Pricing is one of the most difficult parts of setting up any business. As your business grows – as you grow as an artisan – what you make and what you charge will evolve with you.
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
Price With The Head
Let’s start with the most basic of tools – the formula.
I have found many formulas out there. The most fundamental and basic one is probably this:
Materials + Labor + Expenses + Profit = Cost Price
Cost Price x 2 = Wholesale
Wholesale x 2 = Retail
Materials: Make sure to cover all your material fees. Consider the little things like the cost of thread, and the bigger things like the cost of packaging
Labor: Be honest with yourself about how much time it takes to make a piece, and how much your time is worth. Accordingly figure out a hourly wage for yourself.
Hourly Wage x Number of Hours = Labor
Expense: Jot down every expense you can think of — for example, include your Etsy fees, office supplies, rent or utilities.
Next, come up with the number of items you’d like to sell a month. Divide that number into the total expenses.
Profit: Think hard: Where do you want this business to go? Do you want to quit your day job? Do you want to pay off a student loan? Accounting for profit now will help you get there. This number really depends on what you are selling, and will make up for someone like a printmaker, whose material costs are low, labor hours might be low, but should be paid for their unique talent and point of view! I leave this up to you. Value yourself and have a vision for your business.
Bringing It All Together and you will get the cost price.
Double the Cost Price to get the WholeSalePrice and Quadrupled the Cost Price to Get the Retail Price of the corresponding product.
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!
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.
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.