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.
- 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!
- 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?
- Do you know anyone who needs this info? Share it with them via twitter, facebook, pinterest or G+ below.
P.S. Want more? Join the Thriver Circle and get immediate access to an in-depth video workshop on this topic. It’s just $15!