How to Price Homemade Craft Items: Formulas and Other Considerations
One of the most frequently discussed aspects of selling homemade crafts is pricing products. Even with great formulas and strong market research, it is still a tough issue, especially when are just starting out or introducing a brand new product line. It took me a long time to feel comfortable with my pricing. I still make adjustments from time to time and have to consider new areas of the field as I continue to introduce new products. In this article, I have compiled some of the best research that I could find and provided my own insights on the subject as well.
part of a series from www.craftmarketer.com about pricing crafts
The Most Commonly Used Formula
The following formula is one of the most commonly used formula for pricing crafts. With the retail conversion, it allows artists to make at least 50% profit margin. It is a good idea to keep a wide profit margin so you don't risk losing money through sales and other promotions.
The most commonly used formula for pricing crafts is as follows:
materials + time + overhead costs (i.e. warehouse space, office supplies) = minimum base price
Here is an example for a set of note cards with that formula:
card making materials ($2.70) + time (15 minutes...$3.75 for a $15/hour rate) + overhead costs ($1.00...there are minimal overhead costs here) = $7.45
Be honest with yourself about the cost for all of your materials, how much time it takes to make a piece, and how much your time is worth.
To figure out the retail price, many people recommend multiplying the base price by 2.5 or 3.
For the note cards example above, a 2.5 multiply would be: $7.45 x 2.5 = $18.62
You may want to round this total up to $19.00 to keep things simple.
Other Pricing Aspects to Consider
The above formula does not take any of the following fees into consideration. Whether you are selling online or at local events, such as craft shows, it is important to take additional fees into consideration.
- Etsy and PayPal Fees
When you are selling items through Etsy, it is important to consider both Etsy and PayPal fees. I find that it's easiest to work these into the initial base formula as such:
minimum base cost ($7.45) + Etsy fee (3.5% = $0.26) + PayPal fee (2.9% + $0.30 = $0.52) = $8.23
the new retail price for x 2.5 will be: $8.23 x 2.5 = $20.58 (again, you may choose to round this up to $21.00)
- Taxes and Credit Card Fees
When you are selling at craft shows and other local events, it is important to consider state taxes and credit card fees. Sales tax varies from state to state. This information can be easily accessed online. The type of credit card reader that you choose will determine what your credit card fees are. For me, typically state sales tax + credit card fees = almost exactly what Etsy + PayPal fees cost so I almost always keep craft show fairs and Etsy prices the same. This may not be true for you so run the math before you set local pricing.
Compare Prices for Similar Items
When you are first starting out with selling crafts or are offering a new product line, it can be helpful to compare prices for similar items. oh my handmade recommends not lowering your own prices to meet the prices of your competitors unless you can find a way to meet this price point and not lose money.
Sometimes competitors are offering cheaper products that you are. You may stay ahead by providing a higher quality alternative. On the other hand, some competitors may be offering expensive one of a kind versions. You will be able to provide more affordable, just as high quality alternatives. Either way, don't sell yourself short.
Bulk and Wholesale Pricing
A number of artists offer bulk and wholesale pricing. This can be applicable for consignment deals, other local boutique offers, large events (i.e. conferences, conventions), weddings, and much more. It is entirely up to you whether you want to offer this and what your pricing scale will be. Here are some of the most common options.
One of the most common formulas for wholesale pricing is to multiply your base price by 2. To go back to the note card set, your wholesale price would be as follows:
minimum base price ($7.45) x 2 = $14.90
Some artists choose to offer a wholesale pricing scale. For example:
Orders of 25 sets or more will get the x 2 pricing per box.
Orders of 50 sets or more will get a x 1.75 pricing per box at $13.03 per box.
Orders of 100 sets or more will get a x 1.5 pricing per box at $11.18 per box.
Consider Making a Price Sheet
Whether or not you sell wholesale, I highly recommend making a price sheet for yourself. When I started making greeting cards to sell at the beginning of 2012, I created my first price sheet after I'd worked out all of my new product prices. I get a number of custom requests, both online and in person (at shows, from family friends, etc.), and it's really helpful to have all of those numbers on hand.
The Advantage of Purchasing Wholesale Supplies
One of the best ways to keep your prices down and still make a profit is to purchase wholesale supplies. When you are just starting out, this may be tough if you haven't narrowed your focus yet. However, if you know that there are materials that you will use in large quantities, such as fabric or cardstock, it's worth doing some research about wholesale purchase options. Take advantage of other sales and deals as you can, too. For example, I always use at least one coupon when I shop at Michael's.
Part 2 - Buying from Asian Wholesalers (Review & Tips)
Offering Sales and Markdowns...When Does It Make Sense?
I offer my biggest sales on Etsy for the November/December shopping season, which is when I have the most sales of the year, and for Etsy's Christmas in July sale. I haven't found that it's worth doing big promotions any other time of the year. I do usually have a small sale section with some older items that I'd like to clear out, all of which are only marked down 15%. As a shopper, I always enjoy checking out a sales section, even if I end up buying elsewhere later.
Unless you sell merchandise that will deteriorate over time (i.e. soaps, food products), I don't recommend heavily discounting seasonal merchandise. It is easy enough to pull it from your shop when the holiday or season is over and save it for next year. It isn't worth taking a big loss when you can sell it again next year.
What about free shipping?
There is a lot of research out there supporting the notion that customers prefer free shipping over % discounts and other promotions. I give free shipping coupons to my return customers, a small portion of which do get used. I like to reserve free shipping for these customers and for the holiday shopping season and don't do a lot of other free shipping deals. If you decide to offer free shipping and bundle the cost into your item cost, keep in mind that a % of that total cost will go to Etsy and PayPal.
Whatever shipping option you use, don't let it hurt your shop. Do everything that you can to keep your shipping costs as low as possible. Personally I offer very affordable flat rate shipping for all orders, which does not get complaints. However, don't be afraid to try different methods. What works for one shop may not work for another and vice versa.
More advice about retail pricing for crafts.
Personally I don't think that you need to make adjustments for inflation every year or even every other year. You may feel like you need to revisit your prices more often. Regardless, if you've been selling for 5 years or more and have made very little adjustments to your pricing over the years, it is time to re-consider. Pull out the tried and true materials + labor + overhead formula and look at similar items currently for sale. It is very likely that either your materials and/or overhead costs have increased during the last 5 years.
Why Lowballing Can Hurt You
When sales aren't going well, it can be very tempting to lower your prices again. Resist this temptation and consider raising your prices. While people are always looking for a deal, they are also looking for quality projects. When you sell handmade, you don't want people to think that your products are cheaply made with low quality materials. Even if you have the lowest price bracket for your sales category, you still may not get the sales. Be fair with your pricing and the sales will come.
More resources for Etsy sellers from the author.
- Tips for Taking Stunning Jewelry and Other Small Item Product Photos
This article is about how to take stunning jewelry and other small item product photos. I include tips about equipment, camera settings, lighting, editing, backgrounds, tips for Etsy, and more.
- General Resources and Tools for Etsy Sellers
This is a hub that I wrote for Etsy sellers. It contains all of the resources and tools that I use for my shop on a regular basis.
- Etsy Listings: Tips for Photos
This hub has a number of tips for Etsy listing photos including poses, angles, backgrounds, size comparison, macro, and more. I have included additional resources as well.