Craft Prices – Setting a Product Price for Craft Sellers
Welcome to Episode 11 of the Craft Seller Success podcast. In this episode I will be tackling the thorny problem of how to price your crafts so that you cover your costs, make a good profit and are still competitive.
Listen to the Craft Prices – Setting a Product Price for Craft Sellers podcast here, download it for later or read the transcript below.
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This is the Craft Seller Success podcast from Tin Teddy. Episode number eleven Craft Prices – Setting a Product Price for Craft Sellers
Welcome to the Craft Seller Success Podcast – helping craft sellers sell their crafts
Hi, I’m Deborah Richardson from Tin Teddy.
If there is one thing that is practically guaranteed to get a new craft seller frustrated then it is the subject of how to price one’s handmade items.
Obviously we need to actually sell them, so they must be priced competitively. But we also want to make a profit on our materials, time and skills. So how on earth does one work out the best price?
In this episode of the Craft Seller Success podcast I hope to help make this eternal struggle a little easier for you.
Why pricing matters
Pricing is indeed a very important element of your products. Potential customers will be very interested in your craft prices and use them as one of the main criteria in deciding whether or not they will buy your wares.
If your craft prices are too high
If your prices are set too high you will probably struggle to get sales. Nowadays shoppers are very price savvy and always on the look out for a bargain. If your products are a lot more expensive than your competition, well, you can guess where people will be shopping.
A second side effect of having prices that are too high is you could give your customers a higher expectation about your product than you would like. What I mean by this is: if you are selling silver plated jewellery, but it is priced too high, your customers may assume it must be sterling silver, and then be disappointed when they later on discover it is really plated. This is the sort of thing that leads to bad feedback and social media posts.
If your craft prices are too low
The most obvious problem of having prices that are too low is that you won’t make any money from selling your products.
There are few feelings worse than when you realise that you have put in a lot of time and effort and gotten very little in return for it.
Just as with high prices, customers will make assumptions about your products based on the price. Many new sellers lack confidence in their products and underprice them in a hope that this will bring in some sales “to get them started”. But then potential customers see the low price and from this assume that the products must be of poor quality, faulty or in some way inferior.
Imagine for a moment that you are shopping online for a handmade bracelet for your Auntie Vera. You find two shops, each with very similar bracelets and they are exactly the sort of thing that Auntie Vera will love. Both shops say the bracelets are sterling, and they both come in nice presentation boxes. One shop has the bracelet priced at £30, the other at £5. Ooh, is that second one a super bargain?
But wouldn’t you then be assuming that perhaps the £5 one is really mass produced? Or really made of a base metal? If you then do a bit more browsing and see that most similar necklaces are around the £30 mark, you are probably going to get even more suspicious of the £5 one. It doesn’t look like a bargain now, it looks dodgy.
If your products are great quality, well made and something special, your prices should reflect that accurately.
You need to cover your costs and make a profit
Firstly, remember that your prices are not set in stone. You can adjust them over time. Having said that, if you can get pretty close to the ideal price from the start, there are benefits to this situation. Many people say it is easier to lower prices than raise them, for various reasons, so this might be something to consider too.
I have a two stage pricing strategy, based on 40 years of selling crafts. It may not be the perfect solution for everyone, but I think it offers a good basis for working out the price of your craft products.
It is important that you do BOTH parts of the strategy. Many sellers only consider one side and this can be disastrous. The strategy basically helps you work out the minimum and maximum prices for your products, so you can then more easily decide on a selling price.
Stage 1 – Work out your cost price per item
You need to know the rock bottom minimum price you could possibly sell an item for and not lose money.
This “rock bottom price” is called the cost price of the item. It is very important that you know this figure. The cost price of the item is made up of three components.
- Supplies – The cost of the supplies needed to make the product
- Labour – The value of the time you used to make the product
- Fixed Costs – The product’s share of the fixed costs of your business
Don’t worry if you don’t know what some of those terms mean, I am going to be explaining them now.
If you sell the same products over and over, this calculation is easier because you only need do it once. If you sell lots of different products then you will need to keep working out the basic costs.
Over time it will become easier as you get a better idea of roughly how much things end up costing. You will be able to do a bit of rounding up and down for speed and ease and still come up with usable figures. But to start with, it is worth trying to get these figures as accurate as you can.
So, lets look at the three components of the cost price of your items in more detail.
First note the cost of all the components of the finished product. For some products this is very easy.
Knitted hats, one ball of yarn each, yarn costs £5 a ball. One hat equals £5. Very easy.
For many other products it will be more complicated.
A necklace may require the cost of the charm, the cost of the chain and the cost of the catch. So;
- Charm – I buy these at 5 for £1 – so 20p per charm, there are two charms per necklace, so 40p per necklace
- Chain – this is £5 a reel, and I can get 10 necklaces out of one reel, so 50p per necklace for chain
- Fastening – these are 10 for £2, so another 20p
- Finally, I put my finished necklace in a simple card box that I have stamped with my brand and these cost me 20p each.
The total of this is 40p plus 50p plus 20p plus 20p, which is £1.30.
Charms x 2 = 20p x 2 = 40p
Chain = £5.00/10 = 50p
Fastening = £2.00/10 = 20p
Card box = 20p
Total = £1.30
Yes, these are very cheap necklaces, it is just an example!
So now I know that I can’t possibly sell my necklaces for less than £1.30, or I will lose money on every sale. But there is more to consider…
If I am going to sell my necklaces online I need to consider listing and other fees. These will of course vary depending on where and how I sell them.
It I were to sell them on my own, standalone website, I would probably have about 4% to pay in Paypal fees (Paypal fees vary depending on where you live, by the way).
It you sell on a marketplace like Etsy then there will be either listing fees or monthly fees to consider, plus a final transaction fee based on the final sale price.
So, if I want to sell my necklaces on Etsy too, then I need to add 20c to each necklace, for the initial Etsy listing fee. I will also need to add 5% to the final figure to cover the 5% Etsy transaction fee. Plus there is the Etsy payment provider fee.
Here is a link to an Etsy Seller Fee Calculator.
I am not going to include these selling fees into my example calculation, to keep things simple for now.
For many new sellers this is the hardest bit of pricing to work out. There are two very differing approaches to Labour costs.
For some sellers craft selling is very much a side-line, much more of a hobby than a main source of income. These sellers often do not calculate any particular value for their time. There are many reasons why. Some consider their crafting a hobby, something they do for fun, and any money they can make from selling the results is a bonus.
Others feel that they create their products in their spare time, perhaps whilst watching tv or listening to music, or podcasts! And therefore don’t feel a need to charge specifically for it.
But for other craft sellers, especially those for whom craft selling is their main source of income, labour is a very important part of the equation. They view their time working on their products and business as being the same as time spent at many other jobs, such as working in an office, as a supermarket cashier, on a building site or as a hairdressers, say.
If you want to factor your labour into your prices, and I would advise that you do so if you want to expand your business or want to eventually earn a living from it, here is how to work out the figures.
First decide how much you want to be paid an hour. Many new sellers start with their local minimum wage, what they would have to be paid if they were working for someone else. With experience they feel confident enough to raise their “hourly rate” over time.
Once you have decided how much you want to be paid “per hour” you can decide how much the labour for each item is.
So, if you have decided you want to be paid £9 an hour, and each woolly hat you make takes 2 hours to knit, then each woolly hat costs £18 in labour.
Important – some sellers have different hourly labour rates for different products because of the complexity or nature of the production. For example, if the item is something you can create whilst watching tv of an evening the hourly rate is lower than for things that require intense concentration.
To continue with my example necklace cost calculation, I will assume that the necklace takes 15 minutes to assemble. I want to be paid £8 an hour so that is £2 of labour per necklace.
Add this to my supply costs, which was, if you remember, £1.30 and my necklace is now on £3.30.
The two sorts of labour costs
Of course, this labour cost is only based on the time needed to make the actual item. You will also be spending time on other areas of your business. To work out the additional labour costs your could decide how many hours you spend a week on business tasks, other than making your products, set an hourly rate for this, then divide it by however many products you make a week to give an additonal labour cost for each product.
This works well if your products take different amounts of time to make.
Or, instead of working out the labour costs to make each product, you could just note how many hours you are working a week on your business all together, decide on an hourly rate then divide it by the number of products you make a week to give a rate per product. This is much easier but can make it harder to see the amount of time needed per individual product.
This works well if all your products take a similar amount of time to make.
Although working out the time required per item seems like extra work, I recommend doing it, at least when you first start your craft business, because it is helpful in understanding how much time each individual item requires, which helps you set a price that more accurately reflects that.
If your items take differing amounts of time to make, work out the labour of each based on the time they take
If your items are all take the same amount of time to make – use the simple version
I also need to add a bit to cover my other business expenses. That is things like web hosting, domain names, subscriptions and stationery. I will give a fuller list in a minute.
But I can practically hear some of you having a little panic now, how on earth are you going to work out this?
Roughly at first. You will be able to fine tune it over time, don’t fret.
For now, note down your yearly costs as best you can. Then work out or best-guess how many products you are likely to make in a year. It might be easier to think of how many products do you make in a week. Now either divide your yearly costs by the number of products in a year, or if you did the latter, divide your yearly costs by 52 first, and then by the number of products in a week. Now you have an approximate cost per product.
This figure will always be rough. Most of us could not accurately predict how many items we will make in a year. Don’t worry. Just work it out based on how many you are making a week, right now. If you increase or decrease your output in the future, you can adjust the figure then. It is better to have a rough figure than no figure.
OK, so for my imaginary necklace shop I have just two costs per year. My webhosting which is a nice round £10 a month and my domain name which is £12 a year. That is £132 per year.
£132 divided by 52 weeks in a year comes to about £2.53 a week.
If I make 10 necklaces a week the cost per necklace will be £2.53 divided by 10 so about 25p per necklace.
In reality most craft sellers will have quite a few other fixed costs to take into account (sorry!)
If you only sell at craft fairs then you would use the cost of the stall instead of internet costs, of course.
Other things you should consider when working out your fixed costs are:
packaging costs, shipping supply costs, advertizing and marketing fees, web development or design costs, educational resources, broadband fees, insurance, labelling and branding costs, tools, storage costs, utilities, phone fees, petrol or gas, other travel costs, displays and props, photography expenses and subscription fees….
Yes, that is quite a long list! Obviously they are not all going to apply to everyone. It may seem like overkill, but working out ALL your fixed costs as soon as possible will help you get an accurate cost price for your items, and this will help you profit.
A few little extras
Just when you thought it couldn’t get more horrid, eh? Keep reminding yourself that much of this maths stuff will only need to be done once, or very rarely. Take it slowly and have a big glass of wine, bar of chocolate or game of Fortnite when you have finished to celebrate.
Do you earn enough to pay tax on your craft sales? Please do check on this as it varies for different countries or states and is an essential thing to know! If so you need to consider this cost too when working out the cost prices of your products.
If you are in the European Union and registered to collect VAT you need to take this cost into account too when setting your prices.
Many American sellers need to collect and remit state taxes, so again this needs to be taken into consideration when working out your cost prices.
When you first start your business you may have a number of start up costs. These could include things like buying equipment and tools, buying display products or investing in items like computer equipment, shop fittings or a vehicle.
You will need to decide how long you wish to spend paying off each item. So if you buy a computer for £500 you could call this £100 fixed costs for the first 5 years of your business. Or you could call it £500 for the first year if you prefer. Most new businesses are not able to recoup all these large costs in their first year and it may be impossible to set realistic prices if you try to do so. Try to set achievable time frames and of course consider any large purchases very carefully.
My necklace cost price was currently on £3.30 (that was supplies and labour). Let’s add the 25p for fixed costs and we now have a total cost price per necklace of £3.55.
So now we have a bottom for our possible price range. I must sell the necklace for more than £3.55 if I want to cover my supplies, my labour and my fixed costs. So it must cost more… but how much more?
Stage 2 – How high a price can the item sell for?
The next figure I need is a maximum for my price range. You may be thinking that surely there isn’t a maximum, I could always add more on top. But by maximum I don’t mean “maximum number possible”, I mean “the maximum I could charge and still be able to actually sell the item!” Obviously all products have a price point where they are just too expensive to ever sell.
To work out your maximum price you need to look at your competition. We are trying to establish what the market will bear, price-wise.
Look around and see if you can establish what sort of prices other people are charging for very similar items.
Be sure you are comparing like for like though. A scarf made of alpaca hair is probably going to be quite a lot more expensive than one made of acrylic. A ring set with a diamond is clearly more expensive than one with a glass stone. This may sound very obvious, but many new sellers slip up on this one.
Whilst it is worth knowing what cheap mass produced versions of your products sell for, remember that these are not really your direct competition. You are selling a handmade item. And people will pay more for handmade – as long as they know that is what it is, of course.
So, for my necklace, I have been poking about and looking at similar items.
I have spotted lots of mass produced “charm on a chain” necklaces from China that are very cheap, cheaper than my cost price! Obviously I can’t compete with this, so I won’t even try. I am not selling mass produced, so I will move on.
Now I am looking at other handmade necklaces of a similar style to my own. My charms are silver plated, so I am not looking at sterling silver ones.
The necklaces I am looking at seem to fall in to a £3 to £15 price range, with the average being about £9.
I haven’t yet come up with an actual price, but I have given myself an upper limit.
If I tried to charge £16 for my necklace, then I suspect I am really going to struggle to sell it.
Now I have my two figures, my cost price per item and my upper price limit, I can go on to work out the final price.
Your profit margin
The price you charge for an item, minus the cost price of the item leaves the profit you will make. This is also called your profit margin.
Price – Cost = Profit
Usually a seller wants to make a profit!
Now we know the cost price of our item we know that charging more than this will give us some profit. As we also know the sort of prices our competition is charging we can also see that there is a maximum to how much profit we can get.
You will see lots and lots of formulas online to work out the “ideal profit margin”. You will also note that they can differ very significantly, so clearly there is not one approach to this problem.
Am I selling directly, or wholesale?
One important thing you will need to consider at this point is whether you are looking for a retail price or a wholesale price.
A retail price is the price the item is actually sold to the customer, the end user. So if you sell your own products on a craft stall, on Etsy or in your own Shopify shop, you will price them with the retail price.
If someone else sells them for you, perhaps in a bricks and mortar shop, and this seller requires a profit too, then you need to come up with a wholesale price. This price is what you will receive from the wholesaler. The wholesaler will then add his required profit to the wholesale price and create a retail price to charge his customers.
Very often the wholesale price is half of the final retail price.
Some products are much harder to sell wholesale than others. Some products, particularly in very crowded niches, can only be sold with very small profit margins and there is no room for wholesale to be added. If you are considering wholesale selling, be sure that your products can carry the required prices and still be competitive.
I will talk more about wholesale in a later podcast.
The final retail price
So, finally, I can decide on a price that is somewhere between my cost price and my upper limit of £15. I am also remembering that the average price for such products is about £9.
Because I am using charms that are not very common (so not a lot of other people have them), and not everyone puts cheap necklaces in a box, so I think this gives mine a bit of an edge… so I am going to go for £10 a necklace, just a tad over the average.
My cost Price = £3.55
My retail price = £10
My profit = £6.45
Not only does this give me a nice profit margin, it also means my price is high enough that I can afford to offer reductions on it in the future if I want to. I could run a 20% off sale and still make a nice profit (£4.45 profit, in case you were wondering). Not all sellers want to run sales and promotions, and do just fine without, but many like to have the option.
Remember that craft prices are not set in stone! I can adjust this later on if I feel it is a bit ambitious, of if I am selling faster than I can make them – in which case I will crank that price up! Dreaming is free!
What if it isn’t selling at that price?
Before you lower your price, always consider whether you can instead add more value to the item.
Here are some of the things you should look at:
Are you telling your potential customers about the benefits of your products? Have you pointed out the USPs? Have you made it clear it is made from quality materials? Have you made it very clear it is handmade by you?
Have you presented the item as best you can? If selling online, have you used plenty of clear pictures that really show it off? If selling in person is it visible on your stall and clearly priced?
Could you do anything to add value to the product? Check out Episode 7 of the Craft Seller Success Podcast, 5 Ways to add value to your craft products for ideas on how to do this.
If you feel you have done all you can to show the value of the item, only then lower your retail price. With your figures to hand you can safely do this and not lose money.
This seems quite complicated, especially as I have lots of different products to price!
The first time you do some of these calculations it may seem a little complex. But please remember that:
- A – I am explaining each step as we go along, so you understand not only what to do, but why it is done. Once you have done it the first time, you will not need all that and will go much, much faster
- B – you only need to work out your fixed costs once for all your products. Whilst you will need to change this figure if your fixed costs change, and in reality they will do so eventually, this will not be hard to adjust and again, covers all your products
- C – although being accurate is desirable, in reality you can round up a bit to make figures easier to manage. I do recommend rounding up rather than down though, just to be on the safe side.
- D – some things are almost impossible to work out exactly and it isn’t worth trying. No one knows exactly how much glue they use to stick a gem into a socket. No one knows exactly how much paint was used on a dolls face. No one knows exactly how much thread they used to sew up that bag. For these things you have to take educated guesses. Or just add a few pence to the figures to cover these tiny things.
- E – there are spreadsheets and calculators out there that can make this easier! Or you could make your own. This is particularly ideal for working out your fixed costs and supply costs. If they then change later on you just change the figure in your spreadsheet and the totals change for you!
Should I round up to nearest pound/dollar etc, or use prices like 99p/99c?
This is a subject that has caused a lot of quite heated discussion amongst craft sellers.
We are all familiar with seeing items who’s prices end in 99. They are common in many stores, both online and in the real world. So an item is $4.99 or £4.99 rather than a round $5 or £5.
A quick search online will bring up plenty of articles, some quite scholarly, on why 99 prices (or 95 or 77 or whatever the current trend is) bring in more sales. I have no doubt that they do help sales in many sectors of the business world.
But sometimes the world of craft selling can be a bit different to supermarkets and furniture stores.
There is clearly a popular opinion amongst many craft sellers that using prices that end in 99 is a bit tacky or even dishonest. This can seem a bit harsh, when it is such a common sales tactic. I personally suspect that many shoppers really don’t notice which we are using!
If you go look at shops on Etsy, Folksy or one of the other online craft selling sites, you will see many use round figures.
You will also see that there are definitely some who use the 99 type. And there are also some who use all sorts of random prices! All can be successful.
Ultimately, I think it is one of those things that you have to decide on depending on your niche, your target market and your personal preferences.
If you are selling high priced items aimed at very discerning collectors of handmade, you may prefer the round prices.
If you sell “cheap and cheerful” you may well prefer the 99c route.
Important – if you sell on Etsy, and probably this is the same on some other online sites, then your visitors will see your product prices in whatever currency they have selected for their account.
So if you have a lovely round £50 price tag, but your visitor is in Australia and seeing it converted to Aussie dollars, then they could be seeing all sorts of figures.
If you sell internationally then the last two digits of your craft prices is probably a whole lot less important than you might have been thinking it was.
Keep good accounts
My final advice in this podcast is to keep good accounts from the first day of your new business. If you don’t you run the risk of problems occurring and your not noticing until you have lost money, or at least potential profit.
Keep your craft prices in a notebook or backed-up computer file. Remember that if your circumstances change you will need to revise the figures. This could be something like changing where you buy supplies and paying more or less for them, or your fixed costs could (and probably will) change over time, a change in selling fees or wanting to up your labour costs.
In a later podcast I will be looking in depth at bookkeeping for craft sellers, with lots of hints and tips on how to make it painless and beneficial.
Setting prices can seem like quite a hurdle for the new craft seller, and I know that for some of you hearing/reading all this explanation might have made it sound even more daunting.
Take it slowly. Work everything out one step at a time. Remember that a slightly rough final figure is better than no figure at all.
Good luck with your pricing and here’s to many profitable sales!
For more infomation on saving money on packaging your products, check out episode 22 of the Craft Seller Success Podcast – Packaging Your Craft Products
If you would like to know more about having a sale or promotion in your shop, check out episode 25 of the Craft Seller Success Podcast – Promotions, Sales and Multibuys for Craft Sellers
If you are considering using print on demand services to create and ship the products for your shop, check out episode 26 – Selling your Artwork or Designs using Print on Demand Services.
In the next episode of the Craft Seller Success podcast. Episode 12, I will be talking about Pinterest for the Craft Seller this will be out on the 18th September 2018.
Thanks for listening. Please subscribe to the Craft Seller Success podcast.
Check out www.TinTeddy.com for more Craft Seller resources.
Until next time, bye
The Craft Seller Success Podcast from Tin Teddy.
Featuring Deborah Richardson and Matthew French
Original music by Matthew French
Helping craft sellers to sell their crafts.