There are a lot of pricing formulas out there and they are great. However, you have to pick a formula that works best for you.
The most common and simplest formula would be: Materials + Labor + Overhead, then multiply the answer by two – that would be your wholesale price. For the retail price, it would be the wholesale price multiplied by two. If this formula works for you, then great. However, you also have to consider all those fees from Etsy just be sure that you’re getting enough profit from your products.
How to Calculate the Cost of Your Materials
When you’re calculating the cost of your materials, you have to include every component in your item. For example, you’re selling plush toys. You have to include the cost for materials such as fabric, thread, label, stuffing, and rickrack.
You must consider the price of what you used for one item. For example, you brought 5 yards of fabric for $20 and used only 1 yard – that would be $4 for that one piece of item.
How to Calculate Labor Costs
First, you have to set an hourly rate and pay yourself and your other team members a fair wage. Several professional crafters would go for $12 to $20 per hour.
Now that you have your hourly rate, you have to consider the time it takes for you to do your items – from designing to shopping for supplies, constructing the item, and taking photos of the item.
What Makes Up the Overhead?
Your overhead cost may include the following:
- Office supplies
- Tools used to make your items
- Packaging supplies
- Utilities (electricity, internet connection, etc.)
- PayPal Fees
- Etsy Fees
The cost for the overhead can be an estimate because it’s hard to calculate the exact cost.
To make things easier, you can calculate your overhead by coming up with an average rate for all of them. You also have to come up with an estimate of how many items are sold per month or year. Here’s an example:
Let’s estimate the monthly cost for the following:
- Office supplies – $20
- Tools – $20
- Packaging supplies – $30
- Utilities – $60
- PayPal fees – $50
- Etsy Fees – $50
The sum would be $230 per month.
Let’s say, you’re able to sell 50 pieces per month for one item.
That would be $230 divided by 50, which is $4.60.
That $4.60 would be your overhead cost for each piece.
- Materials – $3.50
- Labor – $5
- Overhead – $4.60
That would be ($3.50 + $5 + $4.60) x 2 = $26.20 for the wholesale price
Then $26.20 x 2 = $52.40 for the retail price.