Handmade crafts are an antidote to the disposable culture of mass produced goods. Through making products by hand, crafters are bringing something unique into the world each time they sit down at their kitchen table, workbench or armchair and knit, sew, pour, cut, warm, cool, hammer, paint or mould their creation into life.
Customers love the idea that they’re buying something unusual, something unique, something that’s been made by a human being and not a robot. So why is it that so many crafters seem to have hangups about charging a reasonable price for their work?
Two fears lie at the heart of this: we’re frightened that customers won’t think as much of our creations as we do and, because of this, they won’t pay what they’re worth. So we price too low and, by doing that, set expectations in our customers that our work is only worth the price on the ticket.
The customer who sees a £5 tag on an exquisitely hand-woven textured throw assumes that the product is of no greater quality than the machined throws in Matalan and, in all likelihood, passes by without buying. A £50 tag on the same throw encourages customers to look closer because they’re expecting it to be something special. Many people can’t afford a £50 throw for their sofa, many others wouldn’t entertain it, but, by being special, the throw is much more likely to find its buyer.
Three Ps lie at the heart of building a profitable craft business -
How much does your craft product actually cost to make? Do you know for sure? Are you including everything? Many crafters make the mistake of taking the price of the materials they’re using and doubling it - this, they believe, gives them a 100% margin.
But there are many costs of doing business that have often not been included - a proportion of the cost of their online store (and any other software/online service costs) for example should be added, along with a fair share of advertising costs and any other hidden expenses they may incur. If you’re making a batch of 100 soaps and spending £50 to promote them using Facebook Ads, that’s 50p per item that needs to be included in the cost price.
Once you have an accurate cost price, you can then apply a margin, or a range of margins, to come up with your selling price, knowing that you will be making money if you sell in that range. For example, you might want to set your selling price at between 75% and 150% over the cost price so that you can alter it depending on where your product is being sold and whether you’re running a promotion.
This is much safer and more professional than using the “materials + 100%” approach, which could result in losing money overall.
However, there’s more to setting a price than that. Let’s imagine you were designing a range of container candles in glass jars. The cost of producing them could be pretty low, say £1.50 per candle, so you decide to sell them for £4.50 each - an impressive profit margin of 200%. However, assuming you can sell them at that price, you’re only making £3.00 per candle so you’d need to sell quite a few to make it worth the effort.
But what if you could sell the same candle for £10? To do this, it would need to have something about it that would make it worth more than the bog standard jam-jar candle. For example, it could be made using soy rather than paraffin wax and fragranced with essential-oil based scents instead of man-made oils. It could have a high quality, professionally printed, label and come in a box. All of these things signal that yours is a premium product.
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The cost of making the product has risen, but the higher price you can charge more than makes up for this. Even if the candle in this example costs £4 to make, resulting in a drop in margin to 150%, your profit would be £6 per candle rather than £3 - much more likely to get you out of bed on a cold February morning to make some candles in your freezing garage!
Take a look in your local Sainsbury’s - you’ll find long-burning container candles in there for between £5 and £10, and yet the wood-wick candles made by The Virginia Candle Company sell for upwards of £20 a pop. Which of the two do you think makes more money per sale?
You can signal that your product is of premium quality through the ingredients you use - whether they’re natural, organic, Fairtrade or whatever, but also by the way you present it. By having professionally designed and produced labels, containers, boxes, bags or leaflets, you’re demonstrating confidence in your product and its worth.
The same applies to your website. Create.net provides an excellent framework for building a high quality online store, but it’s up to you to include the finishing touches - top notch photos of your products, detailed descriptions and excellent customer service. All of these things help to give customers the right impression of you. It’s not our job as crafters to produce commodities, leave that to the mass manufacturers. It’s our job to bring gorgeous, useful, hand made objects into the world and make it an ever-so-slightly brighter place for having them in it.
Kevin Partner is Technical Director at MakingYourOwnCandles.co.uk which has the world’s biggest range of candle making kits. He’s also the best selling author of books on business including Your Craft Business: A Step by Step Guide which has helped thousands of crafters start up and run their own successful businesses. You can contact him at [email protected]
Pricing handmade has been a discussion among artisans for the longest time.
It's also what makes or breaks your business. Here's what I mean:
You won't make enough money to stay in business.
You risk running a loss because you don't have enough money to pay for your marketing.
Not to mention the perception you allow your customers to have about your products and brand: cheap, poor quality, low value, bargain buy, unmemorable.
You won't make enough money to grow.
You'll forever be in that cycle of creating, selling, creating, selling, but never breaking out of it to create more and sell more because you don't have enough money for more.
Yes, you do need to have more money to make more of it.
You risk alienating customers.
You might get a sale every now and then and make big bucks, but the thought of when you'll get your next sale scares you because your handmade items are not priced accessibly in your market.
Did I scare you enough yet?
Pricing is serious stuff, and deserves your attention if you want to build a sustainable business for the long haul.
Fortunately, there's an easy way to figure out all of this math (and it's not terribly hard either!)
Here's a formula many artisans use:
Supplies + Your Time = Item Cost
Item Cost x Markup (between 2.0 – 2.5 or more) = Wholesale Price
Wholesale Price x Markup = Retail Price
Bonus: Download my FREE and easy plug-and-play pricing calculator to figure out what to price your items under a minute without any math!
Here's an example. Say it takes 15 minutes for you to make a pair of earrings and your hourly wage is $20. Your time spent to make these earrings cost $5 ($20 divide by 4). The beads and findings for the earrings cost $0.85. We'll use a 2.5 markup.
$0.85 + $5 = $5.85 (Item Cost)
$5.85 x 2.5 = $14.60 (Wholesale Price)
$14.60 x 2.5 = $36.50 (Retail Price)
Your markup is where your profit fits in the picture. But don't confuse this with money you pay yourself with!
Profit is the money you spend on growing and investing in your business, such as with:
You can set your markup to more than 2 times if you want, as long as your market can bear the higher prices!
Most pricing formulas would advise on a 2 times markup from wholesale to retail pricing, but I'm suggesting you use at least a 2.2 times markup because this will appear more attractive to your wholesale prospects.
It's the norm and expectation with seasoned retailers and brick and mortar shops.
You never know what might change your mind a few years down the road, so you want to be set right off the bat.
So many artists I know forego the wholesale markup so they can price more affordably in the beginning.
But when they want to grow their business, sell in galleries or brick and mortar stores, or do a daily deal (or any other kind of sales promotion), they find their pricing isn't adequate and it's impossible to expand because you wouldn't be making any money!
So even if you just want to do this as a hobby for now, don't box yourself in. Assume this is a serious business, because it might turn into that soon!
Pricing is an ongoing adventure for you and your business.
Coming up with your prices includes surveying your competitors and being aware of how much money your customers can afford to give until they stop buying.
There's a sweet spot, and for that you can definitely call this an art.
Your competitors can be your benchmark for your own pricing.
I made a pricing calculator just for you, and it's free.
All you need to do is plug in your numbers and it'll magically show you your wholesale and retail pricing!
Let me know if you have any questions, concerns or even tips for how you price your products.
I'd love to hear from you!
You can determine the value of your product manually or you could use a items at lower-end craft fairs and reserving your higher-price products for other.
Pricing self-created items can be a complex feat for individuals who are new to the craft show business. Ideally, the prices should be high enough to be profitable for you, but low enough to be attractive to customers. You can determine the value of your product manually or you could use a program designed for this task. There are several factors to consider when pricing, regardless of the method you select. These can help you keep you prices competitive among other sellers at the craft show.
Many crafters begin calculating the price of their products with the cost of the supplies used to make them. You can determine the total cost of production by summing up the value of each item used in the design. If the product is a necklace, for instance, add up the cost of the chain, the pendant and the fastener.
Some crafters pay themselves an hourly wage and include this in the price of their products. Your hourly rate can be any figure with which you feel comfortable. You could start with a fairly low rate and increase it as your business grows. To determine the cost of labor on one item, keep track of the amount of time you spend making it, then multiply this by your pay per hour. Some individuals lower their rates or try to work faster to keep the cost reasonable.
It's important to find out what your target customer would be willing to pay for your products. You could visit various retail stores and look for items that are similar to yours. If you have the opportunity, attend other craft shows and search for sellers with products like yours. Take note of the prices and see where yours might fit in. If your items cost significantly more than others, consider lowering your price. If this isn't feasible, then think about selling lower-cost items at lower-end craft fairs and reserving your higher-price products for other venues.
You can add the cost of overhead expenses to the price of your products. At your regular workspace, these could be the rent for your work location, electricity and advertising. Your expenses for the craft show would include the cost of the gas used to get to the location, the cost of renting the booth and the cost of preparing a banner. Add up the various figures, divide by the number of products you plan to sell and add the value to each item.
Keep in mind that some customers expect to haggle over prices at a craft show. If you allow this, ensure that your product price gives enough allowance for bargaining so you don't end up losing money. Also consider offering products at different price points to appeal to a variety of customers with different price expectations
If the process of calculating the price of your products becomes too complicated, you could use a software program. Several companies have designed craft software that can help you keep track of various aspects of your craft business and calculate costs of finished items. A few of these applications are available to try online at no charge (see References).
Tina Amo has been writing business-related content since 2006. Her articles appear on various well-known websites. Amo holds a Bachelor of Science in business administration with a concentration in information systems.
Today’s question is from Linda Ursin, and she writes:
How do you know what price to set for your crafted items?
Ahh, the age-old pricing question! We all ask it – and chances are, we’ll keep asking it for as long as we’re in business.
I hate to break it to you, but pricing is never a done and dusted thing. As your business grows – as you grow as an artisan – what you make and what you charge will evolve with you.
There is no one-size-fits-all magic bullet to pricing. Sorry!
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 🙂
I have found many formulas out there. The most fundamental and basic one is probably this:
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. (By the way, the retail price is what you should be selling for online, and at markets.)
Sounds like a lot, hey?
But, in professional 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.
Also – if you’re selling internationally – and especially if you’re selling in another currency in some places (for example, I still sell in USD on Etsy because I’ve found through experimentation that listing prices in AUD puts off my American customers from buying, but it doesn’t bother Aussies to buy in USD) you need to take exchange rates/paypal fees/paypal currency conversion fees etc into account.
For those of you who want to do a super-serious, completely in-depth calculation to work out your prices, check out this excellent article by Australian Jeweller Simone Walsh.
When you graduate from a hobbyist to a business, you’re going to need to re-think your pricing. Starting with a simple formula like the one above is an excellent start… but it’s not the end of the story. Once you know mathematically what you should be pricing, you need to turn around and look at your price from another perspective.
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, they’re ravenous, raving fans, just dying to drop another wad of $$ on the new model eye-phone, even when their ‘old’ one works just fine, thank you very much!
Someone who outlines this very issue excellently is my friend Megan Auman. She actually wrote a new post on this recently – but she’s been writing and talking about this issue for a long time now.
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. That it’s just a shop you’ve stumbled upon while browsing Etsy. Even better, pretend you’ve stumbled across your band on a stand-alone website, or in a retail store! (Etsy can sometimes have the issue of making people expect artificially low prices.)
What does it say to you?
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.
I actually raised my prices 2 times last year. The first was a small, 10% rise in April. The second was a much more dramatic rise in September (and honestly, I have to thank Megan’s talk at the Artful Biz Con for finally giving me the push I needed to take that step).
For example: at this time last year, I was selling this pair of sterling silver earrings for $22 ($22!! I seriously can’t believe that figure now – SO low!). Then it was $25. Now it is $35, and I’m much more comfortable that I’m on the right track with my pricing. Megan would probably tell me off – tell me I should be charging about $60 retail for them – but I’m not quite there yet! Like I said at the beginning, you’re never ‘done’ with pricing.
In the first 2 months of 2013, I sold around the same volume of jewellery on Etsy as I did this same time last year. (I sold a lot more overall this year because the business on my own website is much, much higher now). However, guess what? My revenue – the money I earnt – from those same volume of sales? It’s DOUBLE what I earnt last year. Therein lies the power in raising your prices to what you and your work is worth.
Not only that? I am much more comfortable with my prices now. I am a professional artisan. This is my livelihood. I have years of skill and practice. I make an excellent, quality product. And my prices reflect that.
"I applied some of the principles from this book to my most recent craft display. I' ve already What if I told you raising your prices increases your product sales?.
Do you know how to calculate the cost price of your creative product? How much will it cost to produce one of your creative products, so that you can calculate your wholesale price and retail price?
Do you know what to include in your cost price calculation? What about your hard work and time, your studio space and material costs? What about your marketing or equipment? You are not the only one struggling with the question of how to calculate the cost price of your creative product!
In this practical blog post, I will explain step-by-step the 7 stages to calculating the cost price of your creative product. It is based on my own experience of working with designers and makers for over 20 years as a business adviser and trainer.
In this example, we will be using a milliner making a hat. It is based on a one-person business but can be easily adapted for creative partnerships too.
Have you been looking for a formula to calculate your prices for your design or craft products? You have found it here:
Start with identifying your annual business overheads.
Overhead costs are costs that need to be paid regardless of sales. Think about it like this: the costs that you have to pay even if you are on holiday or ill. For example include your studio rent, phone, mobile, insurance, utilities, marketing, storage, business rates, and equipment (spread the cost of the latter over a couple of years if it is expensive!).
These are the invoices that you pay on a regular basis. Don’t include your drawings/salary or raw materials in this first step, we’ll get to those later.
The best way to find your business overheads is by checking your monthly or quarterly invoices, identify the various overhead costs throughout the year, and list them all in a spreadsheet or on a piece of paper. If you are a very new business and you haven’t paid these costs out yet then do make sure that you research what the actual overhead costs would be. Don’t guess!
For example, our milliner has been working in London for a couple of years, has a studio in town, does three trade shows a year, plus two high-end events. She checked all her receipts from the last few years and will use £12K p.a. for her total annual overheads. (PS your figure will not be as perfectly round as this! If you don’t have any studio costs then your figure will be much lower. Result!)
Now we need to work out how many hours per year she actually spends on average making hats that she can sell. This is the time spent on making products that can be sold (and therefore hours that generate income), so don’t include your time here that you spent on marketing, admin, meetings and the like.
Be aware that in your first years you need to aim to spend around 40% of your time physically making products that can be sold.
That might not sound like a lot, but that is the reality! If you are spending close to 80% of your time making then I would be worried because it’s unlikely you will have a sustainable business, more of a hobby … most sustainable creative businesses spend on average 40% of their time on making to sell because they need to spend an equivalent amount of time (40%) on marketing their business to get the sales they need! The other hours they spend are 10% on professional development and research and 10% on administration – in an ideal world.
One of the big challenges for new creative businesses is to become more aware of how they spend their time.
I would expect a more established maker to be able to spend a little more time on making for sale (around 50%) because they have a reputation already and therefore have to invest slightly less time in marketing themselves.
Let’s say that our milliner has 4 weeks off (for holidays, illness and slack time) and that she works 40hours per week, so the total hours/year making work would be: 48 weeks x 40hours x 40% = 768h/year.
The hourly overhead costs in our example will then be £12,000/768h = £15.62
It’s very likely that your overheads, in particular your studio costs, is one of the biggest costs for your business (besides your own labour costs!). Therefore it is really important to keep your overheads as low as possible, especially when you are just starting out. See if you can share a studio or work from home to minimise your costs and to get your business off the ground.
How much do you want to earn? This is a very personal question!
Do you know how much money you need to live, to cover personal outgoings such as rent or mortgage, food, clothes, holidays etc? If you don’t know the answer then you will need to do your research and find out how much money you need to live on.
Let’s say the milliner wants to earn gross £22K p.a.
This is a gross figure that includes national insurance and tax etc. The salary that she would actually get is less as she needs to pay tax over £10K of profit in her business. For exact details of your personal tax allowance see the HMRC website in the UK.
How much salary you need or want depends on many personal circumstances, such as your expectations, additional income, where you live and with whom you live, and what you want or need to have the lifestyle you want.
For example, when I started The Design Trust in the first three years I didn’t pay myself any wages at all! This is actually fairly common for new businesses as they want to put all their income back into their business to grow it. I was very fortunate that my husband’s income covered our mortgage and other regular personal outgoings.
For our milliner, we use the same hourly figures as in step 1 (48 weeks x 40h x 40% = 768 hours) so that makes an hourly wage requirement of £22K/768 = £28.65
This is very straightforward as you need to add step 1 (your hourly overhead costs) with step 2 (hourly wage).
So in the example of our milliner, this would be: £ 15.62 + £28.65 = £ 44.27
This next step in how to calculate how much your product will cost can be a bit tricky!
If you don’t know the answer to this question, don’t guess!
Check out with a time sheet and keep a time log. You might be surprised how different your guess is from reality!
Hopefully, you have made your production more efficient and effective by combining various jobs together and produce products in small batches.
Remember to include all production processes, including cutting fabrics, sewing, finishing, and packaging.
Use averages e.g. you cut 6 hats in 2 hours, resulting in 20 min per hat on average.
Let’s say that our milliner took 2hours and a quarter to make one hat, then: 2.25 hours x hourly rate of £ 44.27 = £99.60
It is always good to calculate backwards too:
If you make for 16 hours per week (40% of 40hours), then this calculation means that she should be producing 7 hats per week: 16h/2.25h per hat = 7 hats.
Check if this is indeed what you manage on average in a week. Do you need to look at producing more or getting more effective with your time?
The next step in how to calculate the cost price of your creative product is to add all the material costs to produce one hat.
For our example, our milliner will use £22 worth of materials, including fabrics, feathers, and threads.
It’s really important that you keep a record of all the material costs and the receipts too.
Don’t use the cheapest materials: Think about the value that you add with your materials and make sure that the costs are lower than the perceived value. Is it worth it?
If you use a very cheap zip, for example, your overall product will look cheap, but the chances are that it will break sooner too, and the cost of replacing a broken zip is far higher than using a good zip in the first place.
Contingency is ‘just in case’ and we suggest a contingency percentage of around 10%. If your product is very expensive you might go for a lower percentage, or if you have a lot of experience with similar products you can lower this figure too.
Contingency will allow for mistakes, hidden extras etc, and will allow you to offer discounts or special offers.
We will use 10% in our example.
Finally, the last step in how to calculate how much your product will cost!
Add step 4: £ 99.60 + step 5 (material costs): £22 x 110% (contingency) = £133.76
This is the amount that it costs to produce one hat.
That’s it! This is how you calculate the cost price of your creative product.
So what do you think about your cost price?
Firstly, be aware that your cost price is NOT the price that you will be selling your creative product for! The cost price only tells you how much it cost you to create one of your creative products. It’s only the first step in costing and pricing your creative products.
If you are new and sell it to consumers, then you would add some additional profit margin to your cost price to calculate your retail price.
However, if you sell to retailers then you normally would double your cost price to get to your wholesale or trade price, and they would add 200-300% commission to get to their retail price. So your cost price of £133.76 would lead to a RRP of around £535 – £800. You can find out more about the various pricing terms and their calculations in this blog post.
Is it too expensive?
In this case, I used an example of a milliner in London, who would have been going for a while, and who would have her own studio space. Therefore her overheads and salary expectations are higher. If you have just started out and work in a different part of the UK then your studio costs and overheads might be far lower.
The milliner might decide that she wants to create unique, commissioned hats and not work with retailers, so she would not have to deal with the potential markup of a retailer. She might sell directly at consumer shows, open studios or by appointment to clients in her own studio. She could sell her unique hats for £600 – £750 (therefore having a profit margin of £450 to £600 per piece). This might sound very expensive yo you, but actually, this price level is pretty standard and what one would expect to pay for a unique commissioned hat in London!
If the milliner wanted to sell at a lower rate then she would have to make more hats that are similar to bring her production costs down and the quantities up. She would have the same income, but her business model would be very different!
Use your calculation as a starting point to calculate backwards.
How many products would you need to sell per year to cover your annual overheads, salary/drawings and direct costs/raw materials? Is that doable and do you feel comfortable with that, or is it far too many or far too few? What kind of business do you want to run: very bespoke and at the high end, or sell a lot more products but at a lower price point? Do you want to sell directly to your clients or through retailers? How would you produce your products if there are lots of them, and how would you market and sell them too?
Are you still worried about being too expensive? Read this blog posts to get some alternative responses to clients who say that you are too expensive.
If you want to avoid being a starving creative then read this blog post.
Also, costing is just the first part.
The second part is pricing your products!
If you are looking at how to cost your services and in particular your hourly or daily design rate, then click here.
Did you find this post about how to calculate the cost price for your creative product useful? Did you use the formula to calculate your own craft or design products? Do let us know in the comments below to share your insights.
One of the most difficult tasks of starting a jewelry business is determining how much to charge for your jewelry.
YozshushakarDecember 15, 2018 4:09 PM
Between us speaking, in my opinion, it is obvious. I will refrain from comments.
MikasaDecember 20, 2018 9:37 PM
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DujinDecember 15, 2018 3:04 PM
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KashoDecember 15, 2018 8:26 AM
It is simply matchless phrase ;)
ZuluraDecember 19, 2018 7:01 PM
Has casually found today this forum and it was registered to participate in discussion of this question.