Are You "Selling" Yourself Short? How to Price Handmade
Pricing your items when it comes to handmade is so difficult. It essentially comes down to asking yourself "How much am I worth as a person?". Too many times I see people pricing their items so low that I know there is no possible way that they can be making a profit, and it drives me crazy. It hurts me that they aren't paying themselves what they deserve - as well as it enrages me that they are without a doubt undercutting Knitatude, myself, and the handmade community that I love.
So, Let's start this shiz on a positive note before I combust:
You are an amazing human being. You make stuff with your hands, with your mind and with your soul. You are worth every god damn mother effing penny and deserve to be paid a minimum wage. You deserve to make profit. You deserve to have your items be taken seriously - even if it's just your hobby.
OK, now that that's out of the way let's break down some of the language we are going to be discussing:
Cost: Is the time it takes you to make your 1 product at an hourly rate. Straight and simple. TECHNICALLY this should include the time to get your material, put the finishing touches on (like tags etc).
Materials: This is how much your physical materials cost to make this 1 item. Say you use two skeins of yarn that are $10 each. That now means your material cost (not including your tools - which a portion you should include) is $20.
Overhead: This is anything (outside of your hourly wage and the materials to make your physical item) that you spend on for your business. This includes booth fees, payments for photography, props, your time marketing on social media, responding to emails, you website monthly fees, listing fees, packaging, your tools, time invested in researching new materials, time invested in courses to grow your biz, time to read this BLOG POST, gas to get to your craft store... you see this adding up? Yeah. Don't forget about it.
Wholesale Rate: This is the rate that you sell in bulk to stores to carry your product. Normally this is a 50% discount because they buy in bulk. This cost covers your hourly wage and materials to make you item. That's it.
Profit Margin: This is the money you are making on top of your wholesale cost. THIS is what pays for all those extra costs in the overhead section.
Retail Rate: This is your final rate! Hurray! You slap this on your finished products, list it as this price in your website or etsy etc.
LET'S PRICE THOSE ITEMS - TWO BASIC FORMULAS
1. Cost + Materials = Whole Sale cost ---> Whole Sale Cost x 2 = Retail rate
2. Cost + Materials + Overhead = Wholesale rate --> Wholesale rate x 75% = Profit Margin --> Profit Margin + Wholesale = Retail rate
These are two basic ways to price your items. Let's do an example and use the first formula: Say you're minimum wage is $10 an hour and it takes you 3 hours to make a scarf (3 x $10=$30). You used two balls of yarn and that totals $20 for your materials. You add those together and your wholesale rate is now $50. X that by two and that means that your retail rate you're selling that scarf for is $100. Which means your making $50 in profit. That sounds like a lot, but that $50 profit margin gets eaten pretty darn quickly when you're adding up all your extra costs of running your business outside of making your 1 product.
Let's use the second formula with the same stats. You're hourly wage is $10 and a scarf takes you three hours (3 x $10 = $30) to make. You used two balls of yarn and that totals $20 for your materials. Now I want you to add a very small portion of your overhead costs in. I like to use $1-3 dollars per product. Totaling my whole sale rate to let's say... $52. Now I take that wholesale rate and x 75%. $52 x 75% = $39. This $39 is your profit margin to pay for those extra added costs, like your booth fees and everything else you do in your business other than make the 1 physical product. Don't forget it gets eaten up quickly. Add your whole sale cost and profit margin together ($52 + $39) and the retail price of your scarf is now $91.
If you're wondering why I haven't mentioned "Materials x 3" it's because I think it's an AWFUL way to price handmade, especially when it comes to knitting and crocheting when the time to make something is SO. LABOUR. INTENSIVE. Do not use this method unless you are using materials with an extremely high price point. Please!
If you are still too scared to up your prices then lets chat perceived value. Perceived value means what people think your item is worth. Fun fact - there are actually studies that prove that making your item more expensive will mean more people will buy it. Let's take two identical erasers as an example. One is being sold at 50 cents and the other $1.50. More people will actually purchase the $1.50 eraser just because they think it's better, even if it's not. No one wants to look like the poor person who can only afford the cheaper one, and they would rather impress their friends... a scary thought but true. Now take this analogy and put it to your products. You are now working SMARTER and not harder. If you have two identical priced items and one is at $100 and the other at $50 you would have to sell two $50 scarves to make what you could with that one $100 scarf. Half the work, double the pay.
LET'S CUT THE EXCUSES
"WHAT IF PEOPLE SAY MY STUFF IS TOO EXPENSIVE?"
If someone tells you that your work is too expensive then you know what? That person is not your target market - so don't waste your time on selling to them. It's ok that not everyone is going to pay the price for handmade. You also don't need to start explaining your prices and how your charge - they don't get to know that private info. It's for you and you alone. The best suggestion I can give to combat this question is to say your prices with confidence. If you sound meek and feeble they will walk over you and try to talk you down or out of your prices. If you stand firmly, roll your shoulders back, and say the price and hold their gaze, then they will respect you in the long run. You are a strong human being who knows their worth - stick up for yourself. You can do it!
"IT'S A HOBBY. I’M NOT PLANNING ON LIVING OFF THIS MONEY."
That's awesome, but just to let you know... once you sell ONE item and even make a cent you're not a hobby anymore. You're a business looking to make money, and the government is going to want it's cut. I also want to say that if it's a hobby you should be paying yourself MORE than the people who do this full time. Chances are you're working a full time job, which means that those hours outside of working are more precious and are worth more. That's time away from your family, your kids, your friends. Not to mention it undercuts your own time, the community as a whole if you're undercharging, and essentially makes it impossible for a person who IS doing this full time to make a living. That my friend... is a spiral of shit.
"NO ONE WILL PAY THOSE LARGE PRICES. I LIVE IN A SMALL TOWN WHERE PEOPLE WON'T PAY THAT."
Do you think that Prada bags are truly worth $800? No, but people pay for them. There are people out there that will gladly pay for handmade. You just have to find them. Also if you live in a "poor town" selling online opens you up to the whole world. Don't sell in your town then, sell on places like Etsy etc. It doesn't mean you should have "poor town" prices. The world is your oyster!
"I'LL JUST SELL AT WHOLESALE PRICE NOW. I'LL BUMP IT LATER."
Do not dig yourself a grave that you're going to struggle to get out of! It will be 100x harder to up your price without your customer having negative feelings towards it, than to have it high to start with and lower down. If you start cheap just know, that you're going to get "cheap" customers. Might as well start high and pay yourself, than deal with having to change your entire target audience!
I leave this once again with some positive reinforcement. You are amazing and your stuff is amazing. People will buy it - you just have to find them. You are worth minimum wage and even more there is minimum wage for a reason - so we don't starve and die. Just because you are an artist does not mean you aren't entitled to a decent pay. Now go forth - redo your pricing or bump it at least $5. See what happens! *wink*