by Lisa McGrimmon
Using a craft pricing formula is an excellent starting point to determine how much your items should sell for.
To be fair, a formula isn't the only factor you should look at when calculating the selling price of your art. It won't take into account all of the factors you need to consider.
However, beginning your pricing decisions with a mathematical formula is a good starting point. It can take the emotion out of pricing and help you determine fair and profitable prices.
Running the numbers through a craft pricing formula can really open your eyes to the true costs of doing business and show you the approximate price you need to strive for to make a real profit.
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Applying a craft pricing formula to your work will...
There are plenty of considerations that go into craft pricing. In fact, there's a good chance you won't end up using the exact price the formula calculates once you take other factors into consideration.
However, I believe a formula is a smart place to start. It gives you a good, objective foundation to determine your prices and helps ensure your won't under-value your work.
It breaks my heart when I surf around Etsy or wander through a craft show and find absolutely beautiful handmade pieces that are completely under-priced.
I see it all too often.
There are plenty of factors that cause artisans to under-value their work. It's easy to:
A good craft pricing formula eliminates those problems!
Some people will debate the value of using a formula when pricing crafts because they believe it oversimplifies a complex decision.
I do agree that if you simply plug numbers into a formula and don't consider other factors, you won't cover all of the issues around pricing.
It would be wise to read more about pricing your crafts to ensure you have a deeper understanding of the considerations that go into getting the best price for your handmade items.
However, you need to start somewhere, and a formula provides an excellent starting point.
Let's not throw out an extremely useful tool just because it addresses some, but not all issues and doesn't completely eliminate the need to think about pricing decisions.
I believe, in the early days of building your business, when you are still learning the ropes and building confidence, a tool that simplifies the task of setting prices and helps you price your products strategically and not emotionally is exactly the kind of starting point you need to stay on track and ensure your business is set up to be profitable.
Once you've applied a formula, you can take into account other issues such as the expectations of your target market and competitors' prices. But the formula will give you a good, object starting point.
Be warned, when you apply the formula to your work, you might be completely shocked by the price you come up with. I know, many years ago, I was absolutely floored the first time I ever used a craft pricing formula on a piece of jewelry I had made.
That's okay. Don't panic!
There's a good chance the price you calculate might seem exorbitant to you. It might be well above what you were thinking of charging or what others charge for similar items.
That doesn't mean you should completely ignore the results.
The formula gives you an objective estimate of what you need to charge to build a business that is viable and has room to grow. It doesn't tell you anything about your customers' expectations or the current market for your product, or the perceived value of your work.
If the amount you have to charge to be profitable is well above the amount you think your could sell your crafts for, you need to take a serious look at your business.
If the price you come up with seems too high, you need to think about a few things:
There's actually a lot you can do to affect the perceived value of your products. James Dillehay's book, How to Price Crafts and Things You Make to Sell has some excellent advice on that topic.
In other words, if you come up with a price that seems far too high, don't just react with frustration and ignore the number. Instead, think about how you can bring that number down and still create valued work, or consider what you can change about your work and the way you sell it to ensure more customers would be willing to pay that price.
For me, when I was shocked by the numbers the formula was giving me, I made a few helpful changes including:
In the end, you might not use the exact price shown by the formula. It's not meant to dictate price; it's just there to give you a baseline.
The formula will allow you to make some smart choices for your business, and it will push you to avoid under-selling yourself.
When you price your crafts, you need to think about how those decisions fit with your larger business goals. A formula can give you the clarity to think in such a strategic manner.
There are a few different pricing equations that are typically used. The one outlined below is the craft pricing formula that I like, and many professional craft artists seem to like this formula as well.
Cost of Supplies + Labor + 10-15% Overhead = Total Costs
Total Costs x 2 = Wholesale Price
Wholesale Price x 2 = Retail Price
Imagine you designed and made an item that used $5.00 worth of materials and took 30 minutes to complete. Assume you paid yourself $20.00 per hour of labor, so the labor cost for the item would be $10 (because it only takes you half an hour to complete each item, and half of $20 is $10).
In that case, the pricing formula would be as follows:
So, in this case, in order to ensure you are making a fair profit and giving your business room to grow, you could sell your item to a retail customer for $66.00, or you could sell several items to a wholesale customer at $33.00 each.
Notice that the labor was calculated at a rate of $20.00 per hour. Be sure to pay yourself a fair wage for labor.
Many professional crafters use a rate of $12.00 to $20.00 per hour to calculate their labor costs in more depth.
When you determine you own labor rate, use a wage that allows you to grow your business and accounts for the skill required to make your product.
Consider how much you would have to pay an employee if you outsourced part of your production process to an assistant. That's a good starting point for your hourly labor costs.
The US Department of Labor provides wage statistics for all kinds of professions, including the hourly wage for craft artists. Take a look at their data if you want to research labor costs.
Overhead covers expenses like tools and equipment, utilities, business insurance, packaging, office supplies, etc. These are the kind of sneaky, sometimes underestimated business expenses that can really add up.
If they are not accounted for in your craft prices, they can eat away at your profits and negatively impact your ability to grow your business.
How is wholesale different from retail?
Your wholesale price is the price you would charge if you sold multiples of your product to a single buyer, a store owner, for example.
Selling a large volume to a single customer (wholesale) generally costs you less than selling individual items to many customers (retail). That's why wholesale prices can be lower than retail prices but still profitable.
How to calculate the wholesale price
Notice that the total costs were doubled to arrive at a wholesale price. Charging for the total costs just gets back the amount it cost to make the item. Doubling the total costs builds your profit into your craft prices.
Some people make the mistake of not including profit in the price of their craft because they feel that the labor cost is their profit. Keep in mind that labor is not profit.
You may be paying yourself for the labor for production time right now, but your business may not always be structured in that way. You may need or want to hire an assistant in the future, and that kind of business growth will only be possible if you've built that expense into your prices.
The retail price is determined by doubling the wholesale price. This is the price you would charge when selling to individual customers at a craft show, for example, or on Etsy.
Doubling your wholesale price to arrive at your retail price accounts for a couple of issues.
First, by doubling the wholesale price to determine the retail price, you are accounting for any selling costs you encounter such as booth fees at art and craft shows, web hosting fees or third party website fees.
Second, the typical markup from wholesale to retail is 50%. That means most retail store owners and buyers expect to be able to purchase your product at half of the retail price if they are interested in placing a large wholesale order.
By doubling the wholesale price to determine your retail price, you are ensuring that you can afford to sell your work at standard wholesale prices and still make a profit.
You might not be ready to accept wholesale orders yet, but if you don't build that factor into the price of your products, you will not be able to grow your business to a point where you do accept wholesale orders without significantly increasing your retail prices.
I personally really like the idea of using a craft pricing formula as a starting point for pricing your crafts. So many people starting out tend to set their prices too low when they just estimate what they think the retail price should be.
Using a formula can give you a solid, objective basis for your decisions. It can also begin to show you where you're losing potential profit, and point you to ways of improving your profit.
Ready to get calculating?
If you have an older version of Excel, the link above might not work. Click here to download a version of the calculator that is compatible for Excel 1997-2004.