Tuesday, September 20, 2011

The Formula - or 'how to price your wares correctly'

IF YOU ARE A CUSTOMER OR A SMALL BUSINESS OWNER, THIS POST IS FOR YOU.

[update and disclaimer] This post has received a lot of feedback in the comments section which is great! I'm glad we're all talking about this difficult topic. But I do want to add - this formula wasn't meant to be perscriptive, merely a guide. Adapt it to suit your situation. I've added more comments below in red :)

It's crazy how often the topic of pricing comes up in conversation around here.

- It might be triggered by our frustrations with a comment on a blog about how such-and-such beautiful, bespoke, handmade item is 'too expensive'.

- We might be throwing around business ideas & offering advice to a intern or friend who wants to start a small business.

- Or we might be discussing a new venture for our own business (such as Inklet), trying to figure out if a product is actually viable to produce and sell at a reasonable price.

The thing is, pricing yourself correctly is HARD. there are so many things working against you when you're a small, local business trying to sell your wares. Like the fact that 99% of the products in your marketplace are manufactured overseas with poor ethical & enviromental standards and sold at a price that you'll never be able to match. And the fact that in your own community there are people who will operate at a loss on a hobby basis because they don't depend on the income from the business. And because people as whole have a mindset that cheaper is better and haven't been educated about the 'real cost' of their purchase.

Since the very beginning, we've always tried to price our textiles correctly. If it wasn't for the wonderful book Craft Inc., we might never have known about The Formula (as we have dubbed it), and by now we would have worked ourselves into the ground.

But fortunately we did know about The Formula (said with a reverent tone) and would like to share it with you today:


The Formula (guided by this book) and made pretty by me

What do you reckon? Sounds pretty full on, huh? All those x2's! Well let me tell you, those x2's are there for a reason and without them we wouldn't be here writing this post to you today.

Let's break it down:

Cost price
Your cost price is the cost of your time (or someone else's) plus the cost of your materials.

Time cost
If you're doing the work yourself you need to pay yourself an hourly rate. We calculated our rate based on what we'd have to pay someone else to do the job for us. Because if we got bigger, that's what we'd have to do. Make it a realistic figure. For us it's $20per hour. You might be able to work to a lesser figure, that's fine. If you outsource, remember to factor in any time you need to spend liaising with or managing your makers.

Material costs
These are your direct material costs, not equipment or setup. For example, we factor in the cost of our basecloth, our inks and our heat setting, but not the screen exposure.

Wholesale price

Your wholesale price is your cost price, doubled. Why double it? Because you need to cover all your overheads! Your rent, electricity, equipment, etc etc etc. If you were paying someone else for their labor then you'd be making nothing for yourself if you didn't mark up the price. Update - double might not work for everyone, everyone's overheads are different, but the important point is that you need *some* markup here. If you material costs are very high then double might be extreme, though it's important to remember that high material costs come with high investment and risk, which you should be covering yourself for.

Retail price

Finally, your retail price is your wholesale price, doubled. Again, why doubled? Because retailers will typically need to mark your goods up by 100%. That sounds extreme, but a retailer also has all of their overheads to cover, plus they have to factor in losses from goods that don't sell. Update - 100% is the standard for *our* industry. If your industry has a standard markup of say, 50%, then you can work to that. Do your research and find out.

The important thing to note is, you need to sell at the retail price (or close to it) in your online shop and at markets. Even if you don't wholesale yet. For three reasons:

1) Because when the time comes to start wholesaling your goods, you can't be undercutting your wholesale customers.

2) Because there are additional overheads involved in playing the role of retailer yourself - packaging costs, shop fees, time to photograph & list items, market stall fees etc etc.

3) Because you're potentially doing the rest of the handmade industry a disservice if you don't.

That last point is a crucial one. And a tough topic. On the one hand, it's important to acknowledge that not everyone can launch into their small business selling at a 'proper' retail price. And one could argue that it's those stallholders with more affordable handmade items that help keep our handmade marketplace a thriving and dynamic one. But on the flip side, other businesses who have set their prices at a sustainable level aren't able to compete. For example, a fully lined zip purse made from our fabric with the above formula would need to be sold for around $35. How often do you see these being sold at markets for $15 or less?

One last thing
Whilst we're here, let's just take a moment to reflect on how the above formula applies to a $15 t-shirt from a large chain store. Considering that some large retailers have markups of 200 or 300%, how much did the person who sewed that garment get paid? Society seems to be more educated about battery hens than their human counterpart.

We hope this post has shed some light for both customers and other business owners alike. We figure if we're going to selling fabric for $96 a metre and t-shirts for $45 then it's important for you to understand where those figures came from. And we hope you'll think about this post when you next think of someone's wares as being 'too expensive', or when you find you next 'bargain' in the stores.

90 comments:

Marg M said...

Hey thanks for this I always wondered what the "formula" was and how it was created. I think I'll even check out the book you mentioned.

Jesse said...

Brilliant post! Thank you! I particularly like the point about wondering how much people are paid for making cheap goods - I've seen a lot of very cheap crochet-trimmed garments lately, and as far as I know, the only way to make those trims is by hand. Which is quite scary.

sooz said...

Great post Lars - it is important for people to understand this stuff. The true cost of 'overheads' is another whole post but it's the black box and hard for people who don't have to do BAS or negotiate with suppliers to really quantify.

Bianca said...

Great post girls! I still apply the 'formula' :) no point in undercutting anyone.. especially yourself!

Mandy said...

Thanks for the post, it's something I'm struggling to work out at the moment, and trying to explain to people who say "How much"?

My Bearded Pigeon said...

This is great. People complaining about the price of handmade locally made Eco friendly etc, really gets me cranky! they want the look of handmade and the uniqueness For made in eg. China prices. They take no consideration for not only the time it takes to make but also other costs like marketing, book keeping, packaging, etcetcetcetc. Great post!

Gem said...

Great post guys! I've shared with friends who sell their wares and are always wondering about how much they should cost them at!

Corrie said...

that is so cool!!!!! love your illustrations! I was taught ages ago by a cake decorator (an old one) to times your cost by 3 but I've always wondered where wholesale should come in there so this is great!

and I looooove people that love buying handmade and appreciate that time has gone into it!
corrie:)

Katrina said...

Oooooh, the formula sounds verrrry familiar!!! Oh yes, that's 'cause you're ace and shared it with me!!! xoxox

Kate said...

Excellent post - well said.

tractorgirl said...

it is a GREAT post, but it really does my head in when trying to price goods at a level that people will still purchase at. This is especialy true if you are making simple things that are not particularly unique - eg., the zip pouch, or totes, where people would just not buy a tote if it was $150.

Bring back the days when society valued their artisans.

Frankie and Ray said...

Lovely post here, and explains beautifully exactly the WHY it is that something locally handmade does generally cost more. It also brought to my mind this quote - "on one hand, people hate the idea of sweatshops & rip-offs but many choose to spend their dollars on too-cheap-to-be-true products! we must buy from shops who support original designers cause those retailers can't last on compliments alone.." (posted by the lovely House of Balaklava on facebook recently) Keep up the good work!

Rosie said...

Lara- you rock!

Tania said...

BLOOMING BRILLIANT POST. YOU SHOULD HAVE WRITTEN THE ENTIRE THING IN CAPITAL LETTERS.

Bec Clarke said...

Great information, thank goodness I have almost been operating on this premise without even realising it. Most people don't think about large retailers so I am glad you threw that in there too, I hate to think about where and how things are made.

Nikki said...

Fantastic post, thank you! Wish I could educate some of our grumpier customers on this formula when they complain about the price of things!!!

Thea said...

Great post! I especially cringe when I see those ridiculously "cheap" clothes in big discount stores and wonder who is suffering to make them so.

Evelin said...

Excellent post!

I do understand the calculations and all but if I were to really use the formula, then my things would really be too expensive and that's only paying myself $20/hour....

I am selling at cost..... no profit :( and already customers are complaining that it's expensive... sigh. But a lot of people don't price their products according to the formula... it's like when customers compare... they will always say, how is it that other's are so much cheaper? it's really frustrating

yardage girl said...

Thanks Lara - it's important for people to know how this all works. Beautiful, quality products made by hand in Australia are valuable and should be priced accordingly. Nic x

hanmade said...

Excellent read! Thank you for sharing! I need to stick this formula up on my wall ;D

jojoebi said...

great post and I try to stick to the formula as much as possible. For some reason 'bespoke' one off or limited edition items seem to priced so much better than artisian one off items, I suppose that comes down to marketing.
It does annoy me when people undersell their goods because it is the rest of the community they are hurting too.

Andi said...

Bloody well said.
AND I AGREE WITH TANIA ABOUT THE CAPITAL LETTERS!!!!

Jennie said...

I'll start by saying I agree with your formula, for trying to make a living from handmade wares.

On the flipside, I've had another crafter get almost angry at me for operating on a hobby level and feeling happier selling more products at a cheaper price, rather than selling nothing at my monthly market stalls because of dedication to the formula. She seemed to think I MUST do things the same way she did. But really, that's why we need small-scale markets for micro businesses and hobbyists as well as bigger, widely-advertised ones for pros making for a living.

Stitchybritt said...

And maybe if we paid the REAL price for things (that is, a price that includes fair wages, sustainable materials and environmentally friendly manufacturing) then we would take better care of them, use them for longer, and be less likely to throw them on the landfill pile after one season.

ren said...

Grea post, cute diagrams! I remember you posted the formula on your other blog once- I've sent many people there since or told them your formula. I think it's really important for people to understand.

Nikki said...

Yep. And I'm also with Tania on the capital letters thing.

GO you, girls. You rock.

Jeremy Daalder said...

Interesting post Lara and the only thing I think wrong with it is I think the 2x should be 3x - indeed, in general, in business 3x cost is a bit of a norm for each 'stage' (wholesale to retail, for example). Charge out rates for consultants are typically based on 3x their package cost as a a starting point, as it happens.

Even doing what you love, you should aim for a good living rather than a modest one - no one needs a Ferrari but to make your business sustainable long term you do need to remove the bulk of the financial stress or eventually the hours vs. return equation will swamp you.

Quality and values cost - and fortunately a lot of people do see that. But in the race to the bottom price, it really can be hard to stand your ground and price at a truly, deeply fair level.

(And p.s. just for some more work in your life, you need to move your comments to disqus so great ones like Stitchybritt can be promoted up!).

craftytails said...

Fantastic article. There was a post over on Ravelry asking the exact question that I was reading only this morning. How much should I charge. Thanks!

Clare said...

Great post guys! and so much support ^^ !

Ktietje85 said...

This is why I don't sell my cloth diapers. Many people see them and say that I should, but I'd have to charge about $50 each by this formula and the market rate is no more than $18 each. We've talked about it many times and even done it once or twice as a favor to friends (basically for the cost of materials + time, or a little less), but we don't go into business because it just wouldn't be worth it.

LindaKay said...

Well said! Thanks for making this crystal clear. I have used a different formula for pricing my work and now I need to go back to the drawing board and re-think this.

Miss said...

Thanks Lara, that is really interesting. I don't have a business and may never have one, but have always wondered about things like this. I also love the illustration. I hope you write a book one day - I think it will be lovely and inspiring!

Felicity said...

Thanks for this reminder. So much of my work takes so much time and care, especially embroidery and designing embroidery patterns (even simple ones).

A. Heron said...

It's an excellent idea in theory. For some vendors it may work however I doubt it would be viable for metalsmithing. If I use this formula, ONE of my 14 gauge stacking rings would have to sell for $28. Nobody would pay that much for a simple stacking ring. If I included ALL my time in some of my pieces, my silver jewelry would be priced so high that not a soul would even consider buying them. As far as considering the other poor souls in the handmade industry: Say that one business owner owns his building and lives in an area where utilities and supplies are cheap. He/She is able to produce the same item cheaper than someone who pays a mortgage or lease or lives in an area where utilities are sky-high. Can you blame them if they can reasonably afford to offer an item at a significantly lower amount? Absolutely not. It's called capitalism. It's how the free market works. In regards to people making items for pennies a day: We may not like it. It may not be ethical. But the point remains that as long as there is a market for it, people will continue making crappy, cheap products.

CraftHippy said...

What a brilliant post - thanks for the information. I sew for a living at an amazing soft furnishers in North Norfolk, UK so I know only too well the actual price of things, especially the time it takes to make and the overheads etc but I also go to craft fairs independently, selling other items that I make. I do find this really difficult however as there is always someone near me who is selling their stuff for half the price of mine, even though I know that they can't be making a profit. I do try to keep the faith though, as much as I can but you have to strike a balance!

I&S fan but not fan of 'the formula' said...

Hi girls, I know that you have to make a living (and I'm a big fan of your beautiful prints) but I can't help but get an overbearing 'price this way or you're an outcast' message and (sorry) Ink & Spindle products are expensive in comparison to similar ones I've seen.

It's brilliant that you're making it run at a good profit but I don't think that this kind of price fixing would ever be considered fair to the consumer in any other area. Neither do I think it helps this industry, especially when competing with the large retailers you mention. Perhaps it's messages like these that do "the handmade industry a disservice", by making talented people believe that they can't find a niche for themselves in it, rather than the hobbyists aiming to fund their pastime by selling a few handmade bits and pieces?

Waiting said...

Thank you! Thank you! Thank you!

Especially about the part on cheap t-shirts and the lack of concern about the environment in some countries. People need to understand the entire cost, not just the pocket cost.

Thank you!!

Stephen @ Soy of the North said...

This is a good article, but it misses out the overheads needed for making the items. If you need to use things like gas, electric or fuel to make your craft, you need to factor those costs in at the first stage or working out your price, otherwise ou will actually be selling your craft for less than what you should.

Pomegranate said...
This comment has been removed by the author.
Pomegranate said...

Thanks so much for such an honest post! I will definitely be following this formula from now on!
Xx

Lara said...

Thanks everyone for your fantastic comments and feedback.

I want to say a few things. Firstly, this formula isn't meant to be gospel. It's a formula that works for us and many others but of course might not work for you if your overheads are higher or lower. I'm not trying to say "do it our way or nothing at all", and I also appreciate that there are people out there who just want to do what they do for the passion of it, not to make a living. I don't begrudge them that at all.

But there are others out there who are trying to make a good go of it, hope to one day live off what they are making and are struggling to do so. For these people I am trying to shed some light & give them a hand. I think it's important for everyone to know that there are a lot of behind the scenes factors that go into the price of an item and to take them into consideration - whether you be a consumer or a maker.

x Lara.

Lara said...

In response to "I&S fan but not fan of The Forumla" 's comment:

Thanks for your feedback. I find it interesting that at the same time as saying you appreciate we need to make a living, you go on to say that you've seen textiles like ours but cheaper. Do you think we're profiting *too* much from this business? I can assure you that's not the case. Our income is liveable and modest - some months are a struggle!

As for those similar-but-cheaper textiles, who's to say the designers/owners aren't making compromises themselves somewhere along the line? Perhaps their basecloths aren't organic. Perhaps they don't draw a livable wage themselves. There are many factors to consider.

As for making people feel like they're an 'outcast' if they don't price our way, that was not my intention at all. It upsets me to think that anyone would take this advice in such a way. Anyone who knows us personally knows that we put a lot of importance on being inclusive and supportive in this industry, and this post is simply trying to help people. See my comment above for more thoughts on that topic :)

mel @ loved said...

This is Brilliant! Thank you, thank you, thank you!!!

Tanya said...

Thanks so much for sharing, it is so important everyone understands this!

Melli said...

fantastic post!!!...great tips to learn..i will be using this formula from know on,as a small home-based business,its very hard to explain to people how much my work is, as all my time & work go into making one piece of artwork and i still sell it cheap,no one ever sees all the efforts get put into handmade:) xox

Jay @ Finki said...

Thanks for the formula in such a pretty and easy to read way. At some stage when I started crafting I read a formula that was 100% markup on your cost to get wholesale and 200% percent markup on your cost to get retail. So by that equation it ends up a bit less then the 2 x 2 guide. But really it's about what works for your business. Some people have rent on a high st shop front to cover, some have a monthly market stall fee and some have just Etsy fee's. So at each stage of your business growing there possibly is a different equation that will work for you. What matters is to keep it real, be honest about the hours that went into making something and pay yourself a price that you would be happy to pay someone else if it was being made for you. Thanks for sharing gals xx

Nichole said...

Thanks for the advice. I usually follow a similar idea. However as a knitter, I can't reasonably factor in the time it takes me to knit something and then sell it based on that formula.
Say I make a beret. The yarn costs me $10 and my time spent is 10 hours, well that there is $210 cost price.
Sadly I don't think anyone is willing to pay that much for a hat, hand knitted in superfine organic merino wool or not.
My time spent knitting will always be a labour of love as it is a slow process.

MonetPaisley said...

Wow, I account for costs and add $15 for my labour and that is my wholesale and then my retail is double that. I will have to put my prices up.... feels like I have been working my guts out and getting nowhere. If anyone wants to bag a bargain before the.prices go up pay me a visit. Should I wait until there is more of a demand for my.product before putting.the.price up???

Shelly said...

Thanks Lara! Really informative and couldn't have cone at a better time for me as I was just wondering what to sell my textiles at. Love your prints! ;0)

Shelly said...
This comment has been removed by the author.
Janet in Washington State, USA said...

Here in the USA we're still struggling with high unemployment, and a lot of families like ours are struggling just to make ends meet. I would love to buy handmade products, to support local artisans and buy quality products, but given our young family and tight budget, it's simply not possible. Those of us who can't afford to buy handmade, especially not for our daily needs, and can only afford to do our shopping at the megamart don't necessarily disregard the lives of third-world workers or the environment. Sometimes you just have to make sacrifices to feed your family and clothe them, even if you're dreaming of sustainably printed beautiful organic fabric!

Julie said...

This is illuminating and most useful. It is really true we compete against businesses who are happy to rip off others because they don't live in Australia. But hopefully educational posts like this one will help bring about changes in the way Aussies make purchases!

Brenda said...

Wonderful post and sooo true. I am a full time woodworker, really hard to compare my prices with offshore but wood is one of the more labor intensive, space & equipment heavy ways to create a wonderful handmade item.....you have to find yourself some really great customers.

Rachaeldaisy said...

An excellent post!! Very well explained!!

Cat said...

thank you so much for your post, and for the 'Formula'. I so appreciate your words, and also the thought and honesty that have gone into the post. I have just started a teeny sewing business with a good friend, and we talk a lot about pricing, trying to get it as correct as we can. I came to your post via the very fab imagingermonkey blog (just letting you know!). thanks again.

ros said...

Or you could price your product using an economic supply and demand formula: http://en.wikipedia.org/wiki/Supply_and_demand

For a hand crafter, there will be limits on the amount they are able to supply. Combine this with the high costs involved, it seems to me very likely that the demand is going to be insufficient to make a sustainable business. I basically think that most crafters would be better off NOT going into business at all. Or at least, not a business that is making things to sell. Teaching, writing patterns, supplying kits or materials - those are places where there can be a sustainable profit. Paying handcrafters a living wage for their time to make stuff, is generally not feasible.

Sarah said...

I think Janet from USA absolutely nailed it with her post. Handmade is expensive. No question about why but the reality is it is for a lot of people it is just not an option. Come on guys it is hard to justify a onesie for $49 that a kid will wear for a few months.
This post reminded me of a similar one by Harvey Norman encouraging us to stop buying online.

Corinne said...

Love your article on The Formula (said in hushed tones). It's high time people realised the true cost of all this imported stuff that is made by almost slave labour. Our economy is poorer for it and nobody appreciates the value of labour and knowledge any more.

unik said...

Thank you very much for this post.

Lindsay said...

My version of the formula adds 10% to cost and wage for overhead, tools and incidentals. It looks something like this... {[materials + (wage x time)] x 2.1} x 2 = retail

Everything in brackets is wholesale. Also my wage is what I would pay someone else to do the same job. And that's no more than $13 an hour. $20 just seems greedy and excessive to me. I know my aunt is a seamstress (and a very good one at that) and only makes $12 an hour. Now, when I do design work, whether draping a pattern or doing graphics, I charge $75 an hour (which I don't double or quadruple). But assembly work wages really should only be set at what you'd pay an employee. Especially since you're quadrupling that wage for yourself in your retail price. But this is simple business ethics, and you were just talking pricing formulas. ;)

Anonymous said...

You're assuming that ALL sellers need at least 50% mark up on the cost value. Let me tell you, a 50% profit margin is HIGH, a 100% profit margin (what you are charging for retail) is super high. Most retail businesses operate at around 30% profit margins, and that's considered a healthy profit. You can't just times everything by two, business isn't that straight forward, you have to take into account what your market is expecting to pay for an item too. Based on your formula my baby quilts should cost $600, when the reality is I can sell them for $150-$200 and still earn a 30% profit.

Poppyprint said...

Thanks for this thought-provoking post. Based on the comments, I'd say not many of your readers are 'in business' at the same level as you are. Naysayers on the formula have to realize that crafting for pleasure and selling as cost recovery are very different from actually operating a viable business for livelihood like you are.

I once included a comment on selling wares in a ranty post I did. Here was my brief take:
*It is insulting to women and their work when people sell their handmade products on Etsy for little more than the fabric costs. How will we ever achieve a living wage for handmade when we give it away?

Thanks for the discussion!

sewkatiedid said...

Thanks for this. As a quilting instructor I am shocked at what others charge and try to live off of. I want to raise the bar on goods and services. Creativity is important and should be viewed as important, but our society doesn't place enough value on it.

Lara said...

Hi guys, thanks heaps for all your ongoing comments and feedback, it's been great! I've added a few comments to the original post reflecting some of your observations. But I just want to say again, the formula was never meant to be prescriptive, more of a guide and a trigger to consider things you may not have considered before.

I also totally respect those comments from people saying that in today's economic times we can't all afford to purchase ethically, first-world produced items. Which I think is fair enough. But I also believe in quality not quantity. If you can afford to spend a little more on something good quality that will last you a lot longer then you are saving money and the planet in the long run. There is so much value in a well made item that can be passed on as a hand-me-down or sold at a second hand store. I grew up wearing hand-me-downs and it was definitely the cheapest option!

Nadine said...

Great post and so so true. After reading your post and what Katy wrote too I did the maths according to the formula, check it out here if you're interested: http://quiltedbliss.blogspot.com/2011/09/katys-wisdom.html

ros said...

@poppyprint, I guess my question for you is why do you think anyone *should* be able to make a living in handmade? I don't think anyone is obliged to pay handmade prices these days. If there's enough demand for your product at the prices you have to charge to make a living, great. The reality is, in my opinion, that for most crafters there won't be.

MariQuilts said...

Wonderful post and great formula.......I just disagree with one aspect. I feel quilts sold online and at markets should be sold at wholesale price because you don't have to pay that forty or fifty percent, that you would have to give the owner of a retail space. I'm just curious on your reasoning.

Nichole said...

@Mariquilts: if you sell your stuff at wholesale then you can't expect your customers to pay retail prices to purchase your work elsewhere. So you can't have your quilts stocked in a shop as you would be undercutting them.
If you don't sell anywhere, then it doesn't matter.

Lori Watts said...

Great post! My work sells at retail price regardless of whether I am selling it, or someone else. If I didn't, I'd be undercutting the wholesale accounts which have chosen to take a risk on me, and buy the work in quantity outright.

Also, people will pay more than you think. After doing some math of my own, I had to increase prices on many items - some by as much as 50%. And guess what? I sell MORE of them.

Shannon Garson said...

To all those who say they can't afford "handmade" artists like Ink and Spindle have to make a living. Over the years as I built my business my ceramics have become more and more expensive which makes me feel bad that poorer people may not be able to afford them. However when you are trying to make a living you can't please everyone. I have had to accept that fact that in the main I make work for affluent people. It has always been the way. Fine crafters throughout history have been commissioned by the wealthy to create beautiful things. The way I subvert this process and make the work more democratic is to keep my eyes open for opportunities to simply give my work to deserving people and causes as many times a year as I can afford to. To give it to someone I feel would really love it a few times a year is part of what I see as one of the small ways to compensate for the fact that I cater to the well-heeled.

Katherine said...

I enjoyed reading your post and the subsequent discussions it has sparked.
Pricing handcrafted works is a hot topic and I was interested in hearing the comments from others.
I have personal experience sewing for production for a small business (which translated into getting paid 75cents for my labor for an item that retailed for $13); and I have had the experience of selling my own "one of a kind" items using the FORMULA(as I want a living from my work - not a monetary "pat on the head"). I found it tricky to balance out what the marketplace was willing to pay with what I needed to make it profitable to do. It was frustrating, but I decided that I had just not found my niche. Although I'm continuing to pursue my place in the market, my personal view is that I refuse to give my talents and time away for something less than a living - a business cannot survive without a profit and my creative spirit cannot thrive if I undervalue it. That's why I appreciate what you've shared in your post and I applaud your success.

Rena said...

not sure if i will have anything original to add to this but - the right price = the right price for *you*. if your goal is to make a profit, use some kind of formula and price it as such. if your goal is to make money to buy more supplies and maybe have some leftover to get a nice dinner out every month, that's great; price it accordingly.

makers who sell triangulate their work based on love of making and being creative, earning income, and the satisfaction of having other people enjoy your work by owning it. if you price for higher income/financial growth, this indicates to me that you are running a business and not a hobby. this is not to demean hobbyists, even ones who sell, but no matter your motives, money is at least part of the picture.

Joanna said...

Hmm, really interesting. And great timing for me as I'm just starting to get into all this and wondering how much to charge for my wares. So thanks for the advice and good on you for being able to make a living out of what you do...

We Blog Artists said...

GREAT POST!
Thank you...I really needed this!

Have a great day
Char.x

Rosalind said...

It is a great book! I bought it just before I started and it helped put Handmade into perspective! I also spend a bit of time trying to gently educate other Mums who just want a bargain - I mean don't we all... but it's different with handmade!!

Natalie Y said...

Finally an interesting and educating topic... and oh so relevant. I'm so glad that we have been running our business as per 'the formula' with the exception of adding in our time (something to consider!). But it really does amaze me how people scorn at handmade prices but are happy to support larger retail stores who have offshore 'companies' (I say that loosely) who pay their staff less than what we would pay for a cup of coffee. Yeah how cool we can buy a t.shirt for under $10 elsewhere but where's the love and the ethical treatment of workers!.
Great work ladies!!! I commend you for your honesty. Not many businesses would disclose these facts (formulas) to customers... well done.

Mademoiselle Dimanche said...

Great post who explain why handmade or small series things are "so expensive" !! But in France, where I work and live, the retail price is wholesale x 2.5, because of the taxes (about 20% of the final price). It's really difficult to explain and justify the price to customers...

Cathy {tinniegirl} said...

I loved reading this post and all the comments that went with it. A very interesting discussion.

And I really appreciate having the formula spelled out for me as I'm just about to re-open my Etsy shop and start putting some renewed energy into my creative business. So thank you for helping me think about pricing in a sensible way.

And you did make it look very pretty too!

H said...

Great topic that many of us struggle with. FWIW One thing I would point out that I think about is how long would it take someone highly skilled and well setup to produce the same thing? For instance the beret example in the comments. A highly skilled and experienced knitter with good technique might be able to knit up a beret in a couple of hours, reducing the 10hour labour cost of $200, to only $40, making the cost price $50 rather than $210. Both might use the same materials and be of good workmanship.
I think you need to be realistic in your calculation and not charge people for your inexperience etc.
FWIW

Nichole said...

That's for your thought's H, I'm most definitely not an inexperienced knitter and can certainly knit up a plain beret in a couple of hours. However, would you pay $50 for a plain beret when you could go an buy it from a department store for $10?
And going by the formula as set, $50 would cover the cost of time and materials only. To get a wholesale price you would need to double that figure making the plain beret cost $100. Your retail cost would then be $200.
I'm not saying the formula is flawed, in many cases it would certainly work very well, especially where you can have many things prepared and then do them in bulk (ie: screen printing shirts, or sewing purses) I was merely making a point that it doesn't apply to my craft of hand knitting which is slow and can not be done on a mass scale.

print said...

Amazing how simple it can be to communicate with people and have them understand a certain topic, you made my day.

Bulk Ink

Fluid Ink said...

Brilliant stuff. Its good to know that while most people say that 'pricing is an individual thing and there is no set formula' that for some instances there is and this formula is a heck of a lot easier than 'go with your gut' if nothing else it gives you a basic guide. Now to work out an hourly rate...

Marieke said...

Thanks for a very helpful post!

I think what I sometimes find most irritating is when people complain about the cost of handmade bespoke items, and compare them to cheap(er) items sold in chain stores, when I don't think that's always a fair comparison. And on the other hand, plenty of people are more than willing to spend a lot of money on established brands that charge as much as they do on brand recognition alone, not necessarily on quality.

People will pay for more expensive things if they deem it's worth it. Now we just need the mindset about handmade goods to change, because it seems that too often that counts as being "lesser".

One of the most important comments I read somewhere ages ago, regarding pricing your wares, also had to do with valuing your own work fairly, because if you didn't, nobody else would either.

Mott said...

Your blog was recommended to me and I'm so glad I took the time to read your very useful information regarding pricing items you create.
I have just begun to sell my handmade silk creations and found it very difficult to put an actual price on my work. The 'formula' was very helpful, and from now on I shall work this in to my price structure. It is hard to know how much to charge for items that may have taken hours and involved many processes - people just don't understand the work that has gone in to its' creation. But I do think people will pay for something that is unique and know that they have a one off piece of wearable art. Thanks so much - I shall be a regular visitor. K

She Rat said...

Thanks for this post! All make sense now. I've been googling trying to find this information. So glad I have 'the formula' now.

Gary Capps said...

Pricing is always a difficult subject when it comes to handmade goods as the time involved in creating them can be way more than the cost of the actual materials.
We created a formula that will allow people to accurately work out their hourly rate by including overheads and tools as well since a lot of these things get left out when calculating cost.
We covered it in part of our A-Z series recently on our blog here:
http://www.craftmakerpro.com/a-z-handmade-business-guide/key-pricing-handmade-products/

Anonymous said...

thanks so much for getting this issue out there in such an eloquent way lara.The disconnect in consumer's heads -when oohing & ahhing over the quality, workmanship & uniqueness of handmade and the associated cost really does my head in-some people get it, but the for the majority I don't think there's a whole lot of thinking going on at the point of sale...we need to talk more about this, if we are to see handmade thrive in a country that has high cost of living and labour costs.

Marianne Brown said...

Thank you for this great post! I love the drawings.

Something to add: Consignment

Retail x 50% = cheque for wholesale amount in the mail and happy maker.
If this total is wrong, then you are pricing your work too low.
Once a retailer, I am now happy to pay someone to sell my work.

Oh...and postage.

Marianne Brown - Canada

Koen said...

Although your formula is well intentioned it is not the right way to do it.
You have to start from the percieved value of the product and take it down to the same scale in other words: set the price at a level at which you would buy it in the store you would most likely find thsi kind of product. Let's say it is $100...so you wholesale price is $50. Your rep. or what will be your rep when you delegate the job to someone else wants at least 5% so you get $47,5... Your overhead at 50% is too high. You should be able to work at 35%...if that's not the case make sure you improuve on your efficiency. So you are left with roughly $31. But let's say that you can't and you need 50%...so you have $23,75 to spend on labor and materials. If you can not do it, Do not produce the product! Look for something with a higher added value! To start from materials+labor you might simply end up with the right price but with a product you can NOT sell. Good luck!

CreatingWellness101 said...

I want to see if I can make your system work.
I am starting a mobile reflexology business as our carpentry business has overhead that no one seems to want to pay these days.
20min session = 1hour of total time X $11/min.wage in Ontario = $11 X 2 for overhead(tools/vehicle) = $22 wholesale cost X 2 for retail = $44.
That would then put a 30min session at $51 retail, 45min session at $62 retail, 60min session at $73 retail.
Those prices would be great but I only see them listed for practitioners with more experience, not for people starting out. It will be interesting to see what prices work in the end. Currently I am trying to follow the advice in the book Rich Dad, Poor Dad, by having income be divided into 3. 1/3 for living = min.$20,000/yr; 1/3 for overhead; 1/3 for the future = $60,000.00/yr/gross divided by the number of sessions I can do in a 44 hours work week and 48 weeks a year.