Monday, September 12, 2011
How To Price Your Handmade Items
There has always been an ongoing discussion on how to price your handmade items. While there are several formulas for doing this, they may or may not work for you. I wrote this article in hopes that it will help you to price your items so that you can make a profit without overpricing to the point no one wants to buy.
First you must establish a baseline break even price for your items. Take into account the material cost + the cost of shipping to get the materials to you + fees from Etsy and PayPal + your minimum wage. By your minimum wage I mean the amount of money that you feel you deserve for your craft. I will give you a hint here. NEVER work for less than you would at a minimum wage job otherwise you are just doing what you're doing as a hobby. Other things to take into account are fluctuating pricing on materials. If you are working in Silver or Gold your baseline pricing will be based on current market value. When pricing your materials you need to price it not as what you paid for it but as what it would take to replace it.
For example you are making a pair of earrings. The cost for materials is $3.85 including shipping and fees, you spend 1/2 an hour making the earrings. You feel like you are worth $10 an hour. (This is assuming you are relatively new to crafting. People with over 10 years experience charge a craftsman wage which is anywhere from $25 to $100 an hour) So, in this example your baseline is $8.85 for your pair of earrings. Now we figure out your wholesale price. My wholesale formula is baseline x 1.5 so, this would be $8.85 x 1.5 = $13.28 This allows you to make a small amount of profit on your wholesale orders.
I also have minimums on wholesale orders to keep individuals from buying 3 or 4 pieces and expecting a huge discount. I set mine by dollar amount usually and will not accept a wholesale order for under $250 wit the exception of my higher priced items which are only available for wholesale on a multi-unit situation. Meaning my $350 chainmail coif is not available for wholesale unless they are ordering 5 or more of them. You can set your wholesale any way you like but make sure you are still making a profit.
Retail is simple. Just at least double your wholesale price. In some cases you may be able to multiply your wholesale by 2.5 to 3. It depends on what the market will bear. In our example the retail price would be $13.28 x 2 = $26.56 I generally round up to the nearest $.25 so these would be $27.75
The main point is that people expect to pay more for handmade. They do not mind paying for the knowledge that someone made the item by hand and it is a better product than one that is mass produced. If you price your items too low people will think that you probably did not make the item and that you imported a mass produced product.
I hear a lot of people say that they will price low to undercut the competition and make it up on volume. That is the mentality of importers and resellers. Don't undersell yourself with the hopes that you will make it up in volume because that is not the case. You'll lose out on all the customers that appreciate handmade goods.
One final note. I see people who have sales where they put everything in their shop on sale for 50% off. I think that is pretty silly. The message you portray with that is that you do not value yourself or your product. Even if a few people jump on the sale it can hurt you in the long run by sending the wrong message. I would never offer anything more than a 20% discount unless it is a closeout item that you will never produce again.