http://www.etsy.com/blog/en/2012/a-simple-formula-for-pricing-your-work/?ref=fp_blog_title
Imagine this: a beautiful jewellery studio, a soldering station, an anvil on a nice old worn wooden stump, a handmade jewellery bench, and on top of all this lie piles of finished pieces. Behind the bench sits a jeweller who has yet to sell a single one of her creations. What’s holding this talented artisan back? From my years of listening to your stories, putting a price on your work is one of the most intimidating first steps to selling, and delays many from opening their shop. I’m here to share my favourite pricing formula with you, and to break it down so you have the confidence to get out there and sell!
Know the Formula
Here’s
my favourite formula:
Materials
+ Labour + Expenses + Profit = Wholesale x 2 = Retail
I
picked this up from the amazing Megan
Auman.
What I love about this formula is that your profit is properly
accounted for!
Now
let’s go through every part of this formula and break it down.
Materials
Make
sure to cover all your material fees. Often forgotten: the little
things like the cost of thread, and the bigger things like the cost
of packaging. If you’re going to “guesstimate,” err on the
higher side!
Labour
If
someone wanted to hire you and they offered you $7 an hour, what
would you think of that deal? Be a good boss to yourself and do a bit
of research. How much does a seamstress make in San Francisco? Find
out!
(Also remember, you’re probably more than a seamstress – you are
the designer, the marketing department, the accountant, the janitor,
and the administrative assistant, too.)
Expenses
Bubble
wrap, that ebook purchased at 3 a.m., studio rent, bus passes
required to make it to the studio every day, a new scale for your
shipping station. How the heck can you fit all these things into the
price of a single item?
Here’s
a way to do that:
- Jot down every expense you can think of — for example, include your Etsy fees, office supplies, rent or utilities.
- Next, come up with the number of items you’d like to sell a month. Divide that number into the total expenses.
Tip:
Start doing two things to help you come up with an even more exact
price:
- Track your expenses carefully so you can come back to this as you learn more about selling! I suggest trying out Outright – a free online accounting tool.
- Start figuring out the big investments. How many items can you get out of that sewing machine? How long will that postage printer last before it needs to be replaced?
Profit
Think
hard: where do you want this business to go? Do you want to quit your
day job? Do you want to pay off a student loan? Accounting for profit
now will help you get there. This number really depends on what you
are selling, and will make up for someone like a printmaker, whose
material costs are low, labour hours might be low, but should be paid
for their unique talent and point of view! I leave this up to you.
I’m trusting you here — don’t disappoint me with a low ball
number!
Bringing It All Together
All
right, this gets us to our wholesale price. Some of you might wonder
if you can use the wholesale price in your Etsy shop. Wouldn’t this
be a a great way to offer your work at an affordable price? No, no,
no. Here’s why I’m going to beg you to double your wholesale
price and sell your work at a true retail price:
- Selling your work at a wholesale rate undervalues those who price their work at the proper retail price. When the majority of sellers in a category price their work thoughtfully, the entire category benefits.
- Customers will wonder, “Why?” Why is your work so much lower than everyone else? Is it because it’s not handmade? Is it because you’re using cheaper materials? Your price tells a story: make that story a good one!
- You’re putting yourself at a disadvantage. Let’s say a big catalogue reaches out to you and says, “We’d like to buy 100 of these items! Please let us know what your wholesale prices are.” This is a big opportunity; an opportunity you can’t afford to take.
Did
you just come up with a price that you are sure the market won’t
respond to? Here’s the trick: if the item is priced too high for
the market, it’s not the price you need to alter, it’s the design
or the way you produce your work. Get creative and see how you can
adjust the item to reduce your costs. Can you buy your materials
discounted in bulk? Can you produce the work in multiples, reducing
the labor? Don’t take the easy way out by slashing your prices.
Remember,
the right prices will allow you to reach your small business goals.
