Rose is a full-time freelance writer who frequently writes about education, special education, DIY projects, food, Milwaukee, and more.
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.
The Most Commonly Used Formula for Pricing Handmade Crafts
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 Expenses 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.
Read More From Feltmagnet
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.
When Does It Make Sense to Offer Sales and Markdowns?
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.