how to price your handmade products
When I first decided to start DON'T WORRY DESIGNS, I was overwhelmed by the amount I needed to learn right away. Besides the time required to refine my craft, I also needed to deep dive into the nitty gritty of running a business. As a creative person that never studied finance in school, I struggled most with coming up with a pricing strategy.
I've put together a step-by-step guide of the process I went through, so hopefully this will help a new business owner just starting out. You will need to consider overhead, materials, and labor costs to ensure you cover your expenses and (ideally!) generate a profit. It's a lot to take in, but remember: you can always make changes to your prices as you learn and grow.
how to put together a pricing formula
Step one: calculate your materials costs. This is the price of the materials you need to make your product. For me as a predominantly polymer clay artist, this include the cost of polymer clay and any jewelry findings I need to make my designs, like jump rings, earring posts, and backings.
Don't forget to include your packaging costs. This the price of the supplies you need to actually get your product into your customer's hands. For me that includes custom earring cards, and for all online orders I also use business cards, stickers, shipping boxes, crinkle cut paper, and tissue paper to ensure the jewelry arrives safely.
Step two: determine your labour costs. Calculate the time you spend on creating each piece and determine an hourly wage that you believe your skills and time are worth. Multiply the hours spent on making the piece by the hourly wage to calculate the labor cost. Paying yourself is very important so never skip this step - even if it makes your products more expensive for customers. I have found that people are willing to pay for high quality, handmade goods because they are unique and will last.
Step three: calculate your overhead costs. These are all the ongoing costs associated with operating your business. One way to do this is to sum up all of your expenses for a specific period, such as a month. They could include rent, utilities, insurance, equipment maintenance, website hosting, office supplies, etc. but will be unique to your business. Once you have a total overhead cost, divide it by the number of pieces you expect to create in that period to determine the overhead cost per piece.
Step four: add up all of your costs. Add the materials cost, labor cost, and overhead cost per piece to get the total cost per piece.
Step five: decide on a profit margin. Decide on the profit margin you want to target for each handmade item you sell. This could be a percentage of the total cost or a fixed amount. Common profit margins range from 30% to 50% or more.
step six: calculate your retail price. Add the desired profit margin to the total cost per piece to calculate the selling price. The formula is:
retail price = total cost + (total cost × desired profit margin)
- Before finalizing your selling price, research the market to ensure your pricing aligns with what customers are willing to pay for similar handmade jewelry. You may need to adjust your price if your competitors offer comparable pieces at different price points.
- Consider rounding your selling price to customer-friendly numbers, such as $25, $50, $75, etc. This can make your pricing more appealing to buyers.
- Keep track of your sales and customer feedback to determine if your pricing strategy is effective. If you're not making sufficient sales or customers find your prices too high, you might need to revisit your pricing structure.
- If you create jewelry with different levels of complexity or use higher-quality materials for some pieces, consider adjusting your pricing accordingly. Tiered pricing can cater to different customer preferences and budgets.
Remember: pricing isn't an exact science, and it may take time to find the right balance between covering your costs and attracting customers. Regularly review your pricing strategy and adjust as needed based on your business's performance and changing market conditions.