Welcome back friends! Today I want to talk to you about pricing your products confidently! As a maker, you so often have to listen to what your customers want, this can be anything from price point to what types of product to make and carry. I sometimes find these voices can be so overwhelming and loud that I often lose my own voice because I want to make the customer happy. Anyone feel the same way? Raise your hand, don’t be shy. If you’re not a maker, I encourage you to keep reading, it will give you a better insight into how and why we price the products as we do. We won’t waste anymore time with the chit chat, let’s dive right in!
How to Price Confidently
This can be a slippery slope, friends. You want to make sure you’re charging enough to cover the cost of your materials and most importantly your time, but you also want it to be affordable for your customers. Calculating my time is something I neglected for a while. I feel that many of us have had the “I enjoy doing this, why would I charge for my time?” thought cross our mind at one time or another. It’s not easy being a new maker or a seasoned maker for that matter, but pricing your products at the necessary cost to keep you in business should not scare you.
I personally use the same formula each time. By no means is pricing a one size fits all or even a one size fits most. You may have to try a few different strategies before you find the one that works best for you, but when you find it you’ll know.
The 2.5% Strategy
For my business, I use what I’m going to call the 2.5% strategy. This strategy is very simple, even for people like me who are absolutely terrible with math and numbers. How did I ever become a business owner being terrible at math? Your guess is as good as mine!
Now let’s get down to the nitty gritty. You’ll want to begin by calculating the cost of your materials. This included EVERYTHING. I can’t stress that enough. It includes everything from your thread, yarn, fabric, wood, paint, whatever you use; you need to take into consideration. Now, let’s put the brakes on for a minute. If your product only uses part of something (1/2 yard of fabric, 1/3 of a bottle of paint, etc.), take the cost of that material and divide it by how many of your products you can use it for. Have I lost you yet? I am going to simplify my process significantly to give you an example. Take a look below.
Fabric cost (1 yard) = $2.00
I can get 2 llamas out of my fabric so I want to divide $2.00 (cost) by 2 (llamas made from 1 yard) = $1 each
Next, you’ll need to calculate your time. Take into consideration any time that was spent working on your product (cutting, stitching, crocheting, painting, knitting, etc.). In order to calculate this part, you’ll need to decide how much you want to pay yourself per hour. In other words, what do you think you are worth? Some people decide minimum wage, others decide to match the wage of another job they are working; this one is kind of up to you.
For examples sake, let’s pretend my llama project takes me 30 minutes & I want to pay myself $10 an hour. I take my hourly wage and divide it in half, $5.
Now add the cost of your materials + the cost of your time.
Cost of materials = $1.00 (this is per llama)
Time ($10/hour & it only takes 30 minutes): $5.00
Total Cost: $6.00
Now that my $6.00 cost has been calculated, it’s time to finish off the 2.5% strategy. Take your total cost ($6.00) and multiply by 2.5%. This will be your retail cost.
$6.00 (total cost) x 2.5% = $15
Now, here is where I tweak it to fit my customer demographic. You may look at that price and think “that price is too low or too high”. If this is the case, make the adjustment as you see fit.
Phew. Now take a breather from the math you just did. If you’re thinking why 2.5%, you’re in luck, I have an answer! When you sell your products, your first priority should be to cover the cost of making the product ($6.00 in my case). Your second priority is to make enough extra that you can cover the cost of making a second product (that’s another $6.00). Your third and final priority is to make a little money off of your product to stick away… So from my llama, I have $3.00 left over. What you choose to do with that money is entirely up to you! I usually stick it away to pay for something I want for my business (a heat press or new sewing machine maybe?)
One of my maker besties, Katie of Hanoverian Crochet Co. also has a tool she uses as her pricing guide!
Hourly Rate * # of hours + cost of materials = Base Cost of Goods Sold (COGS)
Base COGS + Profit % (20%-30%) = Wholesale Cost
Wholesale Cost +Profit Margin (25% – 100%) = Retail cost
Katie & I hope that one of these pricing guides were helpful to you as a maker!
We Create For You!
If you’re just following along for the ride and you’re not a maker, I really hope you understand a little more why we have to price things the way we do. We always want to give you a great deal, something that is affordable, but still great quality. Please remember that we really put our hearts and souls into our businesses. If you feel as though we are charging to much, we really ask you to consider the time we take away from our family and our personal lives to create the perfect handmade gift for you. We especially ask you to consider this before you raise questions to us regarding the price. Most of us small business owners are more than happy to talk to you regarding the cost of your product, but please understand it can come off as a kick in the stomach. It almost implies as if you are saying to us, “you are not worth the cost of your product”.
If you have any questions at all about the pricing tools listed above, please, don’t hesitate to reach out to Katie or I in the comments below (or on her blog) or even on our social media! Think you’re ready to start doing markets?! Check out our favorite markets post!