How do you know what price to set for your crafted items?
Ahh, the age-old pricing question! We all ask it – and chances are, we’ll keep asking it for as long as we’re in business.
I hate to break it to you, but pricing is never a done and dusted thing. As your business grows – as you grow as an artisan – what you make and what you charge will evolve with you. Also, there is no one-size-fits-all magic bullet to pricing. Sorry!
However, there are some tools, guidelines and strategies to take into account when you’re pricing your wares to ensure you’re making the money you need to be making – and making what you and your work is worth, rather than underselling yourself. Underpricing is a huge issue in the handmade community, and anything I can do to battle that is a good thing in my book.
1. Price With The Head
Let’s start with the most basic of tools – the formula. I promise it’s not too scary!
I have found many formulas out there. You might have seen some too. We’re going to pick one to run with today that’s not overly complex. When you get more in-depth with your pricing calculation, there are lots of other factors to consider (such as your overheads) but let’s just start with the basics.
The formula is:
Cost Price (labour + price of materials) x 2 = Wholesale
Wholesale x 2 = Retail
So, what does this mean to me, and you?
Well, say you have a labour cost of $20 per hour (think about how much you could live on if this was your full-time business – this is actually a pretty low number), and your materials cost for an item was $5. Let’s say I made a pair of earrings that took half an hour.
$20 x .5 = $10 labour + $5 materials = $15.
$15 x 2 = $30 = Wholesale Price
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 in your Etsy shop, and at markets.)
Sounds like a lot, hey? 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.
You’re not. You’re a professional maker. You’re running a business that needs to pay your bills. You deserve to get paid what you and your work is worth. 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 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 need to be pricing in order to cover costs, pay yourself a wage, AND make a profit, 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 iPhone, 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.
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.
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? And why?
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 relatively easy 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 have done this in the past, and been really surprised at the outcome. Years ago, when my prices were much lower than they are today, I had a number of people – friends and acquaintances – tell me that my prices were too low! And I listened to them.
There’s a funny paradox when it comes to charging what your work is worth. Every time you put up your prices, you are scared – I know I was! You worry that no-one will ever buy anything again. That sales will dry up. But something I’ve noticed over and over again, not only in my own shop, but I’ve heard this same thing from many of my students, is that sales usually stay the same, or even increase!
And if they don’t? Well, let’s say you’ve realised that the original prices you set were way too low, and you’ve doubled them. Even if your sales drop by half, you are still making the same amount of money (actually, more, because more of each sale is profit) with half the amount of work. That frees you up to do other work to grow your business. That doesn’t sound so bad, does it?
- Visit your shop and do the above ‘I am a stranger’ exercise. I’d love for you to come back here, or to the Facebook group, and share your findings!
- Take 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?