Are you charging the right price for your handcrafted goods?
Crafting items is a labour of love. It is one of the reasons people love buying handcrafted items for themselves and as gifts for others. But when you have spent so much time creating your items, it can be difficult to know how best to price them.
Pricing can be difficult. Especially when the business uses your own creativity. It is important to set a price that is fair for both your customers and yourself. You need to ensure that you cover all your associated costs. These include materials, craft business insurance fees, and any marketing costs that you might have.
There are lots of different variables to take into consideration for pricing. For some crafters there may be very few overheads in the creation of their items, but it may take longer to make. For others there may be high-priced materials but a quicker production time. This is why it is important that you follow a process that allows you to cover both the hours that you spend making your products and the cost of materials.
One pricing method that you can use to help determine a fair price for your handcrafted products is
Material Costs + Hourly Rate + Overheads.
This is one of the most time-consuming parts of pricing products. But you will be glad that you followed the process. It allows you to ensure that you are covering all the materials that you need for each item that you sell. The process consists of:
1. Note down the price of the materials that are used to create each item. Make sure to include everything that you use to make the item and anything that you use for packaging as well.
2. Dividing each material price by the amount used. For example, if a 100g ball of yarn costs you £3.50 but you only use 25g for your item the price would be £3.50 divide by 4 = £0.88.
3. Add all the materials together for your total item cost
This can be harder to determine. You can either base your hourly rate on the minimum wage for your age, or set it at a rate that you feel is fair. Make sure that you time how long it takes you to make each of your items. Then either multiply the amount of hours by the hourly rate or, if it takes you less than an entire hour multiply the fraction of the hour by the hourly rate.
For example: 45 minutes work at an hourly rate of £10 = 45/60 x 10 = £7.50
You should look at all the other costs that are associated with your handcrafted items. This will include your craft business insurance, and your marketing spend. Divide your total overheads by the number of products that you make and add this figure onto their cost price.
You may also choose to keep your overheads separate from your cost price and leave them as an expense.
Now you have calculated your material costs, hourly rate and, if appropriate your overheads, you can set about creating your final figure. Add all these elements together and this will give you your overall price.
There are instances where you might want to add a mark up on this price. This will give you an extra profit margin. If you plan on selling items to other vendors at a wholesale cost it is worth taking this extra step. The profit margin will allow you to reduce your cost price for seasonal sales as well.
You can add 20% to your final calculated figure (or other percentage value as you see appropriate). This will then give you the percentage discount that you can pass on to your wholesalers. It will also give you an idea of what you can discount during a sale period.
Here is a worked through example for you.
- 2 earring hooks (pack of 28 for £2.50) = £0.18
- 2 jump rings (pack of 120 for £2.50) = 0.04
- 2 Headpins (pack of 50 for £3.50) = £0.14
- 1 large-coloured pearl bead (pack of 30 for £1.80) = 0.12
Total = £0.48
- £11 an hour (takes 10 minutes to make a pair of earrings) = £1.83
Overheads (yearly figure if adding them on):
- £350 craft business insurance (this is just as an example – not an actual cost)
- £200 marketing
- £50 website domain name
Total = £600 divided by 1200 products (100 a month for a year) = £0.50
Cost Price Total = £2.81
Now you have your cost price you can look at the mark up that you would like to add.
20% mark up = £3.37
50% mark up = £4.22
This gives you an idea of what a final sale price might look like. To gauge whether you have your pricing within an acceptable range, you can do some market research. It will show you what similar products are selling for. You can then either increase your mark up or increase your hourly rate if you want to raise your prices.
Try not to reduce your prices to below those of your competitors as this doesn’t always mean that people will buy your products instead of theirs. Make sure your price is fair for your customers and that it reflects the materials and hard work that has been undertaken to create the product.
When selling to other vendors at a wholesale price it can be a good idea to give them a recommended retail price for your product. This will help them to market your products to their customers.
Once you have your prices in place, you can set about looking at ways in which you can market your products. These could of course be through online shops, via your own website or social media channels and through in person events. Make sure that you have all the necessary craft business insurance in place before you make any sales. This will help protect you if a claim is made for any reason against your products.