses on and try to figure out what exactly you are doing wrong and what you can do to optimize your sales. This won't be the most fun ride, but were going to have to dive the fuck on in anyway.
First of all, what even is a margin? A margin is the difference between the cost of production and the amount of money you make from selling product. Note that I didn't say that it was the amont you are selling your product for. When it comes down to it, even if you have a huge difference between the cost of production and the pric you're selling it for, it doesn't mean shit if you're not moving any. That's why margin becomes a tricky thing and where so many bands screw up. They think that all that matters is that they are pricing things for twice what they paid, not realizing that if they aren't selling any they are still screwed. It's why so many bands end up going bankrupt - they don't bother to study a few basic financial rules that could have helped them grow so much faster. The catch 22 of margins obviously is that if you price tour item high you'll get a good margin, but you might not sell as many units, whereas if you price an item low then you're not putting gas in the tank.
This ties into another big misconception about margins. you're not greedy for pricing a CD that cost $2 to manufacture at $15. When it comes down to it there are a lot of hidden costs in that $15 CD that you probably aren't even thinking about. It could be the cost of the gas and food it took you to get to this tour date, it could be the cost of the graphic designer, the PR person you hired, management or any number of things. These costs aren't things you see on the cost per unit when you order them from Discmakers or whatever. That doesn't mean it makes sense for you to inflate your costs to ridiculous numbers like I have seen some bands too on the logic of "We need to make money too" but it does mean that you need to strike a balance. Odds are if you're on the independent level people realize that you're just some dudes in a van trying to pay for gas and eat. Finding the balance though is definitely pretty tricky, and so much of it can be dictated by your scene and your place in it, but that's an article for a different day.
The general rule of thumb I have with the margin on anything you do is that it should be at least a 100% markup on what you paid. Even with just a 100% markup your average shirt is $10, your CD $5 and patch $5. The only exception to these reasonable prices would be vinyl which can easily exceed $25 on a 100% markup which is never a good idea. In my view you need to try and maximize your margins and realize that odds are if someone wants to buy a shirt $5 is not going to stop them. Nobody who was ready to buy a $15 shirt on the last tour but couldn't do it is going to see you on this tour and say no to a 420 shirt. There is an upper limit for all forms of merch though. Realize that anything over $25, be it shirts, vinyl, or whatever is going to see a significantly lower sell through. Sure you might make your money back on fewer products sold but that isn't the point. If your sell through rate is low then you are stuck anyway.
Of course the final, thing to reflect on is what happens when you're not moving any project. Realize that even a negative margin is better than no margin at all. I always encourage the person selling merch to know exactly what the cost per unit is on every piece they are selling so that when they make deals they can make sure not to dip below that vital 100% number. Margins are important to keep in your head because you need to be making money and you need to appreciate that there are so many other costs based on being in a band that just selling things for cheap for exposure isn't exactly going to get you anywhere. Sure that might be a cool tactic, but if you have no money for PR you have no money for PR and no one will take you seriously. So embrace the fact that there are costs built into this thing and try to make sure that everyone in your band has at least some idea of how the finances are shaking out on this thing.
I know that it sucks that you need to keep a spreadsheet for your band and I know that you don't want to have to do a bunch of boring math when you're trying to hook up with cute girls, but trust me, not only is it worth it, it's also the kind of thing that you can teach yourself fairly quickly. Sure memorizing is hard, but hell - if you're having that much of an issue just write the cost per unit on the sides of the boxes, no one will know or care what those numbers mean. Just be sure that you're making enough money to get to the next stop and maybe even get to eat a little bit.