Handmade Business – Price & Pricing

Handmade Business – Price & Pricing

Finances – Part Two

Price & Pricing Handmade.

Putting a price & pricing  your work is one of the most intimidating first steps to selling. Why?

1.  Cost + Labor x 2 = Wholesale x 2 = Retail Price
2. Materials + Hourly wage + Overhead = Wholesale Price
3. Material + Labor + Expenses + Profit = Wholesale x 2 = Retail
4. And many more..

So how do you decide on what pricing formula you should use?

Make sure that it’s:

• Simple and complete – you want it to be easy to use.
• Flexible – you want it to have flexibility to be used on one product to the next.
• Unique – you want it to be unique to your business.
• Accurate – it should include your business costs as well for your hourly rate
• Discreet – you never want to boast it to other people, rather, get their feedback on what they think should be considered in making a price formula that works.

What you should consider when setting prices & pricing your handcrafted goods?

• You have to value your own work. or no one else will.
• Don’t lower your prices with the intention to sell more. Cheap prices give the impression that your goods are cheap.
• The quality of handmade goods you’re creating will not only be judged by your prices but also by the quality of materials and businesses you associate with. Choose wisely.
• Be confident with the price you set and if someone asks you, explain to them the quality and materials they are made of. If you do not have confidence stating the price for your items, no one is going to be willing to pay that price.
• As part of your market research you probably looked into what other people are pricing with products similar to you. That’s a great way to get an idea of what people charge in your niche. Take advantage of it. Offer something they are not.
• Comparison to what someone else is selling and charging does not factor in YOU – your level of expertise, your costs, your time, the value your customers receive, where you get your supplies etc. etc.
• Don’t be too affected with what others are charging. You do not know their costs of doing business: They might have sisters helping them make their goods for no charge; have to rent a studio space; have to pay for childcare so they can work; etc.

Always remember, don’t struggle to fit your strategy into someone else’s formula. Choose the things that apply to you and ditch the rest.

LET’S TALK HOW TO ACCURATELY PRICE & PRICING OF HANDMADE ITEMS. Here are some key factors you must know:

• What is the cost per material item? {calculated down to the exact amount of material you use – do not be afraid to price up each and every cost there is – I recently talked to a colleague and she had it down to what it cost for a button, inch of material and ribbon – I was amazed and in awe at her accuracy but she could identify the material cost for each and every item she makes – what she undervalued and had a problem with was putting her labour costs to the material costs}
• How much time does it take to make a finished item? {account for each step of the process}
• What is the rate of pay to make a finished item? {include all positions/process steps; will you pay per hour worked or per finished task/piece}
• What kind of profit* % must you make to remain a sustainable business?
• What kind of overhead costs do you have? {your salary, accounting costs, newsletter subscriber fees, site hosting fees, basic office supplies, travel costs, site design fees, giveaways/donations, rent/utilities + more}

*The amount of profit you make could cover overhead costs {how you actually configure how to pay for overhead can vary {example: add it in to the product price like an expense/material; know how much product you have to sell each month in order to break even with your overhead costs}.

What about pricing for packaging and postage?

As an Example : Your customers can buy scented candles at local shopping malls. Your handcrafted candles made from pure organically grown roses and lavenders is a special item for which you’re charging (and they’re paying) a higher price. It deserves special packaging, which is also a variable cost.

If you ship your product to your customer – perhaps you have an ecommerce website – shipping is also a variable cost. Even if you pass the cost of shipping along to the customer you might also want to charge them for insurance in case a shipping issue arises. It’s best to break your shipping costs out as a variable expense.

I factor in postage and packing costs now – for some its part of the cost of the item – for others its a separate part of the cost after the price of the handmade creation – I also cost in small gifts for items over a certain amount of money ie a gift bag or a small set of mitts for a set that does not include them but for a small bit of goodwill and appreciation I add it into set.  A Card if its a NewBorn Gift Set, Free delivery if its a hamper or gift set ordered locally within the area.  All these I factor into my overall costs – but I know their value to the customer and that it adds value to the overall experience of buying handmade from me compared to others.

For me I have to also say – factor in all your costs – Insurances – public and product liability, HMRC and Book keeping costs, packing and shipping, over heads – do not be fooled into thinking it is only your resources and a wee bit of your time – again if you want to make your business work for you, then decide if you are running it as a business or not ?  Thats the game changer for me to be honest – know your finances, know your money, know your costs, know your pricing – get this right and the rest will happen given time and effort on your part – but for me its a key point and one that many want to pretend is not key or relevant.  Being passionate and following a desire to do what you love is brilliant – but you have to make sure that you know the key areas in making it work. How much you make at it all is then up to you, it can just pay the bills and give you a little extra income, or it can give you more than that, it all depends on where or what you want from it.  And that is a choice you decide on making all for yourself.

Often Handmade Handcrafting Craft Business owners under-price their handmade items.

This could be because they haven’t adjusted their prices as their experience/style develops, they don’t feel confident asking for what they deserve to be paid, or they don’t want to “compete” with neighbouring craft businesses prices.

Here’s how I feel about that: you absolutely cannot compare yourself to other crafters or craft businesses {for all you know THEY are underpricing your work, now you’re really losing money}; your story is uniquely yours therefore your prices are uniquely yours; if you don’t know what it costs to make an item how {seriously, how?} do you expect to stay in business?

Most handmade business aren’t properly priced, and actually — many lose money. The difference between a business and a hobby is a business makes money. One of the major problems facing our industry is handmade is expensive to create.

A handmade craft business owner has to set their prices higher than a supermarket mass produced product store in order to reach profitability. However, the trade-off is a more unique shopping experience for the customer.

For me if you do not see that and therefore put value and worth to both yourself and your handmade creations then you will ultimately not survive in the long run – there is no point me telling you otherwise as it would just be BS and what I do not do is BS.

The bottom line is accurately pricing your handmade items will push you towards success whereas using a set formula, like “3x the cost of materials” will quickly pull you towards failure.

It may sound harsh, but the reality of not accurately pricing your items is harsh. It’s exactly what made stop and realise I had to change the way I  made and priced my handmade items.

 Homework// If you haven’t already done some, revisit your pricing formula and make appropriate adjustments. If you’re concerned about the difference of what you currently sell an item for to what you should being too dramatic, increase your prices in small increments. Remember, your end goal is profitability + sustainability 🙂

Add a % on to raise your prices – start with 20% and then if still not seeing a big difference and still working out your pricing structures and formula – add on 30 – 40% and then see if you can see a difference.  I bet you you will very quickly see a change in profitability and how your business can start working for you.

PS – I know you are probably terrified or concerned you will lose some customers – ok reality – you will – but buying handmade is not like buying something similar from ASDA, TESCO or B& M – if thats who you are trying to compete with price wise – stop it – buying handmade is about just that buying something that they probably could not find in those shops – they are mass produced often in factories and places that people are paid pennies for a weeks work and even if ‘handmade’ in those places – believe me the standards, the quality and the cost of labour is abysmal – so do not compete in that market place – make your handmade all about you and what you bring to it all in what you make and create.  But again I keep saying if you do not value handmade, or your value or your worth – or what you make hand made and hand crafted – why would you expect anyone else to.