Pricing is a very tricky thing for new creative business owners.
Who am I kidding? It can be tricky for veterans as well. Variations such as online venues, craft shows in new territory, new suppliers, different packaging and business goals all affect how you might price the items you make to sell.
Whether you sell jewelry, hand woven fabric, or metal art for home decor there is one BASIC formula that is a good rule of thumb.
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
Let’s break this down.
Materials – Of course, the obvious items such as wire, metal, fabric, and purse handles all apply, the items that you SEE in the end product. But don’t forget things like thread, snaps, and earring wire stops. What about packaging? Some items you may have to estimate the cost of, and that is fine, just be sure to estimate on the high end to protect your bottom line.
Labor – If you were working for someone else how much would you want to make per hour to make the items you are making? I’m guessing that it’s not minimum wage. Do some research and find out what people are earning per hour in various parts of the country to make what you make.
Expenses – Rent, utilities, gas, books related to your business, online shop fees, website fees… it’s a long list. So how do you figure out what your expenses for a particular item are?
First, write down all of the expenses you can think of required to make your item. Assuming you will be selling online, your expenses might include web hosting fees, paypal fees, etsy (or other online shop) fees, padded envelopes, postage etc. Let’s say it totals $480.00.
Now decide how many of those items you might like to sell in a month. Can you make 4 a day for 30 days for a total of 120 items? Divide the total expenses by this number. $480.00/120= $4.00
Profit – So far we’ve covered what it ACTUALLY COSTS to create your product but I’m assuming you want to make a profit and not just break even. Right? This is an element of the formula that many creative business owners don’t consider in their pricing. What do you want from your creative business? Are you trying to quit your day job, pay off your mortgage, or put a child through college? You won’t get far with those goals if you don’t add on an amount for profit that relates to your goals and ambitions. There is no formula for figuring this part out, just make sure not to sell yourself short here.
Wholesale – Once you add materials, labor, expenses and profit you will reach your wholesale number. This is the price you would sell your items to a boutique, to a catalog, or for other very large orders . You would never sell your items wholesale on etsy, ebay or at craft shows.
Retail – Multiply your wholesale number by 2 and you’ll come to your retail price. What if, once you come to this number, you realize that there is no way you’ll sell many items at this price? In that case, it is not the price that needs to change but the item. How can you add value to the item you are selling? Can it be packaged better? Can it be made more quickly or with less expensive elements?
As I said, knowing how to price your handmade goods can be kind of tricky but you will get better at it with practice. Also, keep in mind that selling your work at the right prices will help you reach your business goals. You want your business to be around for a good, long time and in order to do that you need to make a profit.
Here are some other resources for you to consider:
You can find the other posts in this series here:
By: Vicki O’Dell, The Creative Goddess