Saturday, March 26, 2011

Mini Critique: Pricing your Products

So this week, Kara of The Felted Posey has agreed to let me critique her shop. She had several things she had questions on so I just picked one I hadn't covered yet & went with it.

The Felted Posey on Etsy
So today, we'll be tackling Pricing!

Okay, this is going to be a quickie!

There's no need to take a look at The Felted Posey's shop prices or for me to critique them. This goes for any shop other than my own as well. Why? Because I have no clue about what goes in to making the products you offer in your shop. Only you do. That means that today's critique is going to be a self-critique for you to do on your own shop.

Now you need to be thinking about the following things when it comes to pricing your products.

  1. Cost of Materials
  2. Cost of Time/Labor
  3. Associated Fees
  4. Overhead Costs
  5. Profit
Let's talk about each one separately.

Cost of Materials
This is the cost of everything you use to make your product. Everything. Thread, ink, glue, beads, tags, dye, paper, whatever it may be. You need to come up with a materials cost per item. 

You need to come up with this cost based on what your materials would normally cost. Not their cost if you get them on sale, but what they would be normally. You may not always be able to get materials on sale & if you calculated your cost based on what you got them for on sale, you'll end up losing money. Make sense?

Cost of Time/Labor
Pretty self-explanatory. First off, how much do you want to make per hour? This should be based on the skill required to make the product. Second, how long does it take you to make this product? Now calculate your labor cost. Is it reasonable? 

Keep in mind that your not going to be extreme here & decide you want to make $20 an hour, make a handmade, embellished thank you card, & charge $20 just for your time. No, you're not going to do that. Make it reasonable please!

Associated Fees
This includes your listing fees & the fee that Etsy gets from the sale. This should also include your PayPal fee if you're using PayPal.

Overhead Costs
Overhead is all the little things that you're supposed to keep up with for your business. That is if your running your business for profit. Overhead includes things like electricity, internet costs, wear & tear on equipment, rent, that sort of thing. Most of the time you can calculate a set amount into each product to cover this. 

Profit
How much do you want to profit on your products? Don't be stingy. This isn't going directly into your pocket. You get paid from the Cost of Time/Labor, but the profit belongs to the business. It gets reinvested into more materials, better equipment, hired help, etc. That's the way it's supposed to work. Profit is usually a set amount or percentage of the total cost of the item. It doesn't change based on the product. 

You calculate your materials cost, your time/labor cost, your fees, & your overhead then double it or triple it to get your final price. You profit per product is based on whether you doubled or tripled the cost or whether you increased it by a percentage...whatever you choose. 

That final price is considered the retail value or retail price of the product. That's what you sell it for to individual people buying it directly from you. It is not the wholesale price. Wholesale prices are lower.

Here's an example:
You're making a crocheted skirt. 

Materials: $4 {yarn, button}
Time: $10/hr. - 2 hrs = $20
Fees: 10% total price
Overhead: $2
Profit: 100% {doubling}

Materials + Time + Overhead = $26 x 2 {profit} = $52
$52 x 10% {fees} = $57.20

Retail price = $57.20

Okay, I hope this has helped you. 

Have you been pricing your products correctly or not? Let me know what you've been missing below!

Hugs, Meagan

Wanna learn more about growing your creative business. Connect with me on my blog, Facebook, or Twitter!

12 comments:

DitzyRedhead said...

thank you. so much of this can get confusing. I am marking this so I can refer back.

Rita said...

Excellent tips.

Smart Ass Sara said...

I always cringe at the pricing because I think.. would I really pay $57.20 for a skirt? No. I wouldn't. I'd pay maybe $30. With my shop, my card sets would have to be in the $18 range for a set of 6 and that just wouldn't sell. So I price them around $8 because I think.. that's the most I would pay for a set of 6 cards. I just have a hard time charging so much for stuff. I feel bad. LOL. :)

ForPetsSake said...

Thanks for breaking this down - I hadn't considered labor time as an hourly amount. And the profit going back into my store. Thanks!

Mindy said...

A couple of things I had not taken into cosideration were the overhead and profit. Unfortunate for me I make hair bows, which seems to be saturated. I feel like Im kind of stuck since others price them low to sell.

ChariT said...

Thanks so much! I am still trying to figure out how to price my jewelery!

~Stay blessed!

Meagan said...

Hey Ladies! Pricing really is a tricky balance. You first need to know who you're marketing too. If your making high-end items, then you need to be marketing to people who buy high-end items. That may not be you if you like to save money and shop for cheaper priced items. So don't worry about the price you need to charge for something if it's fitting.

So Sara...if you need to charge $18 for a set of 6 cards - do it, but make sure they're worth the $18. Same goes for the skirt. The key is in not overcharging on time/labor & profit. Charge what you need to, but don't go overboard.

If you don't charge what you need to for the products you make, what's the point of making them if you aren't making any money. You're supposed to make money with a business!

Mindy...figure out how your bows differ from your competitors. Offer more product lines, different materials, eco-friendly only, diy kits, anything. If you're in a saturated market, you need to come up with something that makes you stand out. You should read Seth Godin's book "The Purple Cow".

All-in-all...it's a process. I started out charging $8 a bib in my shop. That was barely covering my necessities & it definitely wasn't making me money. I've upped my prices twice since opening my shop. I market to people who like OOAK items & who have the money to spend on things like that & you know what...they buy it. Sometimes it takes time & it definitely takes getting your name out there in front of the right people.

Good luck!

Kanelstrand said...

Firstly, thank you so much for the effort and the detailed explanation.

Secondly, I got totally confused once I started calculating. Have you considered country-specific aspects, i.e. work per hour is paid differently and actually, a question formed in my head - what are we to expect from an online business experience - to gain as much as we would in our own countries or to strive for a kind of "international" earnings?

http://www.kanelstrand.etsy.com/

Meagan said...

Very interesting Kanelstrand! I'm looking at things from the point of an American seller. I don't know what it's like in other countries, nor do I know how labor costs {price per hour} look...so I can't speak for anything international. I would think though that it's the same. You have the cost of your materials, you have the cost of your time {whatever you decide that is} you have your fee cost, your overhead cost, & your profit cost {again, whatever you decide that is}. I'd think it would be the same anywhere.

Lisa said...

I believe that pricing is part of planning and should be done BEFORE you make an item. So many peeps on etsy make something and then go on the forums and say...what price should I charge for this item??....I look at pricing in a different way in my blog....
http://decoratingyourself.blogspot.com/2011/02/price-hitting-sweet-spot.html
Because, in the end, your item is worth only what the market will pay.
I would be interested in your comments.. Lisa

Quilly Nilly said...

It sounds crazy but when I revisited my pricing; started charging more; I sold more. I do paper quilling, which is very time consuming; and I do not think people understand that when they see my items. I still have issues with pricing but I'm getting better; this post is awesome; I'm going to revisit my products and pricing again very soon. Thanks.

Meagan said...

That's a common occurrence Quilly Nilly. I think a lot of sellers realize at some point that they're not charging enough, they up their prices & people start buying more. Maybe it's that the customer feels like there's more to the product that way. I'm not sure, but it does work!