Pricing handmade has been a discussion among artisans for the longest time.
It's also what makes or breaks your business. Here's what I mean:
When your prices are too low…
You won't make enough money to stay in business.
You risk running a loss because you don't have enough money to pay for your marketing.
Not to mention the perception you allow your customers to have about your products and brand: cheap, poor quality, low value, bargain buy, unmemorable.
When your pricing is in the middle…
You won't make enough money to grow.
You'll forever be in that cycle of creating, selling, creating, selling, but never breaking out of it to create more and sell more because you don't have enough money for more.
Yes, you do need to have more money to make more of it.
When you price too high…
You risk alienating customers.
You might get a sale every now and then and make big bucks, but the thought of when you'll get your next sale scares you because your handmade items are not priced accessibly in your market.
Did I scare you enough yet?
Pricing is serious stuff, and deserves your attention if you want to build a sustainable business for the long haul.
Fortunately, there's an easy way to figure out all of this math (and it's not terribly hard either!)
Here's a formula many artisans use:
Supplies + Your Time = Item Cost
Item Cost x Markup (between 2.0 – 2.5 or more) = Wholesale Price
Wholesale Price x Markup = Retail Price
Here's an example. Say it takes 15 minutes for you to make a pair of earrings and your hourly wage is $20. Your time spent to make these earrings cost $5 ($20 divide by 4). The beads and findings for the earrings cost $0.85. We'll use a 2.5 markup.
$0.85 + $5 = $5.85 (Item Cost)
$5.85 x 2.5 = $14.60 (Wholesale Price)
$14.60 x 2.5 = $36.50 (Retail Price)
What the heck is a “markup”?
Your markup is where your profit fits in the picture. But don't confuse this with money you pay yourself with!
Profit is the money you spend on growing and investing in your business, such as with:
- buying materials and supplies
- buying new tools
- attending business conferences
- taking an online marketing course
- hiring help
- paying for apps and software
You can set your markup to more than 2 times if you want, as long as your market can bear the higher prices!
Most pricing formulas would advise on a 2 times markup from wholesale to retail pricing, but I'm suggesting you use at least a 2.2 times markup because this will appear more attractive to your wholesale prospects.
It's the norm and expectation with seasoned retailers and brick and mortar shops.
Even if you're not going to sell wholesale, account for it
You never know what might change your mind a few years down the road, so you want to be set right off the bat.
So many artists I know forego the wholesale markup so they can price more affordably in the beginning.
But when they want to grow their business, sell in galleries or brick and mortar stores, or do a daily deal (or any other kind of sales promotion), they find their pricing isn't adequate and it's impossible to expand because you wouldn't be making any money!
So even if you just want to do this as a hobby for now, don't box yourself in. Assume this is a serious business, because it might turn into that soon!
Pricing is an ongoing adventure for you and your business.
Coming up with your prices includes surveying your competitors and being aware of how much money your customers can afford to give until they stop buying.
There's a sweet spot, and for that you can definitely call this an art.
Your competitors can be your benchmark for your own pricing.
- Price lower than them to steal their business
- Price the same to compete
- Price above them to create the perception of more valuable service and product
Download the free pricing calculator!
I made a pricing calculator just for you, and it's free.
All you need to do is plug in your numbers and it'll magically show you your wholesale and retail pricing!
Let me know if you have any questions, concerns or even tips for how you price your products.
I'd love to hear from you!