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It can be hard determining the right value on what you sell, especially when you’re in the business of producing handmade goods or offering custom services. Is there a secret formula? No. But there are small business owners who’ve figured out a pricing strategy that works for them through trial and error, market analysis and by calculating wholesale versus retail margins. We asked ten entrepreneurs, “How do you determine your pricing?” Here are their insightful answers!
Wholesale pricing helped determine retail pricing
Tasha Chapman, creator of Chapman at Sea, surfboard and carryall bags:
“In the beginning, I didn’t know anything about the differences between retail and wholesale pricing. When I first started the website, our retail prices were pretty close to wholesale prices, so when stores started asking for a 50% discount on top, I quickly learned that wasn’t going to work.I had to make some price adjustments just so I could have my bags in shops.”
Read Tasha’s full story: After Designing Her Perfect Surf Board Bag, Tasha Chapman Found A Market As Big As the Sea (Almost)
Erin Dollar, owner Cotton & Flax, functional textiles for the home:
“Pricing is super challenging, and I've been thinking about it a lot. Moving into wholesale has really helped me in terms of gaining more brand recognition and having people find my products more organically by going into stores and then looking me up online. However, it would have been easier to do this had I initially priced my products with wholesale in mind."
“When I was getting started, I didn't think about marking products up in order to sell at a lower price point to retail stores — I was just thinking of my online consumer. I had to build wholesale margins into my product later as the business was growing in that direction. That meant considering what those margins would be at the wholesale and retail price points and being really thoughtful to build in enough room for me to live, because that's what I'm trying to do here!”
Read Erin’s full story: Textile Triumph: How Printmaker Erin Dollar Learned to Price Her Products for Wholesale
Jillian Maddocks, 323, a clothing company:
“My pricing is pretty normal for a clothing manufacturer. I take the cost of the yardage fabric I use and add the cost of materials to the cost of labor, then I multiply that by two to get my wholesale price and add a little more for retail.”
“The only real issue I’ve had with pricing — and I think this is something a lot of small business owners come across — is that it’s very hard to pay myself for labor. I don’t want my prices to be so high that no one wants to invest in my product, but at the same time I want to show that my pieces do have real value. When I’m competing with other clothing manufacturers who are working with really cheap labor, it can be tough. So, at least for now, I tend to pay myself only after pieces have sold.”
Read Jillian’s full story: Fashion Entrepreneur Jillian Maddocks on Starting Up and Learning How to Price Right
Keep on tweaking your pricing formula
Gopi Shah, owner of Gopi Shah Ceramics:
“I have an Excel sheet where I'll plug in how many pieces of this one product I can make in a month if I'm working 40 hours a week. It takes into account what clay I use, what glaze I use, how much I pay to rent my studio and everything else. Then I'll double the price for retail. It's not the best method, but pricing is always difficult and there's a lot of variance in the market. For example, I could put my costs into the formula and it could tell me to charge $100 for a cup. But no one is going to pay that much, as they can find similar items priced anywhere between $12 and $50.”
“When customers buy things, they'll always compare them to something similar they've seen elsewhere. Rather than getting caught up in that mess, I've tried to differentiate myself by making items that my customers don't see every day.”
Read Gopi’s full story: Ceramics Artist Gopi Shah Shares the Secret to Pricing Her Products
Anthony Becker, owner of Wake the Tree Furniture Co. says:
“The biggest lesson we’ve learned is to have a pricing formula to follow for each product and to create spreadsheets that track these formulas. Our spreadsheets show us exactly the profit in each piece after our expenses and hourly rate is worked out. This helps us make important decisions, such as whether we are able to wholesale our products or not.”
“We decide on an hourly rate, which varies depending on the task, and write down and account for all the time we spend on each throughout the process. That includes time spent brainstorming, sketching, designing, actually producing the furniture, conversations with customers, packaging and even printing shipping labels.”
“I enjoy making furniture and running my own business, which in the past made it easy to forget about tracking my time. Now I see this as essential to our growth.”
Read Anthony’s full story: How the Heck Do You Price Handmade Goods? Meet Woodworker Anthony Becker
Carly Burson, owner of Tribe Alive, an ethical clothing line:
“As an ethical clothing company, we have smaller margins, almost half of the mainstream fashion industry’s markup of six-to-ten times the production cost. We aim to sell in large quantities, and our prices range from $12 to $350.”
“To break down the numbers, we add the cost of our sustainable materials to the living wages we pay our artisans. Then, we research the market value of our products by looking at brands we consider our competition and compare their prices to ours. Our standard markup falls in line with the ethical fashion’s industry standards, although sometimes it’s a little higher or lower.”
“Calculating the living wage is vital, and we collaborate with our artisans and nonprofits for advice on this. A living wage isn’t the same as the Fair Trade wage, which has become irrelevant.”
“For example, we recently moved our jewelry studio out of the countryside and into the city because gangs were becoming a problem in the area. Now, some of our women travel five to six hours a day to get to work. Transportation costs a third of their income, so we’re revisiting their wages. Our prices always increase because our people need to earn more money, so it’s a constant and evolving conversation.”
Read Carly’s full story: How Carly Burson's Small Business Combats Poverty with Clever Calculations
Higher prices to attract a higher-end customer
Heather Shaw, owner p i ' l o Designs, luxury pillows and home decor:
“I have a price worksheet that keeps track of all the supplies and labor that goes into a piece with measurements and sources for reference. I come up with the absolute base cost and multiply it by a consistent number to get a retail amount.”
“Another big part of pricing is looking at the psychology of my customers. People believe that a product is worth more if it costs more, but it also has to make sense on the market at that price. Sometimes what the market is willing to pay for a product doesn’t give me enough of a margin, particularly when competing with goods made overseas. In these cases, I decide if it's worth producing at all. I eliminate it from my wholesale price list or take a small cut on it if it’s something I believe will add value to the line.”
“The biggest pricing lesson I’ve learned is that it’s very important to keep track of the cost of every little thing. I even have to account for every last bit of string, because what might not seem like a lot when I’m making 50 orders really adds up when I have to make 500.”
Read Heather’s full story: Textile Artist Heather Shaw on the Biggest Pricing Lesson She's Learned
Nicole Hodsdon, Ciseal Furniture and Home Goods:
“At first, I felt like I need to get my prices as low as possible to compete with huge global retailers who sell bent-plywood basics at rock-bottom prices. But I couldn’t compete because of my process – each product takes days to complete, whereas the retailers’ automated process means they can make thousands at a time.”
“It was only when I realized that it was exactly this slower process that defined my work that I identified my customer base. The people who buy my products come to me because they appreciate the attention to detail and the human hands that craft each piece. Once I’d taken this step in understanding who my ideal customer was, I structured my pricing to represent the honest story behind the product.”
Read Nicole’s full story: Pricing for Your Target Market: Meet Handmade Furniture Designer Nicole Hodsdon
Study the market to find the right value
Amelia Black, owner of Amelia Black Ceramics:
“Starting out, I enlisted two friends to take pictures of other ceramic pieces and their prices whenever they saw any. I went to stores that sell ceramics in Brooklyn and Manhattan and this helped me understand the market and where my work fits in, which is something I’m still developing.”
“I’ve learned that with home goods, if people really love a piece, they buy it and don’t question the price. How much it costs becomes more of an issue when they’re not so sure they want it. If I can make things that people want and connect with, then I can make a living. For example, I once made artistic rattles and displayed them at a studio sale. I priced them high because I didn’t feel like they were ready to sell, but they were the second item that sold!”
Read Amelia’s full story: How I Learned to Stop Stressing about Pricing and Start Crunching the Numbers. Meet Amelia Black
Jill Ridener, owner of Bellalulu Vintage, an antique shop:
“While I’m shopping for vintage finds, my phone is always in my hand. If I see something amazing, I’ll use a site called worthpoint.com that tells me what items have sold for in the past. Or, I look for similar items on eBay. If I see something I like, but there are 200 of the same item listed on eBay, I won’t buy it.”
“When I’ve chosen a piece, I usually try to sell it for double what I paid for it. If I find out it’s really rare, I’ll add more of a margin. My prices have generally gone up over time as I’ve come to find what works and what doesn’t, but there have been a few pieces I’ve regretted buying. Etsy requires sellers to re-list items after four months if they haven’t sold, and if I have to re-list I always lower the price.”
Read Jill’s full story: From Hobby to Full-Time Biz: How Jill Ridener Learned to Price Her Vintage Goods
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