One of the most frequent questions I hear from crafty sellers new AND old is “How much should I be charging for this?”
A lot of beginners make some common mistakes and misjudgments, so here are some things to consider when pricing your goods, as well as a formula to figure it all out.
Here’s a big beginning mistake I see all too often: Pricing your item way below “competitors” (which I prefer to think of less as competition and more as similar shops, but that’s for another time). The reality is that pricing too low can actually discourage sales because people assume it’s of poor quality.
Another mistake is thinking of yourself as the target customer. If you base your pricing on what YOU can afford, you’re probably under pricing. Guess what? I can’t afford my own stuff. I’m what you call a “starving artist”. I can’t afford to buy designer clothing. Other people can, they just aren’t me.
Handmade goods mean attention to detail, quality craftsmanship, and a significant amount of TIME and SKILL, all of which mean HIGHER PRICE. When you’re pricing your items, I want you to repeat to yourself that YOU ARE NOT WAL-MART.
The bottom line is to remember that you’re doing this for a profit. If you spent $10 on materials, then you better be charging more than $10 for your pieces, or you won’t be able to do this for much longer!
I should also note, there isn’t necessarily a Right or Wrong way to price your stuff. You will find what works for you.
At the very least, there are two things you need to account for when you’re pricing: Materials and Labor.
For our example, let’s say you just made a cute tank top. The materials cost as such:
main fabric – $8 a yard
lace – $2 a yard
elastic – $1 a yard
For this top, you used:
1 a yard of the main fabric ($8.00)
2 yards of lace ($4.00)
1 yard of elastic ($1.00)
Your total for materials is $13.00
Let’s see about labor. You’ll need to decide on your hourly wage. We’ll use $10, which I think is the absolute minimum you should be paying yourself.
(Let me say right here that if you’re an experienced craftsperson, you really should be paying yourself upwards of $20 an hour. You are SKILLED LABOR. Anyone can scoop ice cream, that’s why they pay high school kids $7 an hour to do it. Not everyone can do what you do, and you’ve spent years honing your skill, so pay yourself accordingly. And by the way, if you think $20 an hour is a lot of money, keep in mind that a full time, 40 hour a week job at that wage is about $40,000 a year BEFORE TAXES. That’s lower middle class in most parts of the US.)
Okay, back to the equation.
For this top, you spent 2 hours working on it:
($10 x 2 hours)
Your total labor cost is $20.00
Add together the cost of Materials and Labor ($13 + $20) and you get $33.
Now hold on a minute… don’t go running off pricing your top yet, because $33 is NOT the price you should use.
Well, first of all, this is an extremely rough estimate as far as the cost of an item. There are a lot of “hidden” costs you’re not taking into consideration. For example- the cost of your sewing machine, the cost of your camera and your computer, the electricity used, the time it takes to photograph and list and item for sale, paypal fees, and on and on…. These costs are called “overhead”.
But also, $33 does not account for PROFIT.
I know, I know, you got $20 for your labor, right? Well, look at it this way. If you were an employee making this top, your employer wouldn’t make anything if they sold the top for Labor and Materials. Even wholesalers add on a bit of profit.
Most standard pricing models will tell you to take your “at cost” price ($33) and double it for wholesale ($66). Then you’re supposed to double it again for retail ($132).
My guess is that very few handmade artisans use that method to price their items. In fact, I would guess that most people (myself, included) wind up pricing their items somewhere between the “at cost” price and the wholesale price. That doesn’t mean you shouldn’t use this model, but since most of us WILDLY under price, asking you to try to get full retail price is going to sound like pure madness.
So at the very least, add on a small amount to account for overhead and profit. For this top, let’s say, $10. Even if you’re doing this just as a hobby, this will keep you in the black, so you can continue making cool stuff- even if it’s just for fun.
When you’re first starting out, it makes sense to keep your profit low (which in turn, keeps the prices low). But when you’ve got a decent customer base, don’t be afraid to increase your profit margin… and your hourly wage, for that matter.
When you decide it’s time to raise your prices and make more profit, I suggest you do so by raising your hourly wage. That way, you will be raising the price proportionally for all of your items. So if you decide you’re going to increase your wage by $2 an hour, add another $2 an hour on top of that to account for profit.
Anyway, for this example, we’ll tack on $15 for profit to make the total $43.
For my pricing model, this is what I would consider the wholesale price.
If you’re selling your goods to a store so that they can resell them, this is the price you use. The store will then mark the price up, usually at least doubling it. If you’re consigning, remember to compensate for the consignment fee (which is usually anywhere from 20-50% of the selling price).
If you’re selling your stuff directly to the public, it wouldn’t be out of line for your to double the wholesale price. In fact, that’s extremely reasonable.
A lot of sellers say they feel guilty for charging anything more than a few dollars more than materials and labor. Well, consider this:
Wal-mart buys material in HUGE quantities and has obscenely cheap labor. To make a similar tank top to yours, it costs them LESS THAN A DOLLAR. But they’ll probably sell it for $20. That’s a mark-up of over 2000%! Artists and crafters are the LAST people that should feel guilty for marking their pieces at a reasonable price.
Be forewarned that you will probably hear people make snarky comments like, “I could make that for $5″ or “I could get that at Wal-mart for less.”
Ignore them. Why?
Multiple Choice Question!
A. have no experience selling a handmade item, therefore they have no idea how much time/materials/effort/skill goes into it.
B. have no respect for quality. All they care about is getting the cheapest piece of crap they can find.
C. resent that your awesome piece of work is out of their price range.
D. are jealous that you have your own business making rad things.
Correct Answer? Probably all, or at least more than one of the above.
Whew, that was a lot of info, I know. How about a 10 second recap?
- Prices too low can actually keep you from getting sales.
- Don’t price by what you can afford.
- Don’t forget that delicious word, PROFIT, when calculating your price.
- Remember that Wal-Mart is a greedy scumfuck corporation that’s ruining the global economy.
- Naysayers can suck it!
That’s it! Hopefully I have banished all questions regarding how to price your goods and made you hate Wal-Mart, all in one fell swoop!
Also, check out this article, which has some great points about wholesale vs. retail pricing, selling your hobby crafts, and more.