The internet is a friendly place for artisan entrepreneurs, with platforms such as Etsy and Shopify welcoming handmade sellers. You’ve created your own product and opened an online shop, and the next step is to add products. However, you can’t add products without pricing them, and pricing your items on a whim is a sure path to an unsustainable business. Find out how to generate prices for your handmade products that account for your time, your materials, and markup, nabbing you a tidy profit with each sale.
The first step is to calculate the costs of your materials. Include the costs of any packaging used. For instance, if you wrap your bath bombs in tulle, add a branded sticker, and tie them with a ribbon, then account for the use of those materials. If your hand-poured candles are shrouded in bubble wrap and encased in extra cardboard, then make sure you write down those costs.
Undervaluing your time is the biggest mistake an artisan seller can make. You may find that it costs you $2.75 to hand-pour a candle and prepare it for shipping, price it at $10 to make a profit, and call it a day. However, if you worked for 30 minutes on preparing that candle, then you’ve only made $7.25 for that 30 minutes of work, not counting any time you spend on marketing or communicating with your customer. With profit margins that low, it’s hard to make enough money to keep operating a business.
There’s an easy pricing equation you can use to determine your pricing and avoid undervaluing your time and materials. Materials + Time Value = Item CostItem Cost x Markup = Retail PriceFor instance, if you value your time at $20 per hour and choose a 2x standard markup, then heres how you would calculate the price of that hand-poured candle that took 30 minutes and $2.75 to make: $2.75 + $10 =$12.75$12.75 x 2 = $25.50The retail price for your candle would be $25.50 total. You can adjust the formula to account for your own time valuation or to increase your markup as needed.
Do you plan to sell your items at wholesale? You may have a subscription box interested in your hand-poured candles down the line, or a retail shop that wants to sell your crocheted scarves. Make sure that your retail pricing accounts for wholesale if you intend to go that route. Businesses that buy wholesale generally expect a 50% discount from the retail price; if your candles sell for $25.50 each at retail, you need to be able to sell them at $12.75 wholesale and still generate a profit. If that won’t work for you, then you have three options:
- Reduce your materials and time costs to increase your profit margin.
- Increase your retail price, which in turn increases your wholesale price.
- Opt out of wholesale.
You may find that a standard 2x markup isn’t quite right for your business, so pay attention to what items sell well and compare your own performance to competitors in your market. Some markets can sustain higher markups, especially if your handmade product is a luxury good, such as custom-knitted clothing or hand-stamped jewelry. With careful attention and experimentation, you can land on the right pricing strategy for your small handmade business.