Pricing top tips....
There are 3 factors which are critical to pricing calculations
Don’t forget to include all of your costs:
• Tools used. These will need to be replaced or upgraded at some point.
• Services, including electricity, gas, phone and other bills
• Products used in giveaways
• Website costs
• Stationery & marketing materials i.e. business cards, printer cartridges
• Fees, i.e. PayPal, Etsy, Craft Fair charges
• Waste. This includes supplies used and items produced that are not suitable for sale.
Some costs are easy to calculate whereas others will need to be split over all your products and taken into account. One way to do this is to calculate your overhead cost per month and then split the results across the average number of products you expect to sell per month. I personally add a percentage to my cost.
2. Don’t forget your time!
You need to know how long it takes to make each product and how much you expect to be paid per hour. You can include this in your price or break down your costs and charge your time separately for a bespoke piece.
As a business you need to make a profit in order to grow and continue running as a business, so add a profit margin. There is no set figure to which to work this out. Deciding upon your profits is a balance between what you want to achieve and what you can realistically charge.
An example of a formula for calculating a price
For a retail price if you are only selling to the customer =
Costs + time + profit (+VAT if applicable)
If you are selling wholesale the retail price is calculated =
(Costs + time + profit) *2 (or 2.4 if you need to apply VAT)
Selling wholesale may not be possible at first. It might be that, in time, as your sales and production volumes increase, your costs per unit fall, creating a bigger profit margin which then allows you to sell to retail.
Only use this formula as a guide. Do not rely on it as if it is not the right price, especially if it’s the lowest possible price. You also need to take into account the following....
Know your Competition
Research what others on Folksy/ Etsy/ NOTHS sell similar items for and noting the advantages they offer the customer.
It’s not just about price but the value you give to your customer.
Know Your Target Market
What you are willing and able to pay for a product may differ vastly from your target market’s budget. By knowing your customer you will be more confident in setting a price based on what they are willing to pay.
Independent creative businesses have an edge over bigger, impersonal companies. Your prices should reflect that specialness, value, personal connection and craftsmanship.
What if I am too expensive?
• Pitch to a more expensive market.
• Change your product to add value. People are prepared to pay a little extra for something unique.
• Source cheaper supplies and/or buy in bulk.
• Invest in tools or use a different technique to speed up production.
Your handmade products are unique and require a unique price so you do not have to follow a formula. Test your price, assess what people have been paying in your online shop, test prices at craft fairs and try to see how your work is perceived at that price and whether it sells. If your work doesn’t sell, people don’t see its value as being in line with its price. I have heard from other crafters who have sold more of their product after increasing their prices, due to the perception of the quality of the product. For many people 'cheap' equals rubbish. Is that how you want your business to be perceived?
Once people get used to a set price they are generally unhappy if prices increase. As a result, it is better to start at a higher price and lower your prices.
I hope you have found this useful and if you have any further tips on how to price your products please leave a comment.