So in this blog I will share with you some basic information on how you can price your handmade products, using a simple formula to achieve your retail and wholesale price.
Now there are a few things that can effect your price and I'm not just talking about the obvious items like material rates and time spent making and postage, so I am going to suggest you read a couple of other interesting articles to help you with some of the not so obvious but very valid 'money stuff'
The first one that will be super beneficial to you is 'How is your relationship with Money effecting your business decisions' as this addresses your underlying thoughts and attitudes you may have about affordability which could play havoc with the way you price or discount your products.
Another tough cookie to overcome, is to ensure you put a line in the sand between the damaging emotional turmoil when we get caught in 'The Comparison Trap'. Again, this can have an impact on our pricing due if our self worth drops too low and its looking for outlets - your price tags!
The Basic Product Price Formula
This formula is a simple and basic one to get you started in your small business. Later when you are ready to take your business to the next level, you should read The Professional Product Price formula as this will incorporate the costs of running your business (which you won't have just yet if you have only just started out).
- Cost of Materials + Labour Cost = Cost Price
- Cost Price x 2 = Wholesale Price
- Wholesale Price x 2 = Retail Price
The Cost price is the total price of how much it was to make your product. This is a combination of adding up the costs of all the components in your piece to the labour involved making it. Let's say your making a pair of beaded earrings and the components total is $2.50.
To work out the labour costs, you need to know your hourly rate and the time it took to make your piece. Say you choose to pay yourself a $30 per hour rate and the wire wrap earrings you
make take 15 minutes to create, tag + pack. This would make the labour cost for this product $7.50.
Materials Price at $2.50 + Labour Cost at $7.50 = Cost Price of $10.00
NOTE: The above info also tells you that you can make 4 pairs of earrings an hour so if you get a wholesale bulk order of 20 pairs of these earrings, you know to allot 5 hours to make them.
You now have the foundation to create your wholesale price, this is the price you sell to a store owner who perhaps wants to buy your products in bulk. They would then sell your products at their retail price.
Now the basic product price formula suggests to multiply your cost price by 2 and sell this pair of earrings for $20 wholesale. This gives you $10 to cover the cost of making them and you now have another $10 in your pocket.
The retail price is what the customer pays who visits you at your market stall or your online stall. If you decided to sell direct to your customer, you would take your wholesale price and x 2 and sell the same earrings for $40. Putting $10 to cover the cost and $30 in your pocket.
Now the decision comes down to you on if you wish to sell wholesale or retail or both. Many creators will think, 'well why don't I just sell retail as I make more money?' This is true, however if you are a new business you may not have a following yet to make those sales. Plus the benefit of selling wholesale is that your buyer will purchase a larger quality in one go.
The other benefit is that the lovely boutique shop down the road may have been operating for longer than you they have a following of regular customers. By getting your product in front of those customer, you could entice some of those customers to buy your product there and then come to you direct next time.
Be flexible and research
Overall my recommendation to you regarding your pricing is to be confident about your product, remember you are a business and be fluid with your price.
Remember to use a variety of external factors too, research other similar products, connect with your ideal customer spending habits and get feedback from trusted sources.
The last tip, is to revisit your pricing on a regular basis. Trends change, rates of materials and postage changes too, avoid getting caught out with diminished profits because it wasn't on your retro list.
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