So you have a brilliant idea for a new handmade item that will rock the crafty world. Great -- woohoo -- yippee! That's the first (and hardest) step!
Now comes the fun MATH part, figuring out what to charge for your pieces.
There are a couple schools of thought when it comes to pricing handmade items, and none of them are wrong (as long as you are making an acceptable profit for your work).
What is an acceptable profit, you ask? Well, it's whatever amount YOU are comfortable with. I don't mean to be vague about this, because it is very important. But what is an acceptable margin to one of you might not be lucrative enough for someone else.
Let's try a simple example and see how it resonates with your situation.
Trudy wants to sell her handmade jewelry. Yay for Trudy!
Here is some basic info Trudy needs to gather ...
1. How much did she spend on materials to make her product
2. How long did it take her to make her product
3. What are comparable products selling for in her market (it's very important to know your market well - do LOTS of research)
4. What will it cost to actually sell her product (credit card transaction fees, marketplace fees, advertising costs)
5. What are shipping costs associated with getting it to the customer
Trudy spent $9.75 for beads, wire, crimp beads, findings, and a clasp to make her necklace. And she spent 30 minutes making the piece.
Trudy wants to earn about $20 per hour for her time and labor.
$20 per hour x 1/2 hour (30 minutes) = $10 for time/labor
$9.75 for materials + $10 for time/labor = $19.75
That's a good place to start. But don't stop now 'cause math is fun!!!
Now Trudy will look at her piece and evaluate where $19.75 fits into her current market. She may feel like her necklace is a super specialty piece with a higher market value, so she thinks she can sell it for $28.00. That's great! She just increased her take-home amount (profit).
But there is another critical component she needs to consider -- marketing costs (yuk). None of us like this part, but it's important.
For example: Trudy wants to sell her $28.00 necklace on Etsy. Opening an Etsy account is free to get started, and it's super easy. But there will be charges assessed when she sells the necklace on that site or most other sites. For the purpose of this example, we will assume she is including 'free shipping' with her product (I have a whole rant on that topic that I'll post sometime soon).
**Note: check with Etsy or any other marketplace to see what their current rates are**
Etsy account set-up = $0
Listing fee per item = $0.20
Sales transaction fee = 5% of sale (including shipping) = $28 x 5% = $1.40
Payment processing fee = 3% + $0.25 = ($28 x 3%) + $0.25 = $0.84 + $0.25 = $1.09
Shipping costs for postage = $3.25
Shipping costs for packing materials = $0.75
Here's where Trudy stands on out-of-pocket costs right now:
$28.00 sale price
-$9.75 materials
-$0.20 Etsy listing fee
-$1.40 Etsy Sales transaction fee
-$1.09 Etsy payment processing fee
-$3.25 postage
-$0.75 packing materials
= $11.56 left over (profit)
Trudy wants to know what her MARGIN is, so she divides her PROFIT by her SALE PRICE to get a percentage
$11.56 profit / $28.00 = 57.8% MARGIN
$11.56 is how much Trudy has to put in her bank account to spend or put back into buying more products for her next product.
This is just one simple method for pricing your products - there are many others. Try this one out and let me know how it works for you!
