Looking online for ideas on how to price your handcrafted goods is a lot harder that I would have expected.
Pricing a handcrafted item isn’t nearly as straightforward as pricing items that are mass manufactured and made with materials bought in bulk with clear pricing.
The Internet is flooded with blog posts, comments and articles, and, from what I have learnt, there seems to be no universally accepted formula for deciding on the pricing.
This comes as no surprise, since different types of handcrafted goods are made in different ways.
Some are made from materials found in every home, others from vintage one-of-kind supplies, and some may even have local and unusual goods.
Some products may need only a half-hour to assemble or create, others may take days.
This post is an attempt to clear the waters for all those crafters and artists who create handmade time consuming items.
It is an explanation of the technique I use for the items I sell that belong to this category, as well as a few pieces of advice that I picked up while trying to find my magic pricing formula.
There are two things that you must keep in mind when deciding on the price of your goods:
- How much the materials required for the craft cost
- How much the time spent on creating the item costs
Surprisingly, some online resources suggest that prices should be based solely on the cost of materials, but that’s just ridiculous.
You must count your time and make sure to pay yourself a fair going rate.
Whoever wrote that advice probably never created anything by hand.
Others, on the other hand, some suggest that the price of both materials and time invested should be multiplied twice, thrice or even four times to arrive a wholesale price of the item.
This could lead to overpricing the items, and may leave you with days spent working and no one interested in buying what you made!
In short, the formula I’ve had the best success with is to consider the material costs, the time costs, as well as any overhead costs that may have come up along the way.
I have spent weeks trying to find the best way to include all of the above factors, and what I have come up with is the following equation:
- [(Working Hours x $/hour) + 2 x (Cost of Materials)] x 1.1 = Wholesale Price
- Wholesale Price x 2 = Retail Price
The first part of the equation is the time spent working.
The hourly price ($/hour) is an individual decision and therefore depends on how much you believe your time is worth.
A lot of people sell themselves short on their cost per hour.
It’s good to consider what experienced and successful professional in your industry or in industries similar charge for their time.
If you’re new to the niche maybe bill your time at a lower hourly rate to get started.
You may even get paid below minimum wage when you get started. But if you pay yourself that for long it will not be worthwhile.
As my experience grows and my products increase in demand, I make sure to increase my hourly rate for this calculation.
The second part of the equation are the material costs.
As you can notice, the cost of materials is doubled in the equation, which is a way of accounting for any overhead costs.
These include things like shipping, broken or wasted materials, common items that you use and cannot attach a price to, such as gluing liquids and the like.
My feeling is that doubling the price of materials cost generally covers all of these.
If that is not the case in your industry then you need to calculate extra overhead costs as clearly as possible and count them in the materials expense.
You can add up all your monthly overhead costs, then divide them by the number of orders or products you produce every month for a good general overhead cost.
If you do that then you may consider changing the formula to only multiply the costs of materials by 1.5 times instead of 2.0.
The third part of the equation is the ten-percent addition to arrive at the wholesale price.
This is a way of ensuring some profit, as well as including costs that are impossible to calculate, such as the cost of air filters, toilet paper, you get the idea.
In short, the ten-percent increase gives you some more freedom when it comes to calculating costs.
Also – if there are no such costs, the 10% you receive on wholesale deals can be used as an investment for future projects or some more supplies.
How much profit you want to make out of wholesale is also an individual decision.
If you feel that you should need more – or less – feel free to adjust the equation.
In the next equation, the point is to figure out the retail price.
If your plan is to land some wholesale accounts, the retail price of your goods should be double of the wholesale.
The majority of retailers consider that to be the general rule.
I am sure that by now you did some mental math, and it has probably crossed your mind that the prices are too high.
I felt the same way, and my first thought was that nobody was going to pay this much money!
However, I was then reminded of what many of my fellow crafters told me: “People who cannot make what you can are willing to pay for it.”
I quickly remembered the many times I have paid for crafts that I could not make, and I never regretted doing it for things that were beautiful, high-quality and made by hand.
And these are the exact qualities my customers are looking for in my products!
Finally, before you start writing down your prices, you should think about any other costs you have before your product is ready for sale.
- How much do your advertising, etsy shop, packaging, photographing and all the other prep-work cost?
- Are all of these covered in your overhead costs?
In my case, I believe that the doubled retail-price takes into account all these, and I do not include it in my wholesale price because selling wholesale does not actually include any of the costs.
However, you may find it more suitable to include this in your wholesale price, which is absolutely fine.
All in all, my formula is very flexible – you can try it on, build on it, and tailor it according to your needs.
Once you are satisfied with how your prices are, you can keep it like that for some time.
However, if you learn along the way that it may need some additional factors, feel free to include them.
Perhaps you will decide to include the time for taking pictures and building advertising in your working hours, and that is more than okay.
In short, if it does not fit you completely, do not hesitate to personalize it!
Let me know if the comments below what you think about my formula, or if you have a formula that works better for you.
Also let us know what industry you’re in, it’s great to get a perspective of how people from different industries calculate costs.