C&T Q&A – How Do I Price My Handmade Goods?

 

how do I price my handmade goods

Today’s question is from Linda Ursin, and she writes:

How do you know what price to set for your crafted items?

Ahh, the age-old pricing question! We all ask it – and chances are, we’ll keep asking it for as long as we’re in business.

I hate to break it to you, but pricing is never a done and dusted thing. As your business grows – as you grow as an artisan – what you make and what you charge will evolve with you.

There is no one-size-fits-all magic bullet to pricing. Sorry!

However – there are some tools, guidelines and strategies to take into account when you’re pricing your wares to ensure you’re making the money you need to be making – and making what you and your work is worth, rather than underselling yourself.

Underpricing is a HUGE issue in the handmade community, and anything I can do to battle that is a good thing in my book 🙂

 

1. Price With The Head

Let’s start with the most basic of tools – the formula. I promise it’s not too scary!

I have found many formulas out there. The most fundamental and basic one is probably this:

Cost Price (labour + price of materials) x 2 = Wholesale

Wholesale x 2 = Retail

So, what does this mean to me, and you? Well, say you have a labour cost of $20 per hour (think about how much you could live on if this was your full-time business!). And your materials cost for an item was $5. Lets say I made a pair of earrings that took 1/2 an hour.

$20 x .5 = $10 labour + $5 materials = $15.

$15 x 2 = $30 = Wholesale Price

Now, if you want to make a profit – which is the amount you have to grow and re-invest in your business – you should double this amount for Retail, which equals $60. (By the way, the retail price is what you should be selling for online, and at markets.)

Sounds like a lot, hey?

But, in professional handmade business circles, this is standard practice. It is difficult for those of us who do this as a hobby to look at it like this sometimes – and when you’re competing with people who sell at a price that doesn’t even begin to come near their true costs, you might feel like you’re being greedy.

Remember – hobbyists aren’t trying to make a living out of selling their craft – they’re just trying to cover materials costs and maybe get a little extra on the side. That is how they can afford to charge so little – their livelihood is not relying on this money!

Also – if you’re selling internationally – and especially if you’re selling in another currency in some places (for example, I still sell in USD on Etsy because I’ve found through experimentation that listing prices in AUD puts off my American customers from buying, but it doesn’t bother Aussies to buy in USD) you need to take exchange rates/paypal fees/paypal currency conversion fees etc into account.

For those of you who want to do a super-serious, completely in-depth calculation to work out your prices, check out this excellent article by Australian Jeweller Simone Walsh.

When you graduate from a hobbyist to a business, you’re going to need to re-think your pricing. Starting with a simple formula like the one above is an excellent start… but it’s not the end of the story. Once you know mathematically what you should be pricing, you need to turn around and look at your price from another perspective.

 

2. Price with the Heart

There’s more to price than the basic in and out formula. Why do you think Apple has such a huge profit margin compared to other tech companies?

It ain’t because their materials and labour costs are way lower. No, it’s because they’ve built a brand that enables them to charge twice as much for pretty much the exact same technology as their competitor – and their customers are not only happy to pay, they’re ravenous, raving fans, just dying to drop another wad of $$ on the new model eye-phone, even when their ‘old’ one works just fine, thank you very much!

That, my friends, is the power of branding, and that is where pricing with the heart comes in.

Someone who outlines this very issue excellently is my friend Megan Auman. She actually wrote a new post on this recently – but she’s been writing and talking about this issue for a long time now.

You need to start looking at your brand from the outside – through the eyes of your customer. Visit your shop and pretend you have never been there before. That it’s just a shop you’ve stumbled upon while browsing Etsy. Even better, pretend you’ve stumbled across your band on a stand-alone website, or in a retail store! (Etsy can sometimes have the issue of making people expect artificially low prices.)

What does it say to you?

  • Does it say ‘professional artisan’?
  • Does it say ‘high-quality craftsmanship’?
  • Does it say ‘unique, exclusive design’?
  • Does your brand scream ‘cheap’ or does it scream ’boutique’?

I want you to be intentionally blind to the prices – blind to the fact that you make these things. I want you to pretend you’ve never made one of your whatevers, and that you don’t have the skill or the inclination to make it.

What would you expect to pay for it? What would you be willing to pay for it?

Take this to another level. Are you even your target customer? Because hey, maybe your target customer is someone who is willing to pay WAY more for your whatever than you would. What might someone really be willing to pay for your wares?

A good way to research this is to show your product to friends or family. Especially those who are a little bit removed from what you make. Ask them – ‘if you saw this in a shop, what would you expect to pay for it’? You might be surprised.

I’d like to let you in on a little secret.

I actually raised my prices 2 times last year. The first was a small, 10% rise in April. The second was a much more dramatic rise in September (and honestly, I have to thank Megan’s talk at the Artful Biz Con for finally giving me the push I needed to take that step).

For example: at this time last year, I was selling this pair of sterling silver earrings for $22 ($22!! I seriously can’t believe that figure now – SO low!). Then it was $25. Now it is $35, and I’m much more comfortable that I’m on the right track with my pricing. Megan would probably tell me off – tell me I should be charging about $60 retail for them – but I’m not quite there yet! Like I said at the beginning, you’re never ‘done’ with pricing.

In the first 2 months of 2013, I sold around the same volume of jewellery on Etsy as I did this same time last year. (I sold a lot more overall this year because the business on my own website is much, much higher now). However, guess what? My revenue – the money I earnt – from those same volume of sales? It’s DOUBLE what I earnt last year. Therein lies the power in raising your prices to what you and your work is worth.

Not only that? I am much more comfortable with my prices now. I am a professional artisan. This is my livelihood. I have years of skill and practice. I make an excellent, quality product. And my prices reflect that.

Do yours?

 

Homework

  1. Visit your shop and do the above ‘I am a stranger’ exercise. I’d love for you to come back here and share your findings!
  2. Take just ONE of your products and work out a price using the formula I gave you above. It is very basic, but it’s a good start. Share with us what you discover – are you pricing way too low?
  3. Do you know anyone who needs this info? Share it with them via twitter, facebook, pinterest or G+ below.

Jess

Van Den has written 379 posts in this blog.

Jess Van Den is the editor of Create & Thrive, and has been a full-time creative entrepreneur since 2010. She makes eco-conscious, contemporary, handmade sterling silver jewellery under the Epheriell label, and blogs about her jewellery and other beautiful things at Epheriell.com. You can catch her on twitter @JessVanDen.

Comments

Elizabeth Pickett
Reply

Jess,

Even though I have been in business for years – I appreciate your thoughtful, and helpful articles. They always make me look at my business from a new perspective!

Thank you! Liz

Megan
Reply

I am brand new to markets and am finding that unless our prices are on the low side, we don’t make anything at all because ppl don’t buy. As it is we literally just cover our costs to be there in the first place. Two of us do not even earn 1 days low paid wage for one person (in pure profit). We are about to seriously review what we can do to improve things so I will apply this advice as much as I can and see if we can turn things around.

Jess
Reply

Megan, what you’re experiencing is pretty common. Most people I know who do markets don’t do them to make money – they do them to get their brand out there. Basically markets = a form of marketing to bring people back to their online or other retail locations. People seem to buy on the spot less and less these days – they’re more likely to take your biz card and make a purchase online later.

You’ll definitely want to look at the market/s you are doing – are they the right fit for your products? Are they bringing in the right customers? And, on the flip side, are you making/selling a good price-range of goods? Does your work stand out in the crowd?

Good luck working this one out!

Julie Miniboux
Reply

I am so glad I found you a while back. Your articles are full of advices and this particular post is exactly what I needed today as I am struggling with prices these days. I have been asked about my wholesale prices and I just don’t know them, it’s really not easy at all to figure them out ! I also sell my work in a retail shop dedicated mostly to handmade and the owner thinks my prices are too high but I just can’t lower them as my business is my full-time job. It’s really hard to remind people that ‘Hey, I pay taxes too and I’ve got to eat’ !
I’m definitely gonna have to try out the “I’m a stranger” exercise, but it won’t be easy because you know so perfectly your products ! And I will also try to pretend that I have a job that pays well and pretend I could afford my own work. Because if I was a stranger to my products, I would probably only buy myself a postcard from my own shop ! Crazy, uh !
Well, thanks again !

Jess
Reply

Thank you, Julie! 🙂

My first instinct is to tell you to get rid of that shop and find other places to sell your wares. I had a quick peek at your shop, and if those prices are the ones you’re expecting the store to sell at, then man, they are too LOW!

If they’re your wholesale prices, then you need to double them, baby, and sell at retail price online! Your stuff is super-cute, and I reckon has the potential to do really really well. Very nice photography, too, btw 🙂

sailormouthsoaps
Reply

Great article Jess. This is something I struggle with on a daily basis. What would you suggest for a handmade item that has a perceived low cost by a large segment of the population? (like soap, balms, candles etc). I have done the pricing exercises before and came to anywhere from $12 to $20 per bar for retail cost.

Jess
Reply

Thanks! I think it is a struggle for those of us who sell ‘low-perceived value’ goods – like soap or cards etc. Sure, you can buy a bar of soap for less than a buck at the supermarket… but really, the people who are doing that are NOT your customers. I think positioning yourself as a high-quality, indulgent, pleasure product is the way to go.

I buy handmade soap, and have for a few years now. Honestly, those bars last SO long, and every time I use one, it’s like a teeny little bit of luxury. By using photography, branding and language in the right way, you could easily sell a bar of soap for $12, I think. It’s all about your customer, too – if you were selling your soap through exclusive, luxury boutiques, that would be the way to help elevate your brand and get it in front of the right people. I’d also send gift baskets to celebrities if you can! 🙂

I could ramble forever… but hopefully this gave you a few ideas. 🙂

Julia Lucas
Reply

Another great article! Thank you Jess for giving me the courage to increase my prices, to a price I’m more comfortable with. As you know, handmade items take time to create. Have a beautiful day

Jess
Reply

Awesome Julia! 🙂

Jennifer
Reply

Hey Jess! Im curious if you have any advice on growing your website? I’m thrilled it is going so well for you and I would love to know how you have grown your business off Etsy. XO

Jess
Reply

Hey Jennifer, awesome question! I’m going to add it to my ‘to be answered on a Friday post’ pile, so keep an eye out!

Megan Price (@therobintail)
Reply

I find pricing sewn articles is really really hard! It takes so many hours, so many materials..yikes! Still haven’t worked out that one..I think the key may well lie in good time management and possibly production lines!

aislinglane
Reply

I also have a hard time with underselling my items… After reading your article, I raised my prices, but only by a little. By the formula, I should be pricing them around $90! I think my issue is that I would never pay that much for anything. Perhaps because I know how to make it? I’m not sure how to get myself over that hump…

aislinglane
Reply

I’m not sure what gravitar is, but that is what my name on my first comment links to… Sorry…

Red Point Tailor
Reply

I love to read your blog and the newsletter – you are very inspiring and helping to set up me on the good track. Thanks!

Jess
Reply

Thank you so much! 🙂

[…] Another great article was written by my friend Jess from Create & Thrive. She suggested firstly to (a) Price with the head – have a formula and be logical about it. And then AFTER you have got a grip on a logical price, (b) Price with the heart. Think about how branding can change the perception of your product. This does NOT mean lowering your prices back down again! She offers the great example of Apple, who have managed to build a raving fan-base that gobble up ALL the products at PREMIUM prices. Check out the full article here. […]

Jess
Reply

Sweet, thanks for sharing that, Francesca!

Liza
Reply

A tip I picked up a few years ago in my retail/eCommerce sales career – price by replacement cost. Would you say this is still true?

In other words, if I pick up a stack of teal cardstock on sale for .25 a page today, but to buy more will cost me .50 – I price it for what it will cost me to replace when those items are sold,. Or, if the cost of a supply is raised by the manufacturer, I go back to my completed stock items and reprice. This way I can afford to buy new materials to make new inventory. Conventional wisdom or passe?

Of course, I have offered a sale when I got a special buy or limited supply, too, but sometimes it’s just a standard, popular item. 🙂

Jess
Reply

Hi Liza – that’s a great tip, one I hadn’t thought of as my materials price (silver) stays pretty steady!

Elle
Reply

Hi Jess,

Great article! We are always encouraging people to look closely at their numbers and put their prices up!

Thanks for the artfulbizcon shout out too!

Margeaux
Reply

Another great article Jess. The pricing thing scares me too. I’ve tried to follow that formula because I’d like to be able to wholesale my items. I’m just starting out and some days I think my prices are too low and there’s no way I could make a living by selling my OOAK items and other days I think they’re way too high and I’m being greedy. They’re selling at a steady rate so maybe they’re just right??

Magpies Laundry
Reply

Thanks for this article ….. it is slightly terrifying, tho – when I am struggling to make any sales at all, the idea of doubling my prices is giving me palpitations …. especially as I will then be higher priced than other quiltmakers on Etsy. Should the formula be applied as given, head+heart, or should consideration be given to other prices (not the super-low hobbyist prices, but the other professional makers) when figuring prices?

Magpies Laundry
Reply

Thanks Jess …. it’s very helpful, but now my head hurts – so much thinking to do!!

Vicki Taggart
Reply

Good ideas, but I’m one who hasn’t sold anything yet – so why would I put my prices UP?
I have asked my friends to check my Etsy shop and pass it on to friends and give feedback but still nothing……

Amber Elisabeth
Reply

Sorry to say this does not work. I have talked with many different business owners from online, store front, fairs and even high end shows. None have made money off this formula. The one they claim make the most money is labor + cost= Z then Z x 2 x 20% = Selling price. so nut shell. 10 +5= 15. 15×2=30. 30×0.20= 36. Maybe 10% of people will buy that item for 60 but 80% will buy it for 36. I personaly would rather make over 2000 from those 80 then waiting on 600 from 10.

Jess
Reply

Firstly, I think formulas are a guideline, and every business will price differently depending on – for the most part – where they want to position themselves in their industry. This is how you can get a $20 dress from target and a $400 dress from a ‘high-end’ retailer that’s made with pretty much the same material with a similar amount of work. It’s all down to brand perception. I like the theory of the formula you shared, and I think that it might work for those who never, ever want to sell their work wholesale. It’s when you try to sell wholesale that it becomes problematic, because you have to cut your retail price by $50, which means you aren’t really making any profit.

And I have to say my personal preference would be to sell less items for a higher margin – it means less manufacturing work 🙂 That leaves you more time to work on the marketing side of the business, which will grow sales – a positive upward spiral.

Finally – people need to realise that pricing is never fixed or ‘done’. When you’re starting out, you will most likely price lower because you are less established. With time and brand building, you can raise prices.

Sarah Hudson
Reply

Fantastic article Jess! I make jewellery from gemstones and trade beads and as it all happened by accident I had no idea what to charge when I started.
What I did was work out roughly what my beads cost; roughly how long it took to make a necklace ( I didn’t “charge” people for when things took longer than expected) and then roughly what I’d be prepared to pay for one of my items if I found them in a shop.
I also wanted my jewellery to be something the customer valued ( like I do) so I didn’t want to pitch it too cheaply. My necklaces range from AUD $60 – $200 and I have no problem selling them at that price. I have found that if people can’t afford them they will either wait for one they can afford or find a way to save up for it. I’ve also found that its not the price which determines what sells or what doesn’t sell – it’s the connection the customer makes to a particular piece.
I’d say to everyone – value what you do and then you’ll find others will value it too. It may take a little while but its worth it and you’ll end up with a brand you feel proud of and your customers feel proud to own.

Jess
Reply

Thanks Sarah! I was in exactly the same boat as you when I started – no idea. And I’m still learning! Great to hear you’ve worked out the prices that work for you and that can keep your biz sustainable.

(P.S. I edited your comment so that the link worked for you 🙂

Sarah Hudson
Reply

Wow Jess – Thank you! How did you do that – if you don’t mind me asking? x

[…] Another great article was written by my friend Jess from Create & Thrive. She suggested firstly to (a) Price with the head – have a formula and be logical about it. And then AFTER you have got a grip on a logical price, (b) Price with the heart. Think about how branding can change the perception of your product. This does NOT mean lowering your prices back down again! She offers the great example of Apple, who have managed to build a raving fan-base that gobble up ALL the products at PREMIUM prices. Check out the full article here. […]

Chelsey
Reply

Jess, this article is awesome! Figuring out how to price my wares has been so stressful!

I do have one question, though. There is a local store that is interested in selling my wares. Do you know what percentage of the profit I should ask for?

Leah
Reply

Great article Jess! Something makers struggle with so often. I’m a portrait artist & I’ve been selling for years, and yes, each year my prices increase. I do struggle with pricing. As a fine artist, it’s hard to figure out my cost: the boards I paint on are low cost, and my tubes of paint, though of the highest quality, often last me more than a year! Either way, my general overhead is low. However, it takes me months to create some of my portraits, so I have to figure out how to price my time and talent/ability/quality of product. When I first started out I had my portraits priced so very low because I myself was broke and couldn’t ever imagine someone paying hundreds of dollars for a portrait! One thing we all need to keep in mind is that we never know what our customer’s budgets are! The most helpful tip I ever received came from my husband: when I had those low, low prices, my hubbie told me to track the hours I was spending to create one portrait & then compare it to the price I had charged my customer. I was paying myself less than $3/hour! What a wake-up call!!

Jess
Reply

Leah – whoa – good think you did the maths on that! 😀

Virginia
Reply

HI Jess
Thank you for this helpful post. I did the stranger exercise but still found it very hard to see it from the customer perspective. I also got a bit depressed when seeing all the stores that work very well. Even though my store works quite well for the short time it exists, I think we tend to only see that we have less facebook followers than other etc.
I also did the pricing thing. I think here in Switzerland because of the tax system it’s a bit different. But the pricing is quite okay according to your formula. That was really great to find out!
Lots of love from Switzerland, the heart of Europe 🙂
Virginia

Jess
Reply

As Teddy Roosevelt said : “Comparison is the thief of joy” – don’t let it get to you! Focus on what’s in your control – YOUR business 🙂 Good luck x

angeline
Reply

hi jess
i have worked in retail more years than i will admit too and have run successful retail and wholesale businesses- and would like to add something to think about if you are nervous about doubling your cost price.

materials + labour = wholesale price +tax

that double mark up has to cover: all your overheads and your profit margin. if you imagine yourself running a business in a rented shop you would have to pay electricity , rent , business cards, advertising etc.

labour isn’t just the hours it takes to make an item , and that double markup has to cover all the extra hours .If you were being paid to run your business ,only a small section of your wage time would be spent on making up orders or ” direct labour” a lot of it would be answering emails , taking orders to the post office , promoting and marketing , researching etc.

Then there’s profit ,which is incredibly important because these are the funds you use to GROW your business, invest in new equipment or software .

i once heard some fabulous advise that said “you are not your customer” and that was an eye opener. You are a talented artisan so take your gift and product for granted when pricing. Some of us may be tempted to think “i wouldn’t pay that i could just make it” .. but to someone who is unskilled in your expertise,your work is magic.

good luck everyone

MEGAN OBRIEN
Reply

I feel so silly after reading this… after doing the math I realise my pricing is RIDICULOUSLY low! I had planned to raise my prices, and now have an idea how to attack this! ……I do wonder if some of my items are just not worth making (eg. too much time spent on an item, could never dream of getting the correct price for it!). I have an idea of approaching MOST of my store with your calculations/heart pricing, and leaving a couple of underpriced items as my ‘showstopper’ to attract the customers to my store. Might be silly, but it’s where I feel comfortable starting, and excited to see where I can go from here 🙂 🙂

Jess
Reply

Megan – sometimes, after doing the maths, you do have to either let go of some products that aren’t sustainable, or work out how to modify them so they are. Good luck!

Amanda
Reply

If I used that formula my prices would be so high. Crocheting is not fast, so I invest a lot of time into each item. I don’t think I would sell anything if I raised them that much. 🙁 I would love if you had time to look at my store, all I currently have is craft shows and etsy. http://Www.AMKCrochet.etsy.com

Edna
Reply

great tips. Thanks for sharing

Brenda Ford
Reply

I am really struggling with the pricing. I have this Snakeskin Peyote Cuff I made, i also created the pattern and i have it at $95 because i feel bad making it higher. But after the calculations it seems it should be like $138 wholesale. if you had a sec to look and tell me what you think i would be greatly appreciative! Thank you for the article!
https://www.facebook.com/peacefulbeautybybrenda/photos/a.1584487431764975.1073741831.1424612591085794/1584487461764972/?type=3&theater

Barb Dolak
Reply

I just started making my own jewelry. I have not yet made anything with , lets say silver, I use mostly silver plated, gold plated, etc etc. I also use ‘stretch cord”, memory wire, those types of things. I do use 9.25 beads on charm bracelets. My question is, are these materials “cheap” for making my jewelry ? Every bit of this is very new to me. I am no where near actually becoming a “business”. But I am trying. Any advice you could share with me would greatly help !!!

Thank You
Barb Dolak

Jess
Reply

Barb – it really all comes down to how you position your work. I mean, look at Pandora! You can buy a fabric cord to put your charms on, and then they aren’t cheap. But yes, as a general rule, you can charge more if you’re using precious materials. Good luck with your biz!

Barb Dolak
Reply

Jess,
Thank You ! I am working at doing just that. I have a lot of jewelry made, and totally understand that I can’t price it any where near what precious materials are priced at. One more question if you don’t mind. How do you know what to pay yourself an hour, for the time that you take making jewelry ? I have some bracelets that have taken me up to 3 hours to do.

Thanks again !
Barb

Esther Franken
Reply

I’m struggling with pricing as well, especially because I’m selling patterns. So my costs are the time of design and then the time of stitching an example. But then I don’t sell just one (hopefully), but over time I’ll sell a certain number (difficult to estimate). Since I feel I can’t price by the conventional formulas, I try to price as my competition does, but it’s still difficult.

Lydi
Reply

Hi Jess – thank you for this amazing post; it was extremely helpful (I’ve been having doubts about my pricing, I’m a henna artist), and you made me feel confident and comforted while reading it!
Warm regards!
Lydi

DianeSladeInc
Reply

Yes, pricing is so difficult. I had a request for wholesale, so I doubled all my prices to make it work. I couldn’t sell any cheaper than I was already. My sales actually increased! My thing is I sew really fast. Thank you for your post!

Jesse
Reply

Hi Jess,
I’m really struggling with my pricing. I hand carve spoons and breadboards from wood and each spoon is very work intensive. (3-7 hours for one coffee spoon! 8-12 for a board!) I scare myself with the formula you’ve given because for something like a coffee scoop would be $320, which is more than what the peak artisan in my field charges. I’m not sure how to bring it down. Should I drop down what I’m given myself per hour? Right now it’s based on $20. But I KNOW I’m a slow worker too.
I’m just about to deliver works to my first stockist and still haven’t given them prices cause I just don’t know! My online wares are sort of just guessed at but they don’t feel right at all and they weren’t worked out with any math really. I could really use some advice

Jess
Reply

Jesse – alas, there is no simple answer. Really, in order to become more profitable, you’ll either need to speed up, simplify your designs, OR increase prices. Definitely do the maths (which can end up giving you a very scary number) then do the second step of the process. And remember – prices don’t have to be set now and forever – you can start lower as a ‘beginner’ in business, and put them up as you get more experienced and your name starts to be known. Good luck!

Lisa
Reply

Very helpful thank you!! I am currently re-branding and re-inventing this came at a great time for me. I really appreciate your time and help 🙂

Dani Nicole
Reply

Hey there! Just wondering if there’s an error here of if I’m misunderstanding:

$20 x .5 = $10 labour + $5 materials = $15.

$15 x 2 = $30 = Wholesale Price

So, what does this mean to me, and you? Well, say you have a labour cost of $20 per hour (think about how much you could live on if this was your full-time business!). And your materials cost for an item was $5. Lets say I made a pair of earrings that took 1/2 an hour.

$20 x .5 = $10 labour + $5 materials = $15.

$15 x 2 = $30 = Wholesale Price

In your example, you already multiplied the wholesale price by 2 for the retail, so you should sell those earrings for $30, correct?

Not trying to be a jerk, just wondering if I missed a step.

My example might be:

Labor ($20 x 1) + $3 = wholesale bibs
$23 x 2 = $46 retail bibs

Jess
Reply

Hi Dani,

You do the doubling twice. Why? Because you need to include overheads and profit in the *wholesale* price. Then, you double this to reach the retail price.

There are other ways you can calculate in the overheads and profit – doubling the labour and materials cost is just one way.

The key is that you need to make a profit on the wholesale price. Because if you’re selling wholesale, that is the income you will be getting. Retailers will then basically double your wholesale price when they sell the item retail – so, if you’re selling direct retail to your customers, you should do the same.

Jessica
Reply

Great article! I love all the content you produce!

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