Read the entire article Professional pricing for craft and design, By Simone Walsh here:
Your business should pay you a realistic wage for the amount of time you spend working in it, including covering income tax and other costs.
If this makes you feel uncomfortable, think about how much you would need to pay someone else to do the work that you do. Also think about how much you’d want to be paid if you were employed doing the same work you do in your business.
You are just as entitled to earn a living wage from what you do as anyone – even if you love what you do! Read more about what it means to truly support indie designers.
Calculating non-chargeable wages:
Most makers at least know to incorporate a labour rate into their pricing for the items they make to sell. However, wages shouldn’t end there.
Consider the time you spend in your business over the course of a year which is not chargeable as part of creating an item. This might include time spent photographing, marketing, doing admin work, researching, sourcing materials, packing and posting orders, etc..
Start by estimating the number of hours per week or per month you think are needed for this type of work. Then determine an appropriate hourly rate for this work – what would you need to pay someone else to do it for you?
Then calculate the time and hourly rate into an annual figure based on the number of weeks you operate your business each year. As an example:
- 10 hours per week x $20 per hour = $200
- $200 x 48 weeks = $9600 per annum
Set this annual ‘non-chargeable wage’ figure aside for now. It should be included in your overheads calculation as part of your breakeven analysis (see below).
Calculating chargeable wages:
Your chargeable wage is the income generated by the labour rate included in the price of each each item you make to sell.
Every piece you make should have your labour factored into it. It doesn’t have to be timed down to the last second – I make an educated guess as to what a piece will take me to finish on average once I have it in production.
To help work out what your labour rate should be, a great place to start is to calculate the annual personal income (on top of the above non-chargeable figure) you need or would like to be earning from your business.
Then determine how many weeks a year you will work in your business (allowing time for holidays, illness, etc – 48 weeks works for me).
Finally, estimate how many hours a week you expect to work on making items which you will then sell. Remember to allow time for all of those other business-related things you need to do – and don’t forget you need to have a life, as well!
Divide the annual amount you wish to earn from your labour by the number of weeks you intend to work per year. Then divide that figure by the number of hours per week you estimate you’ll spend actually making work to sell to get your hourly rate.
As a fairly outrageous example, let’s pretend you want to make $500,000 a year in wages and you only intend to work 5 hours a week making what you sell:
- $500,000 divided by 48 weeks = $10,416 a week
- $10,416 divided by 5 = $2083 (that’s your hourly labour rate!)
If whatever your hourly figure works out to be looks unreasonably low or high, then take a step back to the big picture and reassess. Keep doing this until you have a figure you’re happy with.
Of course you can always adjust this figure at any point: this is just a method to help you come up with a realistic amount, based on your own life along with your economy (almost every country will be different as to what an appropriate labour rate looks like).
Use your final hourly rate figure to calculate costs for your time for everything you make and include it in your spreadsheet or whatever method you are using to add up your direct cost of sales (such as materials and processes for each piece).
Note that this chargeable wage figure does not get added to your overheads (see below).
A major step towards professional pricing is to do a ‘breakeven analysis’ for your business. This will give you a big picture view as to the margins you need to add to your work in order to make ends meet – and hopefully make a profit too.
The one thing that so many design/craft pricing methods forget is that your business must cover all of its costs – not just materials and labour. Every tool you use, every advertisement you pay for, every business card you have printed, etc. must ultimately be covered by your business turnover.
Even if your business isn’t doing this as you get established, you need to aim for this to happen in the longer term. To do this you need to know what these costs are and how they at least should be impacting upon your pricing.
There’s much more to complete Simon’s overview. I’ve just pulled the highlight from his post, please visit the link above to read.