When you’re first starting out in a crafty business, it seems like you need to be an expert from Day 1. Every topic is heavy and confusing: taxes, shipping, customer service, websites, social media. One of my biggest growing pains as a crafty business owner was pricing. What’s too high or too low? What do I need to consider when building a pricing strategy? Where do I even start? Here are the pricing basics I wish I’d have know when I first started TL Yarn Crafts.
3 Reasons pricing is so important
- Let’s be really honest with ourselves – we all want our businesses to make money for some personal reason. That might be to support your family or just to fund your creative hobby. Either way, pricing properly should cover your base costs so you can go about growing or maintaining your business in a comfortable state.
- When you price properly, you’re really validating yourself, your craft, and your experience, and your business. The time you’ve taken to hone your skill in your chosen niche is valuable. You’re not making mass produced garbage – you’re offering something more meaningful that will be cherished. Placing an inappropriate price tag on your product cheapens it and you.
- Pricing properly shows respect for fellow makers. Take #2 and expand on it. If you price properly and validate your craft, you’re validating everyone in it. Where you set your prices has the power to impact the expectations of your customer and their interactions with others in your niche.
Location, location, location
On top of the costs for making your product, you also have to consider the price of doing business. And that varies depending on where your point of sale is. Keeping costs low while running your business is crucial, but some expenses can’t be avoided in order for your business to grow. Consider these lists of common expenses based on where you sell your product:
- Online Retail – website and hosting (a standalone website should ALWAYS be the goal), time spend maintaining your website, costs of promotion, social media investment, packing and shipping costs, marketing materials, fees to accept and transfer money
- In Person Retail – craft show application and booth fees, time spent at event, booth display costs, fees to accept and transfer money brick and mortar store costs (rent, utilities, displays, repairs, salaries)
- Consignment – percentage fee to shop (typically 40%-50%), time spent finding and building consignment relationships, transporting product to and from shops
- Wholesale – percentage discount (typically 50% off retail), separate website for wholesale clients, shipping costs
It seems like a lot to keep track of, but it really is easy to account for these expenses in your pricing. Many of these expenses will occur on a regular basis (weekly, monthly, annually). Go into your favorite spreadsheet program and try to figure out your expenses and add them up for an entire year. That way, you an quickly tell if your busy season is making up for any lulls in sales.
How to use a pricing calculator
I hate pricing calculators. There, I’ve said it. Don’t get me wrong – I know they are a formula meant to help you come up with a fair number to price your product. But they are also confusing and unreliable to a novice handmade business owner. I feel like they can be discouraging and leave you with many more questions than answers.
Pricing calculators can help helpful, though. When the appropriate version is used as a one tool in achieving appropriate pricing, they can set a new business owner on the right track.
Pricing calculator #1 (The bad one)
Throughout my handmade career, I’ve seen A LOT of bad pricing calculators. But none as bad as this one:
(Cost of Materials) x3 = Retail Price
Yea, I know. What is that, even? It just feels so arbitrary. But for the sake of argument, let’s use it in an example.
Adrian sells handmade beanies. She uses value yarn that costs her $4.99 from a regular craft store. Based on this calculation, Adrian should sell her beanies at about $15 each retail.
I have so many questions:
- Why multiply times 3? Why not 4? Or 5? Or 12? Or 6546123894?
- At what point do we consider the complexity of Adrian’s design?
- So, we just don’t even care how long Adrian spent making the beanie?
- How the heck is Adrian ever going to pay her bills with income like this?!
Pricing calculator #2 (The better one)
The first half of this post was all about the things we need to make sure our pricing covers. So we need to get a little closer to breaking even if we plan on actually running a business. Let’s try this calculator:
(Base Price) + Profit = Wholesale x 2 = Retail
Base Price = (hourly wage x time spent making) + materials costs. You cannot, under any circumstances, price your product below your Base Price. At that point, you are giving your product away. And if that’s the case, give it to charity and get the tax write off.
Hourly wage = the amount of money you are going to pay yourself per hour. And minimum wage probably won’t cut it. Unless your minimum wage is an actual livable wage and accounts for the fact that you make amazing things with your hands.
Time spent making = the time, from the very start to the very end, that it took you to make, finish, package, and ship (if necessary) this product
Materials costs = the full price cost of whatever you needed to buy to make the product. Even if you your materials on sale, factor in the full price cost because you may have to pay that someday.
Profit = a percentage you decide based on how much money you need/want to make in your business. If you’re not sure what this should be, 20% is a great place to start. I started here then raised this number as my business costs increased.
Wholesale price = the price you will charge a buyer for purchasing your product in bulk
Retail price = the price you will charge a buyer who is purchasing less units per order than wholesale (typically this is your online, independent shopper, not a store)
Let’s take a look at Adrian’s beanies again and plug some reasonable numbers into this calculator, assuming that they take her and hour to make.
($13 + $4.99) + 20% = $21.59 x2 = $43.18
According to this calculator, Adrian’s wholesale price is $21.59 and her retail price is $43.18. I know what you’re thinking – that seems outrageous. But I firmly believe that this price is wayyyyyy more reasonable for Adrian’s talent and skill than $15. But, like I said, pricing calculators should be used like a tool. Find a formula that gets your close to what makes sense for you – for your well-being, for your demographic, for your target customer. Then take that number and make it perfect for your product.