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April 10, 2013

How to Calculate the Price of your Handmade Products




I still remember the advice I got from a sewing instructor when she overheard me mentioning I wanted to sell my pieces one day. She pulled me aside and told me very sternly; "don't under price your work". It's such a common thing for artists to do so we thought we would shed some light on how you should set your prices for your handmade products and why.

YOUR TIME

You need to be very realistic with the amount of time it takes you to create a product and how much your time is worth. I definitely made that mistake in the beginning in thinking that my time didn't hold as much value. After all, there wasn't any cold hard cash leaving my bank account whether I spent 1 hour or 2 on a product. But if you want to treat this like a business and make it profitable, you need to decide how much you want to be paid per hour and stick to it.

If you were working for a large company you wouldn't work for $10 one day and $20 another. Nor would you let them say to you; well you worked 8 hours today but we're only going to pay you for 4 of those. Set some goals as to what your hourly wage needs to be in order for you to __________ (fill in the blank; quit your day job, buy that new sewing machine, pay the rent for your studio) and make sure your products can reflect that price.

MATERIALS

Before you start to mass produce a product for sale, make sure you're getting the best price for your materials. Look for companies that sell to businesses at wholesale prices and keep in mind that there are often discounts when you're ordering larger quantities. If you're buying your materials in bulk, divide the total you paid by the amount of products you can make out of it. Do this for each piece of material that goes into your products and add them all up for your material costs.

COST

To figure out the cost that goes into the production of your products:
YOUR TIME + MATERIALS = PRODUCTION COST

There are other costs that go into the production and distribution of a product so you don't want to stop there. Consider the tools you use, rental space, shipping, labels, marketing, gas to drive to and from craft shows, etc. Although these are less obvious and may not be a significant cost for each product, you still want to account for them and make a profit at the end of the day. So now you must figure out your wholesale price.




WHOLESALE

Wholesale means: The selling of goods in large quantities to be retailed by others. Wholesale price is especially important if you plan on selling your goods in stores one day. Retailers will want a wholesale price for your products, which is basically half of what they can sell it for in their store.

This was another mistake I made in the beginning; when I sold at craft shows, selling my handbags at $40 gave me a nice profit and was a good price for my customers. Once retailers started approaching me and I realized they wanted to buy that bag off of me for $20 so they could sell it in their store for $40 and make a profit, I realized I wasn't going to be making any money.

To set your wholesale price:
COST x 2 = WHOLESALE

RETAIL

Retail price is what you should be selling your products for at craft sales and what larger companies will sell your products for in their stores. It's really important to keep your prices consistent to keep your customers and retailers happy. It wouldn't be fair to either parties if you were selling your handmade products for less at craft sales.

To set your retail price: WHOLESALE x 2 = RETAIL

ADJUST

Use events like craft sales to get a feel for how your prices are faring with customers. If a certain product gets picked up a lot but never bought, the price may be too high. If customers pick up a product, look at the price and don't think twice about it, you may have some room to increase your price a bit.

JUSTIFYING YOUR PRICES

If you think your prices are too high after following the above guidelines, consider the points below:
  • Remember that you are building a brand and you want customers to see value in your products. Low prices often scream "low quality" to consumers and when it comes to handmade, you want them to feel like they are really getting something that is unique, has been made with love, attention to detail and has quality craftsmanship that is going to last them a long time.
  • People who buy handmade generally understand that they are getting something above and beyond what they can find in a mall and they're usually willing to pay extra for it.
  • If you're thinking; I wouldn't pay that much for this, remember you are not the target customer. a) we're our own worst critics so we often have a hard time seeing the true value and beauty in our own work and b) you may be a "starving artist" who is trying to get your business off the ground. Although other artists admire your work, they are most likely not where your sales are coming from (maybe tradesies at craft shows;)
  • Don't let the sound of a price scare you into under valuing it. Remember the time and detail you've put into your products and help customers understand how special each piece is. If you're still scared that your prices are too high, you can always start a bit lower and increase them as your brand, reputation and popularity grows :)


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