Try this at home with Maddy: BUILDING A BUSINESS- The Price is... Right?

Photo/necklace by Maddy

[ This necklace I made for myself was a guinea pig for price formula testing. From different formulas, it would be worth anywhere from $10 (too low) to $40 (too high!). It's all in finding what's good for you and your product and sticking to it - it might take time to find the right formula, but it's worth it! ]

Probably the most frequently asked question I see when going on Craft Community boards is the question of how to price items for wholesale and retail. I've never found comparison pricing particularly effective; one can look to certain areas of Etsy where that method has created an environment where products seem underpriced which gives new businesses with a fair profit margin a hard time competitively and also makes prospective buyers sometimes think that the quality is just as cheap as the price (whether or not it may be!). After hundreds of browser bookmarks and notes to myself in my "business plan" binder, along with hours of calculating out different formulas to see which really works the best the most consistently, I've come to realize there is no definitive answer. It's a matter of personal preference (which sort of puts all of us back at square one, eh?).

I guess my point in this preface is that this post is not meant to provide you with the Golden Rule for your pricing, but give you some options for formulas I've accumulated over the past months. Since this all comes from a notebook I've kept but (silly me!) did not attribute to anyone in particular, I'm not sure where I found these specifically; however, in my experience, the following formulas are generally commonplace and only differ in the wording rather than the core math itself.

When you're ready to test these formulas, my suggestion is you set aside some time to actually start producing the product in question. Carefully time yourself and determine how long it takes to make one item (if it's something like candles or soap, which is generally made in quantity, divide the time it takes to make the batch by how many were in the batch). I generally find that charging about $8-10 an hour for labor usually creates a fair price range for most products; if more skill is involved than your average craft (say, glassblowing, for example) you should knock the labor rate up a bit. Itemize exactly how much of all your supplies you used and determine how much money you personally spent making the product to the penny. If you have your own domain name, use overhead to account for your hosting fees and registration fees, as well as any other paid fees you have. If you use Etsy and PayPal, use overhead to account for what you pay there. Make sure you write down all those monetary values, then plug them in to the different formulas. Whichever one comes out with the price you think is the most reasonable should be tested again with another product. If it still comes out with a reasonable price, you've found yourself a winner!

The Basic Retail Formula

Supply Cost + Labor + Overhead + Desired Profit = Retail Price   or   Supply Cost + Labor + Overhead + (Desired Profit x 1.5) = Retail Consignment Price

Assuming you have no intention to sell wholesale, or you only plan on selling consignment, this formula is pretty basic and can get everyone started quickly. Note the base formula as well as the consignment formula. The consignment formula adjusts slightly higher to compensate for the normally 40% fee taken by consignment shops, giving you a similar profit to what you would normally make. Don't feel frightened to do this, or to adjust slightly off of the consigment formula - the high volume of traffic and shoppers usually generated by consignment shops makes slightly higher prices justified.

The Basic Wholesale to Retail Conversion

Supplies + Labor + Overhead + Desired Profit = Wholesale Price
Wholesale Price x 2 = Retail Price

This one isn't that much more complicated. If you're looking to build a price with a wholesale base in mind, it's always good to consider what you're willing to sell your product to resellers for while still making the sales worth your while. You may decide to go for less money on the wholesale side simply to get your name out, or more because of the time and love put in. Whichever end you choose, plug it into the "Desired Profit", and you've got yourself a wholesale number.

It's important to also note here that while doubling wholesale is a generally accepted method of getting a retail price, I've also seen some multiply by 1.5 and 1.75, depending on the product. Just make sure to give enough markup room for your wholesale accounts!

The Fixed Wholesale to Retail Conversion

(Supplies + Labor + Overhead) x 2.25 = Wholesale Price
Wholesale Price x 2 = Retail Price

Instead of assigning an arbitrary profit amount to the item in question, this gives a fixed margin and can be applied to multiple items without having to toil over what you consider to be "fair". Like the previous formula, your wholesale can be multiplied by either 1.5 or 1.75 to suit your business.

Other Formulas and Discussions
Pricing Your Craft (Craftster)
Wholesale/Consignment Pricing (Craftster)
Craftster Business FAQ: How Do I Price My Items? (Craftster)
An Underselling Discussion (Craftster)
Professional Pricing for Craftspeople (Etsy Wiki)

-Maddy

Maddy Susser is a graphic designer and artist that has a soft spot for all things paper and English period pieces (in other words, men in tights and funny vests). Armed with a number of years in marketing for retail on a small business and corporate scope she collects tidbits of information learned along the way and puts it into easy terms to share, formerly on her blog Try This at Home, and now on Modish. She's currently working on a line of paper goods.

Comments

[Katrina]

Maddy, I can't thank you enough for all of your great posts on building a business! You do such an amazing job of compiling important information. Thank you!

[Maddy]

And thank you for your wonderful compliments! It takes a while to write these kinds of articles, but it's even great for me to have written down. I have so much going on in my head at a given moment that it's great reference for me, too!

[Heather]

Thanks so much for this - very helpful indeed.

[Tizzalicious]

This is great! Thanks so much!

[Laura Bucci]

Thanks. This is great.

[Fina]

This was really helpful and very well written. Thank you for making this available.

[cloud9designstudio]

Thanks! A wealth of information here. No pun intended...