How to Price Your Handmade Goods for Sale
Have you ever wondered how to turn your dreams of owning your own business into a reality? We can help. Each week, as part of our Self Made series, we showcase female entrepreneurs—as well as their quality, handmade goods—and share their best advice related to starting, maintaining, and growing your own business.
Whether you make bracelets or birdhouses, when you're ready to sell your crafts, they need to be priced correctly to generate healthy profits. If they're not, you'll be out of business soon, says Janet LeBlanc, certified public accountant based in Houston who owns Paper and Spark, a financial education resource specifically geared toward makers who sell at online marketplaces like Etsy. Pricing items too low is very common, though: Many sellers don't want to charge more than their competitors; they also don't fully understand all the costs of running a business.
To learn how to arrive at well-thought-out prices that ensure you'll make a profit, check out these tips.
Avoid using a simplified formula.
A common pricing formula embraced by many entrepreneurs is this: cost of supplies multiplied by four (profit markup). But it doesn't take into account other expenses, like how much you spent on marketing materials or maintaining a website. LeBlanc recommends that artists use this formula instead, since it reflects the actual cost of the product better: supplies multiplied by four plus labor (the time it takes you to make one item) and overhead costs (things like electricity, glue, thread). "There are so many other hidden or less obvious expenses that go into your business," says LeBlanc, who used to sell handmade jewelry through an online marketplace. People may not be taking into account credit card fees, shipping expenses, packaging, tools, and styling props. "Profitable pricing really requires a good handle on your numbers," she says.
Don't worry about your competition.
Their prices are irrelevant. "If it's your goal to truly build a sustainable and profitable business, then you must know your costs," says LeBlanc. "Figure out price points that will cover your costs and allow you to pay yourself for your time and work. None of those components have anything to do with your competitors' prices." It's possible that your competitors may even be setting their prices too low to be sustainable; if you follow their lead, all of you will run your businesses into the ground.
Decide on a price that allows for wholesale pricing and promotional discounts.
This means you want to have enough of a cushion in your selling price to be able to make wholesale deals or offer retail customers occasional sales and discounts and still be profitable. Promotions and sales are a great item in your marketing toolkit, says LeBlanc, but if you haven't built enough margin into your existing prices, you'll end up running sales at a loss. Crunching the numbers in advance and starting out early with profitable, sustainable pricing also means you'll be able to pay yourself as you go. Even if you're only making a few sales in the beginning, says LeBlanc, paying yourself is vital for building a healthy positive mindset around your work.