Pricing your Handmade items can be tricky. There is not one set formula, and each maker has different factors that need to be taken in account. Once you have a baseline, pricing your items for profit becomes easier.
UNDERPRICING:
The most common mistake I see is underpricing. Makers underprice so they have consistent sales. But consistent sales do not translate into profits. It's not enough to cover your costs. When you price your items too low, you attract that customer that wants low priced and even sale items on a consistent basis. It will be hard to raise prices and then try to keep that customer base that you have already grown. It's important to think about who your customer is to begin with so that you are not always in search of new customers.
MARKET RESEARCH:
Do your homework. Research similar products to compare pricing. This can be done on Faire, Pinterest, ETSY and even while visiting a retail shop or craft show. It's NEVER okay to ask another maker that you don't know. Create your own research, analytics and comparisons. Keep a journal of these observations. Once you collect at least 10 similar makers items similar to yours, there will be a clear average. Also take in consideration where these other makers are. In the city, small town, at a big trade show? Compare similar items and pricing to you in every way if possible.
PERCEIVED VALUE:
Perceived Value: How much a customer think something is worth? Example: If you price your candle at $40, customers may have seen the same size candles, scents at around $30-$50. So, they see that it ranges in their perceived price range. Now, what if a similar one is $24? They may wonder why its priced low. Are the using quality ingredients? And then what about another similar candle but it's $65? Again, that would be above the customers perceived value. If you want to be that high end priced item, you can but it might take more customer education on why it's a more luxury candle. Once you decide what brand value you are, high end, lower end or somewhere right in the middle. Stay there.
SETTING YOUR PRICES FOR PROFIT:
Accurate pricing on everything is impossible. There are factors that change that are out of your control like: tariffs, raw materials price hike or availability, increase in packaging costs, change in where you produce your items ( studio, shop, home). All these items can fluctuant throughout the year. You need to price your items with possible changes in mind. Start at the beginning of the year and list ALL costs. Make a spreadsheet.
Raw Materials: Every little thing including packaging. As you purchase things, keep the receipts and add costs. Example: Pillow- fabric ( $20/yd, you use 1/2 yard =$10 cost ), pillow insert ( including the shipping cost), thread, ( pennies, but a cost), zipper, tag for pricing, bag( sometimes I put into clear bag to keep clean), add that up. Now, that is to get your money back. You need to make money to pay yourself and then buy more raw materials. Say my total cost is $14 for that pillow. To be able to repurchase more raw materials to make another is another $14. So now we are at $28. You are NEVER really going to get back all your labor. NEVER. Its averages. Make a little more on some things than others. Profit margins are an average. So, that said, I use the "generic" $25/hour. This is just an amount that has been floated out there for a long time. The pillow took me 30 min (approx.) so add $12.50+ $30.50 is the total but my research told me that this pillow can get $34.00.
The biggest key to pricing is research and writing down every, single cost. You need to have an honest look at the numbers.
You need to be able to make a litt
A little more on some things while not as much on other things. Again, averages. If I average ALL my pillows I make all year long, the average is a PROFIT. I can pay myself.
***In my next blog, I will talk about wholesale pricing. That looks different than direct to customer pricing ***