Welcome back to the Build Your Own Creative Business 31 Day Series! This is {Day 6} of the program (click here to catch up from Day 1). I’m excited about today’s topic because, although I have very strong opinions on how to price a handmade product, I’ve never publicly discussed the issue.
In the last post of the series, we were talking about costly mistakes many sellers make in business. Error in pricing definitely falls under the same category. A lot of new business owners often under-price for shipping, pay too much for supplies (and over-price a product), or under-charge for custom orders. In this post, I’ll help you find a happy medium that works for both you and your customer. When pricing your products, please consider these tips:
Buy the supplies you need in wholesale.
Covered in-depth on {Day 5}, it bears repeating. In this post we are going to discuss cost, and there are a lot of hidden costs in a creative business. To keep your costs low and your retail prices down, you must thoughtfully consider which of your supplies can be purchased in larger quantities for less.
What makes up the “cost” of your product?
In any pricing formula, “cost” is the total amount of expenses incurred during the making of your product. Many of us consider the price of materials and stop there. Cost is made up of much more, and for each product you list online, it’s a good idea to know an average cost of expenses beyond your materials.
COST =
Materials
+ Listing fees (these range from $.20 to a percentage of your sale)
+ Successful sale fees (typically 2-5% of your sale)
+ Product packaging
+ Business Card
+ Shipping envelope or box
+ Shipping materials (bubble wrap, kraft paper, ribbon, etc.)
+ Marketing or advertising fees
+ Paypal or credit card fees (typically around 2-3.5%)
+ A small percentage of office equipment (computer, printer, laminator, phone line, etc.)
+ A small percentage of office supplies (printer ink, printing labels, paper, etc.)
+ A small percentage of studio/office rental or mortgage
+ A small percentage of website domain and hosting fees
In start-up you typically purchase all of these materials as an investment into your new brand and business. As your business gets up and running, it’s important to gradually replace this early investment. Once you’ve paid that off, this added charge per listing should start to build an expense or savings account for your business. Whenever the need for a new computer or more materials pops up, you should have a reserve of cash waiting to cover it … rather than making another investment to your already established business.
LABOR =
The time it took to make your product
+ Photograph it
+ List it
+ Market it.
Add the time it took to do all of this per listing and multiply by your hourly rate of pay. Your pay rate may be lower in the beginning and grow with your reputation, but please be sure to pay yourself a comfortable hourly wage from the start. The fastest route to burn-out is to not pay yourself accordingly for the sales you’re making.
P.S. Keeping the cost of labor low is just one more reason why I’m such a *HUGE* fan of repeating designs and re-listing them in your online storefront. Each time you create a “one of a kind piece” it means you double, if not triple, the production time of listing that item.
Don’t be afraid to charge.
People are willing to pay for quality and creativity. They truly are. Don’t discredit your talent by using poorly shot photos and/or listing your items at cheap prices. Take the time to do everything with great care and quality.
On the same note, please don’t underestimate your customer and try to charge sky-high prices as soon as you open. Perhaps some of your role model businesses are charging an arm and a leg … guess what, they’ve paid their dues!
As your reputation grows, so will your profit.
Pricing Formula
Every business is unique, so I’m not a huge fan of a uniform pricing formula. However, for the purposes of this article, I will leave you with a general rule of thumb.
If this seems impossible, you may want to question your business model and tweak it accordingly. Is there room for profit in your craft or industry?
Here’s a personal example of how these numbers add up for the Energy Shop:
The cost of my materials to make a bracelet ($8)
+ Labor (1/4 hour x $20/hour rate)
= $13 (The actual cost of making the bracelet)
$13 x 2 = $26 (Wholesale)
$26 x 2 = $52 (Retail)
That’s going to do it for Day 6 of the 31-day series! What do you think so far? Continue on to {Day 7}
***As promised and in honor of the 31 days to Build Your Own Creative Business Series, I’m offering my complete business-boosting e-program, Shop Fundamentals ($57) for $31 while it runs! Click here to learn more.***
Sometimes it can be difficult to work out what to include for office equipment, supplies, utilities, etc. To make it easy, I add up my known expenses (materials + labour + listing/payment fees), then add about 10% for overhead expenses. That way I know those office expenses are covered without having to dive too far into the minutia.
So true, Julia! Excellent tip.
Hello, The series is very interesting. When will Day 7 be posted? Is there a specific schedule for the post, i.e. weekly, bi-weekly?
Coming soon! There is no schedule, but I will be able to pick up my writing hours here again very shortly 🙂 Thanks so much for your interest.
Lisa,
I am finding these little blog snipits to be so inspiring to read. I love the idea of 31 days to build your own creative business. I believe your posts to be very insightful. I love that I made the connection with you and I am still learning from you. It has been an amazing journey that just keeps coming.
THANK YOU! for all that you do to inspire and help others reach their potential in creating a creative business!
Thank you so much, dear Janet 🙂