One of the best things I ever did for my handmade business was to FINALLY come up with a simple formula I could use to price my products.
No guessing, or estimating. I know what it costs, I know how much time it takes to make it and I know what I need to sell it for to make it worth my time.
My husband has this joke he makes all the time about how I ran Utah’s most successful non-profit photography business for years before he joined and took over the accounting and managerial duties. It’s true. I was really busy.
I had tons of clients booking weddings and portraits; and in my defense, I did make somemoney, but if you were really nice to me, I would give you an amazing discount you never asked for.
If you told me you loved my work, I would probably throw in a framed wall portrait just so I knew it would be hanging on your wall.
I mostly wanted kudos. Instead of dollars, I worked for compliments.
When I started making hand painted gourd bird feeders, I was just thrilled that someone else wanted to hang one in their garden. I was happy to send my creations out into the world to live a life separate from me.
I wrapped them with care and shipped them out with a smile picturing the recipient’s reaction when they opened the box. I was working for validation.
Can you relate?
When I began making jewelry, it was the same thing all over. The prices I charged barely covered my expenses, so as I got busier and my jewelry started selling more, it felt like I was working just to buy more supplies to… work more.
Yes, the satisfaction of sending my art into the world was still there, but the more jewelry I sold, the more time I was spending on what was fast becoming a business. I actually had deadlines and orders, but still my bank account didn’t reflect the hard work I was putting in. At some level, kudos and compliments are just not enough motivation to justify all the hard work.
Something had to change.
I was at a loss though, to know how to price things. So I did what everyone does when they don’t know something. I asked Google. I found articles that had some pretty good ideas. Most of them included formulas that accounted for materials costs and time. The simplest of these formulas is this:
(Labor + Materials) x 2 = Price
****This is actually a wholesale price though and I believe too many makers make the mistake and price for retail this way. There isn’t much room for discounts here, either for wholesale or just seasonal sales you might want to promote. Retail pricing formulas should actually look more like this:
(Labor + Materials) x 2 = Wholesale Price
Wholesale Price x 2 = Retail Price
When I was starting out, there are other things that I was spending money on that weren’t being accounted for. Things like packaging, my website hosting fees, equipment costs, etc. And even more, I was still super confused about knowing how much to charge for my time.
Let’s break it down.
Wholesale. What is it and should you worry about it?
Wholesale is the prices that stores or people pay who are purchasing your products to resell for a profit.
Selling wholesale is something I never considered when I began selling the things I make. I never would have dreamed that my products would be sold in stores, let alone catalogs. I was doing the occasional craft boutique and just happy to be selling there. As it grew, however, I saw a potential for a business that could actually contribute to my family income and I needed to restructure my pricing altogether.
I realized I was way underpriced.
The simple formula I use now for my pricing is this Cost + Labor x 2 = wholesale (cost includes materials plus expenses)
My retail pricing then, is Wholesale x 2 = Retail.
This works for most people, however, I have run into a few instances where I’ve needed to make adjustments which I will in another post about Wholesale selling. Let’s keep it simple for now.
I am now confident that I will make money with every sale.
Expenses to factor in when calculating costs:
-Your time. How much do you want to be paid per hour? Know that number to start, and then figure out how much time it takes you to make one of your items.
If you want to work for $20/hour and you take 30 minutes to make an item, you need to add $10 to the cost of that item. No question. If you’re freaking out that your prices are going to be too high, consider how much time you can save by making in quantity.
My jewelry production time goes down dramatically when I produce in volume.
You are trying to run a business, not a hobby. If you aren’t being paid for your time, you will eventually resent the time you spend on your business.
-Your equipment. Whether we are talking photography, jewelry making, sewing, or anything in between, there are expensive toys we need to (get to!) buy for our art.
I try and estimate how much I will use any new equipment over a years time and prorate that into the costs of what I’m making with it. For example,
I bought a ring sizer/reducer and an arbor press to shape metal which I factor into the rings I make with it.
I need to sell 300 rings for that equipment to pay for itself in a year.
-Overhead. Do you pay fees for websites where you sell your products?
Do you figure in craft show entrance fees?
Shipping/ packaging supplies?
Do you have to hire a babysitter to find time to work?
Gas or other travel fees to get to shows or stores where you sell?
Office supplies like printer ink and paper, etc.
Any expenses you have that are required to run your business should be accounted for.
-Cost of supplies. Do your best to keep these costs down without compromising quality. I buy in bulk and have wholesale accounts with all my suppliers.
Whenever possible, I cut out the middle man and buy from the manufacturer. Sometimes that takes some detective work on my part, but it is worth it to keep supply costs as low as they can be.
We all have different methods and situations so you will need to adapt any formula you use to your own business.
For example, I design all of my jewelry, but when I get big orders from catalogs or when I’m getting ready for holiday shows, I pay people to help me make the jewelry. They are women that I trust and have trained to do things to my liking and they assemble pieces in quantity.
I give them a box of tools and supplies and they work under a deadline. They take everything to their homes where they make things on their own time. It’s a beautiful arrangement, actually.
My time is freed up to do other things with my business, and I am providing income to women who have little ones at home or need an extra bit of income.
What this means, though is that the ‘time’ part of the equation is different. I take much longer to design/create a piece one at a time than someone else does to assemble 30 of the same necklace at once.
I have solved this by figuring out how long on average, each piece takes to make and then figuring out a “per piece” wage for each item I sell. Some of my jewelry is only made by me. These pieces require equipment or skills that only I possess, therefore the prices of those pieces reflect that extra expense.
3 Mistakes to avoid when pricing your products.
Do not price your products based on what other people are charging.
You might use better quality materials. You might value your time more than someone else.
It’s fine to check around to see what other people charge, but ultimately, you are a unique person selling a unique product. Many crafters underprice their work and you don’t want to be one of those people.
Your prices should reflect the quality of the items you sell. If they are higher than others, then so be it. People will pay more for quality. Just remember that you are trying to make money. Do not undercut yourself just because other people are doing it. Don’t be afraid to ask for what your craft is worth.
Don’t charge based on what you, yourself can afford.
This is the best advice I ever got about running my photography business and it holds true for handmade businesses as well.
People place value on very different things. I will pay way more for a great handbag than many of my friends. Yet, I rarely spend money on bath towels (seriously, my towels are pretty thrashed). We all value things differently.
The right people will LOVE what you are selling and pay what it’s worth. Other people won’t. That’s ok. It costs what it costs. Remember, we have calculated our prices carefully and thoughtfully.
Don’t discount just because you are selling to someone you know.
(except your Mom. Mom gets a deal.) What about when your family and friends refer people to you and you feel that urge to discount? What is up with that urge anyway?
If you are a quilter, you know how long those take to make. They are a labor of love!
The fabric you use is expensive!
Why then, do we cringe when someone asks “how much?” I’m asking, because I do this alllllll the time. I have caught myself explaining why something costs what it does. “Oh, that’s made with sterling silver and each of those stones are AAA grade… blah blah blah.”
I am almost apologizing for my prices. Somebody needs to slap my face when I do this. And even though I know better, I still do it sometimes. I have to remind myself to stop. It costs what it costs. I am not making things to fill the otherwise empty hours in my days, I’m trying to make money from my craft.
If I’m looking for time fillers, I have a bicycle in my garage that calls to me daily. I have a dog that loves to go hiking, and I have laundry that I’m avoiding.
Knowing that I have applied a logical and well thought-out formula to my prices helps me say what something costs with confidence and without apology.
I know I am not just eye-balling or guessing the prices of things. I know what I have invested in that product and what I want to get out of it. It costs what it costs.
People will pay for something they love. They will pay what it’s worth if they love it enough. They will value it more if they didn’t get it cheap.
They will have more pride in their purchase and you will have pride knowing you sent your little baby out into the world into the hands of someone who loves it as much as you do. I know you know get what I’m saying here.
It’s kudos and compliments in form of money.
It’s validation and it’s a pretty great feeling.
The main point with all of this is simple. Your time and talent is valuable. You can’t compete with similar items which are mass produced overseas. You don’t even want to compete with that because what you make is special.
You are a real live flesh and bone person who loves what they do and who takes pride in making your art. You pay attention to the smallest of details.
You are an artist. You are a maker, not a machine.