When you're pricing crafts, do you really take the time to think through all of the costs involved in creating an item?
And if you don't, you might be very surprised by what you discover.
When you really start to do some analysis, it's amazing how quickly your expenses add up, and how much you actually need to charge to make a fair profit.
To help convince you that you're not doing yourself or your business any favors by pricing crafts at unreasonably low prices, here's some math to show you how expenses can impact profits.
Imagine you're selling handmade purses on eBay.
To keep things a bit simple, I'll assume you're charging $80.00 for each purse, you're breaking even on your shipping fees, and you've decided not to use the eBay store option.
Let's say you just sold three purses on Ebay using a fixed price format (i.e. not an auction).
As of this writing, you'll owe eBay 50¢ for the listing fee and $8.00 for the transaction fee (10% of the selling price) for each $80.00 purse you sell (That's $8.50 for each purse that sold - You keep $72.50 per purse).
So, if you sell three purses on eBay, you might think, "Hmm, not bad, once I subtract the selling costs, I've made $217.50." Well, not quite. :)
DON'T BE SO QUICK TO COUNT YOUR PROFITS...
Keep in mind you won't typically sell all of the purses you have listed.
So imagine that you've used eBay's research tools and determined that 30% of all handmade purses that are listed actually sell (I've done the research, and that's a pretty reasonable percentage for certain categories of handmade items on eBay).
That means, if you sold 3 purses, you must have had 10 purses listed. So you also owe eBay 50¢ for each purse that didn't sell, or another $3.50. Now you can say you've made $214.00.
Don't forget, you need a way to receive payment.
Assuming your three customers paid via PayPal, at their standard rates, you'd be charged 30¢ for each transaction, plus 2.9% of the the payment amount - $2.32. That comes to $2.62 per purse, or $7.86 for all three purses.
So now you're down to $206.14 profit for your three purses.
That still might sound great, but it depends on what your other costs were.
CONSIDER YOUR COSTS TO MAKE THE ITEMS
Imagine each of the three purses you sold took 60 minutes to make and used $10.00 worth of materials (You must be extremely efficient and have a great source for raw materials!!).
If you pay yourself $15.00 per hour to make the purses, that works out to a $25.00 expense per purse ($75.00 for all three purses) for time and materials.
In that case, your profit now sits at $131.14 for all three purses ($43.71 per purse), which is still pretty good. And if you don't use a production assistant, the $15 per hour labor expenses will also go in your pocket.
So, it is possible to make a fair profit if you have been pricing crafts strategically.
BUT WHAT ABOUT PRICING CRAFTS AT A LOWER LEVEL IN THE HOPE OF ATTRACTING MORE CUSTOMERS?
Imagine you've fallen into the mindset of pricing crafts to compete on price and trying to profit on very slim margins, and you've decided to sell the same purses for $40 each.
Here's how the numbers work out:
Assuming you sold each purse for $40.00, you'd have $120.00 for selling all three purses.
Once you subtract your costs, you end up with just $23.62 in profit for three purses, or $7.83 per purse. Again, if you don't have a production assistant, you'd get to keep the $15 per hour labor fee, which makes this a better deal for you. However, if you assume you will always do all of the labor yourself, you won't be able to grow your business beyond a certain level if that's your goal.
WHAT'S WRONG WITH $7.83 PROFIT?
The problem with that number is that is doesn't reflect the true profit to your business.
In all of these calculations, we didn't even account for overhead (like equipment) or costs and time to promote your business - You can't just post items online and expect them to sell without any promotional effort.
Under pricing crafts leaves limited room for your business to grow because you can't profitably sell your items wholesale at such low prices.
And, you're going to have to keep up a busy pace in order to make a significant amount of money when your profit is only $7.83 per purse. Pricing crafts at a small profit margin doesn't work because you need to sell high volume to make up for slim profits.
If each purse takes one hour to make, and you work at your business full time, you might spend 30 hours a week making purses (at one per hour, that's 30 purses) and 10 hours a week promoting your business.
Assuming you manage to sell all 30 purses (That is a big assumption, but I don't want to make this scenario more complex) for only $40 each, you'll end up with only $234.90 in profit. While it would be nice to have an extra $234 in your pocket, it really is a lot of work for a little money.
If, instead, you sold your purses at $80 each ($43.71 profit per purse), you'd end up with a profit of $1311.30 for the same amount of effort.
IN MY MIND, IT COMES DOWN TO THIS FACT...
When you make handmade items, you're going to spend a fixed amount of time creating your items and a fairly fixed amount of money buying your supplies. Once you've become as efficient as possible, that won't change - It's the nature of selling handmade goods.
So instead of spending your time creating low-value items that sell for a lower profit, why not put in the time and effort required to create items that have a high perceived value in the minds of your customers?
No matter what you make, you're going to spend a fixed amount of time making your items. Why not make and market something that produces a good profit on the time you invest?
There are plenty of ways to increase the perceived value of your work. For an in-depth look at how to do that, I recommend the book EBAY Auction Power.
EBAY Auction Power lays out an innovative way to get high prices selling handmade items in an auction setting. However, the plan hinges on raising the perceived value of your work, so even if you prefer more traditional methods for pricing crafts, you will learn a lot about how to increase the perceived value of your work and make more profit for the time you invest.