Pricing my handmade jewelry is one area that I seem to take light consideration to. For many years, I have been practicing new techniques until last fall, I finally committed to taking the leap and work towards a unified jewelry line with hopes to offer wholesale products as well as a bigger platform for my jewelry line. I’m also continuing my component and supply line on Etsy, which has been my mainstay for these past few learning years.
I’ve come across a few great blog posts that are perfect to reference and build your own calculator that fits your products.
How to price your products – handmade, Etsy and beyond
This is the simplest formula you can use:
– (Labor + Materials) x 2 = Wholesale price
The x2 takes into account your profit and overhead as well, so you’re covered. As far as what your labor costs should be, think about how much you want to pay yourself per hour or how much you would pay someone per hour to make your products and divide that number by how many products you think you can make per hour. If an hourly wage is not what you want to measure, then think about how much salary would want to pay yourself per month (or per year) and use that number instead of the hourly rate.
If you plan on selling your products to other retail stores, you’ll have to take that into account. Your retailers will usually mark up your wholesale price at least 2 times.
To set your retail price, use this formula:
– Wholesale Price x 2 = Retail Price (or MSRP)
So if each set of earrings you make costs you $2 in materials, and you pay yourself $15 for the half hour it takes to make them, then your wholesale price is $34 and your retail price is $68. To figure how you should price your products, download the free pricing worksheet below – simply plug in your own numbers and you’ll have a range of pricing to start with. Please keep in mind that if you plan on working with sales reps or distributors, you will want to factor that in to your pricing.
Andrea from Launch Grow Joy, also offers a downloadable calculator on her blog and offers many business building articles as well as seminars that I’ve attended.
Jess Van Denn of Create and Thrive, offers some terrific insight and steps to implement this pricing. She offers the same calculation as above.
Cost Price (labour + price of materials) x 2 = Wholesale
Wholesale x 2 = Retail
Now, if you want to make a profit – which is the amount you have to grow and re-invest in your business – you should double this amount for Retail, which equals $60. (By the way, the retail price is what you should be selling for online, and at markets.)
Sounds like a lot, hey?
But, in professional handmade business circles, this is standard practice. It is difficult for those of us who do this as a hobby to look at it like this sometimes – and when you’re competing with people who sell at a price that doesn’t even begin to come near their true costs, you might feel like you’re being greedy.
Remember – hobbyists aren’t trying to make a living out of selling their craft – they’re just trying to cover materials costs and maybe get a little extra on the side. That is how they can afford to charge so little – their livelihood is not relying on this money!
Also – if you’re selling internationally – and especially if you’re selling in another currency in some places (for example, I still sell in USD on Etsy because I’ve found through experimentation that listing prices in AUD puts off my American customers from buying, but it doesn’t bother Aussies to buy in USD) you need to take exchange rates/paypal fees/paypal currency conversion fees etc into account.
For those of you who want to do a super-serious, completely in-depth calculation to work out your prices, check out this excellent article by Australian Jeweller Simone Walsh.
When you graduate from a hobbyist to a business, you’re going to need to re-think your pricing. Starting with a simple formula like the one above is an excellent start… but it’s not the end of the story. Once you know mathematically what you should be pricing, you need to turn around and look at your price from another perspective.
2. Price with the Heart
There’s more to price than the basic in and out formula. Why do you think Apple has such a huge profit margin compared to other tech companies?
It ain’t because their materials and labour costs are way lower. No, it’s because they’ve built a brand that enables them to charge twice as much for pretty much the exact same technology as their competitor – and their customers are not only happy to pay, they’re ravenous, raving fans, just dying to drop another wad of $$ on the new model eye-phone, even when their ‘old’ one works just fine, thank you very much!
That, my friends, is the power of branding, and that is where pricing with the heart comes in.
Someone who outlines this very issue excellently is my friend Megan Auman. She actually wrote a new post on this recently – but she’s been writing and talking about this issue for a long time now.
You need to start looking at your brand from the outside – through the eyes of your customer. Visit your shop and pretend you have never been there before. That it’s just a shop you’ve stumbled upon while browsing Etsy. Even better, pretend you’ve stumbled across your band on a stand-alone website, or in a retail store! (Etsy can sometimes have the issue of making people expect artificially low prices.)
What does it say to you?
- Does it say ‘professional artisan’?
- Does it say ‘high-quality craftsmanship’?
- Does it say ‘unique, exclusive design’?
- Does your brand scream ‘cheap’ or does it scream ’boutique’?
I want you to be intentionally blind to the prices – blind to the fact that you make these things. I want you to pretend you’ve never made one of your whatevers, and that you don’t have the skill or the inclination to make it.
What would you expect to pay for it? What would you be willing to pay for it?
Take this to another level. Are you even your target customer? Because hey, maybe your target customer is someone who is willing to pay WAY more for your whatever than you would. What might someone really be willing to pay for your wares?
A good way to research this is to show your product to friends or family. Especially those who are a little bit removed from what you make. Ask them – ‘if you saw this in a shop, what would you expect to pay for it’? You might be surprised.
I’d like to let you in on a little secret.
I actually raised my prices 2 times last year. The first was a small, 10% rise in April. The second was a much more dramatic rise in September (and honestly, I have to thank Megan’s talk at the Artful Biz Con for finally giving me the push I needed to take that step).
For example: at this time last year, I was selling this pair of sterling silver earrings for $22 ($22!! I seriously can’t believe that figure now – SO low!). Then it was $25. Now it is $35, and I’m much more comfortable that I’m on the right track with my pricing. Megan would probably tell me off – tell me I should be charging about $60 retail for them – but I’m not quite there yet! Like I said at the beginning, you’re never ‘done’ with pricing.
In the first 2 months of 2013, I sold around the same volume of jewellery on Etsy as I did this same time last year. (I sold a lot more overall this year because the business on my own website is much, much higher now). However, guess what? My revenue – the money I earnt – from those same volume of sales? It’s DOUBLE what I earnt last year. Therein lies the power in raising your prices to what you and your work is worth.
Not only that? I am much more comfortable with my prices now. I am a professional artisan. This is my livelihood. I have years of skill and practice. I make an excellent, quality product.And my prices reflect that.
- Visit your shop and do the above ‘I am a stranger’ exercise. I’d love for you to come back here and share your findings!
- Take just ONE of your products and work out a price using the formula I gave you above. It is very basic, but it’s a good start. Share with us what you discover – are you pricing way too low?
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.
Following the advice from these professionals, will push our hobby businesses into professional businesses. I believe this is a hard concept to get your head around but, but once we leave our hobby diapers and put on our professional pullups, we will never look back.
I would love for you to link your favorite business strategy posts, comments of what’s worked for you or even questions you may have and I’ll do my best to answer. Please understand I am still wearing diapers at night…but I’m getting better every day! Haha
How about you?