We shall ask our local tea economist: @xavier aka Teaconomics what he thinks! 🙂 Either way, good question. I for one do a lot of price comparison when I shop for unflavored teas which is most of the time. So, I get an idea of how much I’ll have to pay in the US for a particular tea. Since the cost of tea is pretty important to @peter and me, cost is a deciding factor. It’s not the only one though, because harvest date and customer service matter considerably too. I look at price first, then harvest information, and then take into account how efficient customer service is. My decision who to buy from is based on a combo of these three factors.
Unlike with flavored teas where markup is harder to compare between companies, pure teas are far more transparent. Not everyone wants to spend a lot of time researching what constitutes a good price for pure tea though. If I find a tea is very competitively priced, I don’t write it off as just “cheap” if I know the tea is good. I click on “add to basket.” I can see why many people choose to go into the flavored tea business, it is much easier to make a profit, because it is harder to compare what you’re getting for your buck.

I would love more responses to Gingko’s topic. I’m thinking @yaya, you might have thoughts on this too, since you’re also a smaller (independent) vendor, who has had to make just such decisions.

I’ll start with a few comments to @jackie‘s answer:
While it may seem easy to compare the prices of unflavored teas online, I’d say it is mostly impossible to do so. The only cases where it is possible (within limitations) is with a ‘branded’ product like a specific pu-erh cake (the limitations come from the myriad of falsely labelled and fake products out there). How would you compare the price of, say a Yunnan Golden Bud from brand A and brand B? They might look similar on the product pictures but, on the wholesale market, might have a price difference of 100-400%. And just because brand A labels their product as super premium doesn’t mean that it actually is that.
You also might think that you’re on the safe side with teas from former British colonies that have the familiar “quality” labels such as SFTGFOP. Not good, either, since these labels firstly mean very different prices at different tea gardens and secondly, different batches from the same garden often carry very different price tags and are of very different quality.
The only way I see to solve this problem is to try out a few vendors that carry tea at price levels that you are comfortable with and see what they deliver. Then, build a relationship with these vendors since honest business is always built on trust. And trustworthy vendors won’t try to cheat their customers.

@ginko: This is of course the crucial question for any small business and especially for business that result from a passion for the product and a drive to share this product with others. As you mention, there’s much more to the cost (for the seller) of a product than the wholesale price. For many countries, the shipping cost for tea and especially teaware is a significant portion of the total cost. And labor, of course, is another big factor – although that’s the one hardest to put a value to.

In my opinion, there are a few different approaches to pricing and you should choose the one that you feel most comfortable with.
a) Look at your competition. At what they offer at what price, what selection do they carry, what quality and what target market do they have. Then compare their offerings to yours. If they are similar, and the target audience is similar, stay within their price range.
b) Look at your cost (total landing cost, i.e. product cost, shipping, taxes, packaging, etc.) and apply a uniform markup on your products. This markup often falls in a fairly broad range, anywhere from 30-150%, with 50-80% probably being the norm.*
c) Do adaptive pricing based on original wholesale price. Cheaper products can take a larger markup since the perceived final price is still cheap while expensive products couldn’t carry such large markups (i.e. markup your cheaper teas at 100% and your exclusive, very expensive teas at 20%).

It all depends on your personal approach to your business. I don’t think that option a) reflects your personality or your business, so it’s probably something between b) and c). I personally use a mixture of these. As with any labor of love, you need some products to keep the show on the road, those products which pay the bills. These are products that are relatively affordable and you can sell a lot of. Mark these up a bit more than you’d usually do, since the extra 1$ or 2$ won’t turn a customer away. But – and I think you might be a bit like me in this regard – it’s probably the more exclusive, unique and rare teas that are of real interest to you. These are often very expensive directly from the producer and can’t take much of a markup if you want to sell any of them. You’ll need to subsidize them with the ‘money-maker’ teas.

I have come across the conundrum with offering very high quality teas at ‘too low’ a price. While my intention was to make a special tea affordable for anyone to try, my pricing turned away these customers that were looking for a high-end tea (which it was) and misjudged the tea as a result of the low price tag. This is a problem I would rather not have to live with, since it feels wrong to me to markup a product beyond my comfort zone only to stand its position in a (price) comparison. But this situation is a result of our past shopping experiences and the the profit-maximizing strategies of many businesses.

I realize that I haven’t given you that magic number that you asked for, but I think it boils down to what you personally feel comfortable with.

* For anyone who thinks these numbers are on the high side: most resellers of big brands have markups of 200+%. Ever wondered how they make money with “Everything in store 50% off today” sales?

Well, there is what the tea consumer thinks is reasonable, and what the tea seller thinks is reasonable. 🙂

One issue to consider is that many tea drinkers have a fairly unsophisticated understanding of tea. This does not necessarily change by having access to wholesale auction information. So it is not uncommon for consumers to either have unrealistically low price expectations for tea because they don”t understand what makes one tea more expensive than another tea, or to be willing to pay a good price, but without understanding what they are paying for, which can lead to good tea at a fair price being driven out by tea that takes shortcuts.

At a bare minimum, your mark-up has to cover your operating expenses. If it can’t, then either your operating expenses are too high, you have not used a mark-up appropriate to the level of demand, or the market is not large enough to be profitable without adjusting your strategy. A lot of this depends on market conditions. Different buyers look for different things in tea. In the Middle East, the appearance of the leaf is very important, despite the fact that leaf appearance is not always related to quality. In the United States, it is important that teas don’t become cloudy (creaming down) when cold, despite this being a sign of quality in British teas. (This is because most tea in the United States is consumed iced, and most consumers don’t understand why tea would become cloudy.) So you can take a tea of known quality, and have it be in high demand in one place, while in low demand in another.

There is also the issue of exchange rate. Do you value the tea at a fixed price, or by the percent of a consumers income that that price would eat up? US $50 is quite a bit of money in Indian rupees, for instance, and maybe is a bit less dear in the U.K., where the national minimum wage is £6.08 (around US $9.67) per hour.

This is certainly an interesting topic, and I look forward to hearing from others.

Gingko said:
On the other hand, I think large companies have the power to carry some tea of good price value simply due to the volume of tea they deal wit

Economies of scale.

But when they are big, do they have the capacity to quickly react to changing market conditions and make the right buying decisions quickly?

I try to add value. After I’ve done that, the market tends to indicate what value I’ve added.

@Gingko, really the only folks who see it as a bad sign are the iced tea blenders. 🙂 It’s just that iced tea plays such a large role in how tea is consumed in the United States that it becomes a noticeable issue in some circles. The mixed messages may have to do with the fact that the way it creams down is important. This has to do with theaflavins. Generally black teas that are high in theaflavins tend to be popular on the market. But how can one determine theaflavin content inexpensively? The answer is through the color of the “tea cream”, which is a mixture of caffeine, theaflavins, and other compounds. 😉

As for U.S. sellers, the key is in value added. The effective Stateside tea seller understands the tastes of their customers in a way that international sellers cannot. In the case of the customer who knows exactly what they want, the value added is in having someone else deal with customs (a very nice thing if you like Chinese teas), someone else to determine if the tea is pure and of a good quality, no potential language barriers, and quick responses to changing needs.