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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?

I wrote an article about a formula I use which is a mixture of a few things I’ve learnt over the years. It’s a complex formula, but most importantly it makes sure I’m covering everything I need to by way of doing a break even analysis. This includes all of the overhead costs that are so easy to forget about, but which my business ultimately has to pay for.

Once the hard work is done to figure out the margin required, I find it’s easy to keep it running.

Anyway, if you’re interested, the article is here: http://www.simonewalsh.com/about/articles/pricing-for-craft-design.html

That’s a wonderful, in depth article, Simone! Thanks so much for sharing it!

You’re definitely on the right track. Good for you.

tip: the top secret pricing formula for wholesale is –(don’t you dare say I told you this secret or I’ll deny it)– to multiply by 2.33. That extra .3 in there will cover the incidentals one forgets to cost in. Seriously.

Oooh, thanks Kath!

I’ve just found you from a link on Etsy’s How-Tuesday and wanted to say your site is lovely – thanks for all the lovely links and inspiration.

This pricing formula is handy – I’m just setting up shop and starting to sell commercially (having dabbled and sold through word of mouth for a few months) but I’ve never done any formula for pricing.

Just done it and this would make my bags £104 retail!! (i.e one hour’s work at £20 an hour plus £6 materials) or £121.16 if I use kathleen’s formula! My bags are pretty good but I can’t charge that… back to the drawing board :o) L xox

Ellie – you’re most welcome! Yep, formulas can produce some big numbers.. and hey, maybe your bags are worth that, I’ve certainly seen some handmade bags selling for that amount (in dollars, though :D) Anyways, good luck working out the prices, and don’t undersell yourself!

what about overhead??

Thank you for writing this, it’s very helpful in figuring how much to charge. It it’s really hard to wrap my head around though. How do you decide on labor cost?