Pricing Handmade Items – Formula

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During this slow sales period for me, I’ve been seriously thinking about how to set this hobby of mine up properly in the event that I ever get serious enough to do this as a business.

That means I need to work out things properly now, and save myself the hassle later on. On Monday I did a post about improving product photography, and thank you so much to all those who gave me their feedback! It was really helpful.

Today, I’m working on my pricing. The way I have been pricing up to now has been quite esoteric… and I wanted to do it in a more scientific, repeatable way. This means future items will be easier to price, and that my current items will sell at a level to make a profit, and that is also fair to my customers.

I have found many formulas out there, such as the one I mentioned in the Stitches & Craft Show post. A simple version of this 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!). And your materials cost for an item was $5. Lets say I made a pair of earrings that took 1/2 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.

Sound like a lot, hey? But, in 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.

I am going to attempt to apply this formula to my work, and see what numbers come out. I used it tonight to price my Little Square Hoops - and discovered that the price I’d already set was almost exactly on the mark! Amazing. For me, these earrings use a small amount of sterling wire, and are pretty quick to make once I know the design. It will be interesting to apply this to some of my more complicated designs and see what comes up!

Oh, and did I forget to mention that – because I’m an Aussie – I then have to consider exchange rates? And postage rates since I sell online…? It’s a complicated business!

So, how do you calculate your prices? And do you think the above is a fair formula, and one that will work for you?

What 'cha thinking?