Most artisans / people who are just starting a home-based business from their handmade crafts find pricing their wares hard to calculate. I wrote this article helping them and you to make it easy.
The trick is all in working the Craft Pricing formula:
labor + materials + overhead = wholesale; 2 x wholesale = retail price
This formula is your starting point. Start working out the details. Then, when you have a ‘starting point’ price, go ‘shopping’. Shopping? Yes, that’s right. It’s time to go out and find out what competitors who make the same kind of things as you do charge for their products.
Changes are that you will have to tweak your variables in your formula to be in line with competition.
Your market is looking for what you uniquely have to offer, so your pricing does not have to be exactly the same as your competition. They should also reflect relative quality of your craft products, your packaging and your uniqueness.
How to Tweak Your Variables In The Craft Pricing Formula
Are there ways to things faster? Can you use different components that require less labor? What are the options? What rate per hour is a reasonable ‘salary’ for you? Is there someone in your neighborhood who could help you with time consuming tasks who would be willing to work for a lesser ‘salary’? Are you willing to work for less?
What is the difference in cost if you switch materials? Can you buy in bulk, and is that cheaper?
Rather than renting studio space, can this really be a home-based business whereby you work from your living room with your storage boxes in your garage? Is this realistic? is there a spare room that otherwise is not used? Remember, there’s a cost in everything. Once you start selling your art, you can deduct the cost of the room you are working in on your tax return, provided you use it only for your handmade crafts.
Don’t forget to include other overhead, such as craft equipment purchase or rental, stationary for your craft business, insurance, your phone, website hosting, and other things like this. To work out the portion of the overhead that should be allocated to each product, you must make a tentative forecast of how much you will sell in any given year. You can then divide your total overhead over the number of products you will sell. Last but not least, you may wish to include a loading for the labor related to the selling of the product.
Putting it all Together
I find it easiest to use a spreadsheet program such as Excel for this task. I can easily see the impact of tiny changes in my formula. The more complex the components in your formula, the more you will need the software. Keeping all these numbers in your head is too hard and inefficient. It also lays the ground work for developing your business records, which you will need at year-end.
I find this tweaking to be a re-iterative process. Things will change over time, as you learn more about your craft business and as you come across new ideas for doing things from other craft makers & sellers.
Once you have tweaked all your components of the craft pricing formula, you can determine your best pricing for your product, given your choices & situation.