Did you ever fumble while selling handmade products?
Did your competition make you question if you should sell at higher prices? Or is the decline in sales making you feel the other way around?
If questions like these perplex you. Then, you must read further.
How To Price Handmade Items
Before you decide how to price crochet blankets, you must know what is the cost of making one.
Thus, you need to know —–>
How Is Handmade Pricing Calculated
First things first. There is no set formula to price handmade items.
As the market is super duper fragmented, there is no one way to price.
So, as many handmade artists, as many price points.
Thus, to come up with a selling price knowing costing is vital.
For a handmade business, the following could be the costs:
- Raw Materials and Supplies
These are the basic ingredients to create a product. So, for a souvenir business, you would need magnets, glue, and several other craft supplies.
Even the digital printables business requires a laptop and paper for testing prints.
- Time Spent
This cost is the most difficult one to calculate. That is because there is no fixed value to calculate the worth of time. Moreover, the value of time spent is different for every individual.
Though one can factor in the minimum labor wages in a specific country to put a value on this one. But that value will be capricious.
- Shipping Costs
The growing fuel costs have a direct impact on this one. The more your handmade business grows, the more will be your shipping costs.
So, in the long run, it becomes a good problem to have.
- Marketing Costs
No business can survive without marketing. Though, social media does not require a cost to start. But going beyond organic will require the expenditure in ads.
If marketing is offline, then, the costs would vary as per the medium.
- Legal Costs
Licenses cost a significant sum if you are selling cosmetics or food. Moreover, as per your local laws, there could be a license fee to run a handmade business.
Trademarks, patents, and taxes as per the revenue are some other legal expenses.
- Employee Costs
This would be the same as the cost of time spent if you are the sole employee. But if you have people working for you, then, that is an additional expense.
- Packaging Costs
Packaging handmade items is a significant cost considering global shipping options. Robust packaging requires materials that ensure safety and durability.
Moreover, customers expect handmade brands with sustainable packaging materials. This adds to the expenses of a handmade business.
- Craft Fair Fees
Before Etsy, craft fairs and farmers’ markets were the only hope for handmade sellers.
Even though Etsy is synonymous with handmade transactions. Still, the lure of craft fairs is rampant for creatives.
The fairs charge a cost for display. Thus, adding to the expenses for a handmade entrepreneur.
- Display Material Costs
Participation in craft fairs requires varied display materials. The list could range from stands, shelves, and racks to labels and lighting. Thus, another set of expenses.
- Online Platform Costs
This one is obvious. Etsy is the market leader that charges 20 cents per listing. There are subsequent charges for sales, advertising, and payment gateways.
Selling through a self-hosted website also has a cost. The alternate option to reduce costs is to sell on Gumroad instead of Etsy.
- Website Costs
Over the years, sellers are experiencing lower sales with Etsy. Though even worse is Etsy shutting down shops.
So, having a website along with Etsy provides a buffer. But this buffer does involve an additional cost.
- Email Costs
Years of experience have taught me that email beats every other form of marketing. Sending an email to a customer builds a direct line of contact minus distractions.
An effective email strategy is more important than having a website or social media.
Some email marketing providers operate on a freemium model. But the professional ones that deliver do cost some serious bucks.
- Learning Costs
Learning can never stop for any business. For a handmade one, it is imperative as creatives require a plethoric amount of skills to thrive.
- Software/Tools Cost
There are many tools and software to run a handmade business. To enlist the basics, Quickbooks, design software, SEO tools, and cameras are some of the few.
- Machinery Costs
It may seem like an oxymoron to include machines in a handmade business. But the fact is that some handmade businesses do involve essential mechanical equipment.
Sewing machines, Cricut, or Printers are the common ones. Then, for the ceramic business, pottery wheels and kilns are the machinery.
The topic of handmade vs machine-made is a point of debate. But it is inevitable to purchase/lease machines in a few handmade businesses. Hence, an additional cost.
- Office Rent/Lease
My handmade business started in my bedroom. That is common to most small businesses.
But as the commercial entity grows, there is a need for a dedicated space.
So, an added cost of a bought/leased/rented space.
- Utility Costs
Electricity, water, and gas have a major contribution to utility costs. Depending upon the nature of the business, other costs could add up.
For a soap business, waste disposal is an added utility cost.
- Vendor Services Cost
Vendors are the backbone of a steady business. They provide the materials needed for the smooth functioning of a business.
Hence, their services add up to the cost of running a successful handmade business.
What Is The Craft Pricing Formula
As you can see, there are numerous costs to operate a handmade business. Thus, pricing becomes a challenging task.
Moreover, the costs differ for every entity depending upon the nature of the business.
That is why it is impossible to devise a standard pricing formula.
Over the years, I have tried different pricing models. The one that I now stick to is a simple one. It is three times the price of your costs. It is that simple.
As a formula, it is as below:
Selling Price = 3 x (all the tangible costs)
Tangible costs mean the countable ones and have a price tag on them. Hence, it will exclude the time spent. Also, it does not have one-time charges like the legal costs.
It may seem inefficient as it does not involve complicated calculations. But if you put it to use, you will realize that it covers all the costs. Plus, it does bring in profits as well.
Talking about profits takes us to —–>
How Much Profit Margin Is Good For Handmade Products
Profits are subjective to your appetite for ambition. But talking about my experience, any figure beyond 10% is healthy.
So, if your profit margin percentage keeps increasing. Then, for sure your pricing is doing fine.
Pricing is always a challenge even after putting years into a handmade business. That could be the reason why there are several discussions on how to price handmade items. But none comes as a close fit as an absolute answer.
That is why this post makes an attempt to lower the overwhelm regarding this topic. This is not the ultimate guide on how to price handmade items. But it does give a base to price right as a beginner in handmade business.
Let me know if it solved your purpose. Or share your pricing formula for handmade products.
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