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The Pricing Formula: Getting it Right

May 24, 2012 by Maggie 15 Comments

Deciding what to price your craft products seems to be the one thing that puts a pause in many people’s plans. How much should you charge? You don’t want to put too high of a price on your work because you want to make sales and people have been pinching their pennies particularly hard these days. You also don’t want to undersell yourself either. You worked hard, you want to get paid fairly. What I’ve found that many craft business owners do is follow a formula to calculate how much they should be charging. I found this awesome formula on the Etsy blog.

The Pricing Formula:

Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail

Makes sense doesn’t it? Or at least it seems to. Here’s a little break down of the pricing formula:

Materials – this is exactly what it sounds like. The cost of your materials is an important part of what your price will be.

Labor – how much would you like to be getting paid an hour? This is how you would calculate your labor costs. Don’t pick a number out of thin air though. We’d all love to be making $100 an hour, but that’s not realistic. Do some online research and see how much a seamstress or a jewelry designer makes and hour, this will be your starting point.

Expenses – every penny you spend on your business should be accounted for in the price of your product.

To see a full break down of the pricing formula, check out the full article on the Etsy blog and get your items priced and on the market!

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Maggie
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Filed Under: Sales Tips Tagged With: pricing, Selling Online

Comments

  1. lena says

    September 19, 2012 at 9:45 am

    I do not see how that formula will work for knitting.
    According to that formula the price tag will be way beyond what anybody would pay.
    For excample for a cardigan
    Yarn — $60 (average)
    Hours (40)x$5an hour=$200
    expenses – buttons -$10
    profit???
    60+200+10=$270×2=$540
    Will you buy it????

    Reply
  2. Jealith says

    October 3, 2012 at 6:42 am

    I agree with lena. On many items we make for sale there is no way to follow that formula. However with a little crativity it can be worked around. I bake. I bake fancy expensive ingredient type breads like double chocolate cream cheese banana bread or cheesecake pumpkin bread. Two 9×5 loaves would be very costly. However the same batch can make five mini loaves. Instead of charging $7 each for a 9×5 loaf I can charge $3 each for a mini loaf. 5×3=$15 or 2×7=$14. The mini loaves sell, the larger loaves don’t.
    I would say to lena, don’t try to make sweaters that you can’t get your money back from. Make scarves and hats that you can sell.

    Reply
    • maggie says

      October 3, 2012 at 8:39 am

      Thanks for the advice Jealith. That’s a great tip!

      Reply
  3. Michelle says

    March 20, 2013 at 3:32 pm

    That is an expensive target.i think if you can make many small things inexpensively ,make great profit off them.Call this your bread n butter money.then with the sale of the not so many larger items at a good but not unrealistic price , you have your cream money.best wishes to all you crafty sellers.

    Reply
  4. Jolene Jones says

    April 2, 2013 at 11:00 am

    I usually price my crochet items at 1.5 x the cost of materials, and that seems to be what the market will stand. As Lena stated, the price would be too high if you used the formula that is suggested above. I get some disagreement from folks thinking my prices are still too high, but I remind them that the cost of materials has jumped considerably in the past several years, and I have no problems selling my stuff. I only attend about three craft shows per year, as I work full time and have a side business. At my age, you would think I’d slow down, but that will come later on; right now, I am enjoying doing what I do and see no reason to quit.

    Reply
    • Mariana says

      February 7, 2014 at 5:17 pm

      I like the 1.5 times the cost of materials. My only question is, How do you charge for afghans that are varying sizes? I make all sizes from baby to king size. I have sold a queen size that was made from a number of separate squares that I then sewed together for $120. I am wondering if that was a good price? What would you sell scarves, shawls, mittens, etc for? I am new to selling my crocheted items and would appreciate any input from those of you how have sold these items also. Thank you.

      Reply
      • Donna Lee Tetsell says

        April 8, 2014 at 10:38 am

        I also crochet afghans and i charge 3x the cost of my yarn. I have a list of orders to fill. I’m happy and so are my customers

        Reply
  5. Diana says

    April 16, 2013 at 12:00 pm

    I don’t understand what you put under “profit”. If you looks at the formula it looks like to me like, cost of material, labor , expenses then x2 cover it and then finish the difference for wholesale or retail. Can you explain what the profit addition would be? I’m using this for jewelry making and just starting.
    I also crochet and may see if I can sell more from that. I agree with Lens though, you could not use this formula for sweater’s. If I sold my crochet work it would be scarves, hats and things for babies or small children.

    Reply
    • Maggie says

      July 12, 2013 at 10:33 am

      Hi Diana,
      The profit portion is what you’re hoping to get out of this. Do you expect to make $1 on each item? $2? $40? You can see a full explanation in the full article linked at the bottom.

      Reply
  6. Jo says

    August 13, 2013 at 6:51 pm

    I am disabled, I craft for something to do and maybe a little something extra once in awhile. I would/will continue to make stuff regardless of sales but this is a luxury not afforded to many. It also limits the quality of my materials as my funds are greatly limited. Recently I was offered a chance to place my crocheted items for sale on an existing website. I have some finished items and I have contemplated the pricing on them a lot. I have asked around, checked etsy, had toms of input from other crafters, possible custmers, and even the website owner. I have been given this formula twice before but I have two basic issues with using this formula to determine the selling price. First, As pointed out above, materials costs can be quite substantial with even a simple baby blanket easily requiring 1200 yds of yarn. Second, when I do the calculation I find the market doesn’t even have the ability to bear a price calculated using the set hourly minimum wage. Given these two details and knowing my own financial situation is shared by many in my community I find it difficult to imagine this formula would drive sales. Is there a follow up of your experiences with it?

    Reply
  7. Marlies says

    January 28, 2014 at 10:12 am

    I do Native-inspired beadwork using mostly seed beads. The expense of buying seed beads is nominal; the hours it takes to make a pair of beaded earrings or anything else is what makes the jewelry expensive to those that do not understand that it is handmade. Any suggestions on pricing would be helpful. I usually go by the time it takes to finish it.

    Reply
    • Cindy says

      April 8, 2014 at 9:38 am

      Marlies, I also do Native beadwork. As you said, buying beads is a nominal expense – a hank of beads will go a ways! My smallest take me about 10 minutes; my longest take me about 30. My small are $3 a pair, my largest are $15. I figure time at $10 / hour, and I’m actually told I should go higher. But, advice from a wise old friend was that if you keep it at $5 or under (for the smalls) people are more apt to buy. Figure up the actual cost of materials, then figure your wage at $10 / hour. And yeah, I did Mountain Man Rendezvous, so did a lot of the more detailed work – medicine bags, etc. Tourists came through thinking they could pay $20 and I should be thankful they were taking my stuff! Stick to your guns because those that will appreciate your craft will be willing to pay!

      Reply
  8. Suzan says

    April 8, 2014 at 3:46 am

    What I have learned about pricing is to find out what the market will bear and then work from there. For instance, I make bags that look very much like Thirty One bags and Vera Bradley bags. I sell my bags for roughly the same price. I charge more for custom bag orders but people expect to pay a little bit more for custom work. For crochet items, I am not not concerned as much about my hourly rate. I crochet at night because I like to keep my hands busy. Crocheting is relaxing. I sell scarves for the prices that I see them in shops. My crafty items are my bread and butter at craft shows. I make key chains that cost me roughly $2 for materials and about 2o minutes to make. They sell for $15 per unit. I buy all of my materials (fabric, yarn, beads, paint, etc.)on sale or clearance. The bottom line is that I make better profit on some items than others but in the end I make a decent profit on my work or I would not continue to do it!

    When it comes to quilts, the market has been ruined by quilters that buy cheap fabric and then sell a quilt for prices that do not have any profit built in. My baby quilts sell for between $125 and $250 depending on the size, design and time it takes me to quilt. Some people think my prices are high. They absolutely are not. I don’t sell quilts on Etsy because a buyer cannot look or feel the quality of my work. I sell quilts privately and sell enough to make me happy.

    Reply
  9. Tina says

    April 8, 2014 at 11:28 am

    Know your area and know what will “price out”. Most things I cover all material cost plus another 1/2, some I have float room which is extra profit. I actually make and sell everything from Sugar Scrubs to beautiful framed pieces and this that and the other’s. I have my items selling in a craft store, I sell from my social page, and I have repeat customers for many special requests and holiday orders. I have found that if I put some smaller pieces with some of my more detailed pieces than my labor evens out amongst them all.

    Reply
  10. Martha says

    December 12, 2015 at 7:59 am

    I think “profit” would be the amount I would make from each piece at a whole sale level if I was paying someone else to help me produce an order. If I had an order for 30 pairs of earrings, selling wholesale to a store, and paying my friend $12,00 an hour to help me get them done, profit is my earnings after materials and expences.
    Something like that.
    If you are a retailer, i.e. you market your product, you have more work to do. If you had to pay someone to sell your product, that is part of the X2 =retail price. In most of our cases, we are the laborers and the sellers so we earn 2 salaries.
    Some “crafters” stop at the wholesale price point but cannot offer discounts to bulk buys or ever put items in stores on consignment at a 40% to 50% payment to the retailer.

    Reply

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