How to Price Homemade Items
It's one of the most common mistakes that handmade sellers make, and I've been guilty of it myself: underpricing your goods.
Learning how to price handmade items can be a tricky business, but with the help of this article, you'll gain a solid understanding of the true cost of your products and how to finally price them fairly and sustainably.
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Is a Handmade Craft Business Profitable?
A handmade craft business can definitely be profitable when you learn how to set prices that accurately reflect the value of your work. That means not only covering your costs but also making your bank account happy.
You'll find tons of pricing formulas online that promise to make your business profitable, however with all the different strategies out there it can be overwhelming to pick one. Don't worry, I've got you covered with my favorite pricing approach. But first, let's talk about some old-school pricing tactics you need to ditch ASAP…
Beware of These Basic and Outdated Pricing Formulas
Many makers and artisans fail to fully account for the time, materials, and skills they put into their creations. This means they charge prices that barely cover the cost of making the item, let alone making enough money to support their business. Part of the problem could be outdated pricing formulas like these - let me tell you why:
Cost of Supplies + $10 per Hour Time Spent = Price A.
Using a flat rate of $10 per hour can be a total downer because the minimum wage isn't the same everywhere, and your living costs can affect how much you need to make. Ten bucks an hour might seem okay for some people, but for others, it's not even worth getting out of bed for, especially if they could earn more doing a low-stress unskilled job for someone else.
Cost of Supplies x 3 = Price B.
This formula may sound simple, but it doesn't account for your time or expertise. Imagine your supplies only cost $10, but it takes you 5 hours to make your craft. Would it be fair to charge just $30 for all that work? Heck no! Unless you're using super expensive materials and can make your craft in record time, this formula is not gonna cut it if you want to price your items fairly and sustainably.
Price A + Price B divided by 2 (to get the average between these two prices) = Price C.
So, if you use those messed-up formulas to calculate Price A and Price B, then average them to get Price C, you'll still end up with a messed-up price. In the best-case scenario, you might be able to scrape by, but you'll never be able to grow your business.
So let's talk about what actually works, shall we?
How to Price Your Handmade Products Like a Pro
To price your handmade products effectively and make sure your business thrives, you need to find the sweet spot between two key things:
- First, you need to know your numbers - all of them. Use a craft calculator like this one to keep track of all your expenses and time. This will help you set a price that not only covers your costs but also makes you thrive.
- Second, do your market research. A plug-in like this one designed for Etsy sellers, can help you look at what similar products are selling for and find out what people are willing to pay (even if you’re selling on a different platform). This will give you an idea of what your competition is doing and help you price your products competitively.
So, now that you know what to focus on, we are going to break it down step by step and get you pricing like a pro! But first, we need to talk about something really important…
What Perceived Value Is and Why You Should Care
Have you ever bought something that was more expensive than usual, and felt like it was really special? That's because of something called "perceived value." It means that sometimes, when we pay more for something, we think it's worth more. On the other hand, if we pay really little for something, we might think it's not as good.
Perceived value is basically how much people think something is worth.
So, if two things are exactly the same, but one costs more, people might think that one is better. On the other hand, if something is really cheap, people might think it's not very good quality and even if it's actually good, people might not want to buy it because they think it's not worth much.
Basically under-pricing your work can sometimes get you less sales, not more!
Not everyone wants the cheapest item possible, in fact some customers now are searching by highest price as a way to weed out all the junk in the searches.
Personally, when it comes to body products, I'm all about quality over price. If something is dirt cheap, I start thinking, 'What kind of sketchy (or expired) ingredients are they putting in there?' Even though I'm not swimming in cash, I still want to treat my skin right with the best stuff I can afford.
As you can see there’s many reasons why it's not always best to be the cheapest, instead compete on quality and branding.
Make the most of this perceived-value-situation by firstly making the best quality product you could make, and then by making sure you have good quality photos that will make justice to your beautifully designed products.
Ok, now it’s time to start talking about numbers…
Step 1 | Must-Know Factors for a Spot-On Pricing Formula
1. Raw materials
Raw materials are basically the stuff you need to make something, like flour and eggs for a cake or fabric and threat for a shirt. But it's also everything you need to get it to the customer in the most perfect way possible, like packaging materials and thank-you inserts.
When you're buying raw materials online, make sure to factor in the shipping costs. To do this, just count up the number of items you're buying, then divide the shipping charges by that number and add it to the unit price of each item.
For example, let's say you bought 10 yards of fabric for $10 each (taxes included), and the shipping was an additional $10. That means each yard of fabric actually cost you $11 in total.
So, if you're making a craft that requires 0.5 yards of this fabric, the cost for that raw material would be $5.50.
It may seem simple and obvious, but it's easy to forget about these hidden costs or small packaging details when you're trying to calculate your total expenses.
2. Fixed Costs
Fixed costs or overhead refer to the necessary expenses that you have to pay no matter if you make one or 20,000 pieces a month.
These expenses can include things like your internet bill, the tools you use (such as your laptop or camera), memberships that can make your work easier (like a Canva subscription), and even renting a studio space when it's time to take your work to the next level.
It's easy to overlook these expenses when you're just starting out, but as your business grows, you'll realize how important it is to factor them into your pricing strategy.
Here’s a simple way to do that:
- Determine the "renewal time period" for each fixed cost. For example, if it's your internet bill, you'll have to pay it every month, so the renewal time period is 1 month. If it's a tool like a camera, estimate how many months it will last until you need a new one. Let's say 5 years, (to keep up with technology *)* which is 60 months.
- Estimate how many pieces you can make every month based on your schedule and production time. Let's say you can make 50 products a month.
- Divide the cost of each tool or bill by the number of months it will be active. For instance, if you have a $600 camera that will last for 60 months, it will cost you $10 per month. Now divide that by the number of pieces you'll make that month. If you plan to make 50 pieces, then it will look like this:
600/60 = 10 therefore 10/50= 0.20
So, you add $0.20 to the cost of each item.
I know it may seem like a lot of numbers, but don't worry! The pricing calculator I mentioned earlier will take care of all the math for you. All you need to do is input your costs and estimated time periods, and it will give you the total costs per tool or bill.
Alright, let's talk about labor! This is the time and effort you put into making your products. It's the sweat on your brow, but it's also the joy of creating something from scratch and the satisfaction of seeing the finished product.
It's your time, and it's valuable! plus, I like to remember that there’s clients for every price point, so don't be afraid to ask your work’s worth.
To factor in the cost of your labor do this:
1. Set yourself an hourly rate. The hourly rate you set is completely up to you. For some people, if they aren't making at least $25 an hour (plus material cost), their prices may be too low, while for others, the minimum rate is set at $50. There are no wrong answers here. Just keep in mind that unlike raw materials, time is a limited resource, so don’t undervalue your work.
2. See how much time is required to make an item. Have you heard of the Pomodoro Technique? I absolutely love it! Basically, you set a timer for a 25-minute sesh of focused work, which helps keep you productive and motivated. Plus, it's an excellent way to track how much time you're actually spending on a project. And here's a little secret: the product pricing calculator also includes a Pomodoro tracker. How cool is that?
3. Multiply the hourly rate by the time taken. If you decided to set your hourly rate at $25 and it takes you 1.5 hours to make an item, then your Labor cost would look like this: 25 x 1.5 = $37.50
It's easy to forget to charge for all the time it takes you, such as admin tasks like publishing listings, packaging, and taking pictures. So make sure to include all the time you spend on a project in your pricing calculation to ensure that your prices are fair and reflect the true value of your work.
And even if you’re doing all the work at this point, it’s important to have realistic labor rates in place, so whenever you want to bring some help or outsource your production, you'll be able to determine fair compensation for anyone you bring on board to help you, ensuring that your business remains profitable and sustainable.
Offering free shipping is a common way to attract buyers, but keep in mind that the cost of shipping still needs to be factored into the overall price of your items. So, make sure you're charging enough to cover those costs.
If you're looking for ways to offer free shipping without hurting your profits, here are 3 tips to consider:
- Waive shipping costs only for customers who exceed a certain price threshold or for those who bundle two or more products together. This can also motivate them to spend a bit more than they originally planned because, let's be real, who doesn't love free shipping?
- If your shipping cost is relatively low (less than $10) you can consider including it in your product prices, to help improve your search rankings on platforms like Etsy and increase conversion rates.
- If the shipping cost is higher, such as over $10, it may be more reasonable to include it as a separate cost or divide it between the product price and shipping cost. This way, even if it's not free, it won't be so high that it scares away potential clients.
One sanity-saver trick I like to use is to set a flat rate for domestic shipping, that aligns with the typical cost of shipping your items. That way, you don't have to calculate shipping costs for every single order, and your customers know what to expect when they make a purchase. Just make sure to adjust the flat rate if shipping costs increase over time or you’re shipping to different countries.
Time to add the cherry on top of the cake! Adding profit to your prices ensures that you can cover all your expenses, grow your business, and of course, treat yourself to something nice.
You can be flexible and adjust your profit margins depending on the market and the item you're selling. Some items may allow for a higher profit margin, while others may require a lower one. So, it may be 10% or 100%! The key is to always add SOME profit, no matter how small.
Even if your sales are good, you won't be getting ahead if you're just breaking even. So go on, make that money!
6. Retail Markup
If you're planning to sell at wholesale prices only, you can waive this factor (more on that later). However, retail markup is the amount added to the cost of a product to determine its retail price. I like to think of it as profit 2.0
This can also help you offer discounts without losing money and give your business some extra cushion for unexpected expenses.
To come up with this number, one way is to think about how much of a discount you'd like to be able to offer your customers on special occasions.
7. Merchant & Payment Processing Fees
If you sell online using something like ThriveCart (my favorite!), you can say goodbye to a bunch of pesky "mini" fees and monthly costs (looking at you, Shopify) for good! With this limited-time offer, you'll only have to pay for Stripe or PayPal fees to transfer the money to your bank.
If you use Etsy, you'll have to factor in all of their fees, on top of whatever payment processing fees your provider charges when it's time to receive your payment.
Payment fees are calculated after you set your price on the selling platform, so it's crucial to understand these fees to avoid any surprises when the actual amount received is different from what you were expecting.
By being aware of these costs, you can make more informed decisions about your pricing strategy and make adjustments when needed to ensure you're maximizing your profits.
Revenue vs. Profit: The Difference & Why It Matters
Revenue is the total amount of money you make from sales, but profit is what's left over after you subtract all of your expenses. Basically, revenue is the big number you see on top, but profit is what really matters in the end because it's what you get to keep!
As Alan Mitz likes to say: "Revenue is Vanity and Profit is Sanity.” So, it's important to keep an eye on both and make sure you're not just focused on revenue.
Wholesale and Retail Prices - Should You Have Both?
Put it simply:
Raw Materials + Fixed Costs + Labor + Shipping + Profit = Wholesale Price
Raw Materials + Fixed Costs + Labor + Shipping + Profit + Retail Markup = Retail Price
So, basically your wholesale price is the lowest you can to sell your work to anyone for and still make a profit.
If you're selling on your website or online marketplaces like Etsy, you can sell at your wholesale price. But if you want to sell through shops and galleries, they'll need to buy your work at wholesale and then sell it at a higher price (aka retail price) to their customers.
Here's a tricky thing to keep in mind: if you sell your products through others, like shops or galleries, and also have your own shop, you need to price your direct sales at a retail price too. Otherwise, you might undercut them, and no shop owner wants to hear someone say, "I can get that much cheaper on their website!”
Ultimately, the goal is to set a retail price that doesn't sacrifice your profit in order to lower the price for your distributors.
Step 2 | Market Research 101: Finding Your Niche's Profit Potential
When you're trying to figure out if your handmade business niche is profitable, it's important to do some market research.
One common mistake is to assume that everyone in your niche is your competition, but that's not always the case. Your price point can make a huge difference. For example, if you're selling luxurious goods, your competitors are other luxurious brands, not dollar stores.
One tool that I love using for market research is Everbee chrome extention. It not only shows you the range of prices for similar products, but it also tells you if those products are actually selling. This can give you a good idea of what's in demand in your niche.
To check it out follow this simple steps:
1. Install the chrome extension from here (It’s free!). Once you create your account, click on "Extension" to install it on your browser. This will allow you to see all the gold-like data when navigating on Etsy.
2. Open Etsy. After installing the extension, a blue sidebar will show up on the left of your screen every time you visit the Etsy platform. You're now ready to type in Etsy’s search bar a phrase (aka long tail keyword) that describes what you want to sell.
We have a pink bandana priced at $32 and another pink bandana priced at $4, both of which are customized/personalized and have been available for almost the same amount of time. Actually, the more expensive one has been available for two months less than the cheaper one (23 months vs. 25 months).
The number of sales for both bandanas is also very similar: 211 sales for the $32 bandana and 229 sales for the $4 bandana.
But here's the shocking truth: Revenue! Despite selling almost the same number of items, one seller is making $450 while the other is only making $32!
If you had to choose, which of these sellers would you want to be?
It's definitely worth analyzing all the factors that could be contributing to the success of the $32 pink bandana, which costs more than twice as much as the average bandana on the market.
What is it about this product that makes it work? Is it the photos? The design, which may be trending at the moment? These are important things to take note of.
And when you come across high-priced listings that are making sales, it's important to remember that if others can do it, you can too. It's all about truly believing in the worth of your product and doing the necessary research to learn from what's selling in the market.
By doing so, you can make your product the best it can be and turn your passion into a profitable business
Why Pricing on Similar Handmade Items Can Vary So Much?
Handmade can be priced all over the place for a lot of reasons: Different materials costs, different time needed to create, different motivations to sell, and more…
Some sellers are trying to make a living, others just want their materials to be covered, while others simply can't do math.
If you're finding it really hard to compete with other shops that have very low prices, here's what I have to say:
If you can't match or beat their prices, don't try to.
If you’re thinking, "Well, my customers would never pay that!" and it's actually true (spoiler alert: half of the time it's not), and your customers really won't pay fair prices, then maybe the obvious solution is to change your customers!
Selling top-notch materials without spending extra time on the item is a win-win for both you and customers who appreciate quality.
When it comes to handmade items, you want to be known for the quality of your work.
While low prices will always exist, it's important to price your items correctly for your business. Only you know your costs, so don't compare yourself to others.
Handmade items take a great deal of time, effort, and skill to produce, so don't sell yourself short.
I truly believe that pricing my products fairly is more important than landing sales at any cost.
Yes, It can be challenging when so many people undervalue themselves, and it can make you question if you're the one in the wrong. However, I don't think we are. Our time and craft are worth valuing.
Remember, competing on price is not the only way to stand out among other sellers, and once you realize that, it can be liberating
Products Not Selling? Try This Before Lowering Your Prices
First off, give your products a fair chance to succeed by testing your prices for at least 3 months. You can even try selling on multiple platforms and see which one gives you the best results (split testing for the win!).
Now, if it's been more than 3 months and you still haven't made any sales, remember that pricing isn't always the reason why.
Here's what you should do:
- Make sure your product photos and descriptions are top-notch.
- Optimize your listings for search engines by using relevant keywords with high search volume and low competition. This could be the difference between being invisible and being noticed.
- If there are certain techniques or skills required to make your craft, show it. Include some "work in progress" shots of you making the items in your listings to connect with buyers who are looking for unique and handmade items from a real small seller, rather than a mass-produced product trying to appear handmade.
- Find different ways to market your product and reach new audiences with the help of Pinterest and TikTok.
Keep in mind that if you make price the sole reason why people buy from you, then you're constantly under the threat of being undercut, and it becomes a race to the bottom.
Proven Ways to Lower Your Costs Without Lowering the Quality of Your Products
Alright, so let's talk about some ways to lower your costs without sacrificing quality. After all, you don't want to cut corners and end up with a subpar product, right?
Here are 2 proven methods:
- Take advantage of holiday discounts to buy materials in bulk. Seasons like Thanksgiving are notorious for offering great deals on many different products, but there are also many other festivities where you can snag savings.
Try to save throughout the year and create a “holiday fund”, so when good deals come knocking, you'll be able to save money on each individual item. Plus, you'll have a ready supply of materials on hand for future orders throughout the year.
- Streamline your process: Look for ways to make your production process more efficient. Are there any steps that could be eliminated or combined? Could you invest in tools or equipment that would make your work faster or easier?
By finding ways to make items in under ten minutes that used to take you 30 minutes, you'll be able to improve your profit margins and make your business more sustainable.
As you do this more often, you'll get better and faster, which means you can make more products in less time and find better suppliers too. This can make a big difference in your bottom line.
Remember, you don't have to sacrifice quality to lower your costs. With a little creativity and some smart shopping, you can make your products more affordable without compromising on quality.
How to Price Your Items for Friends and Family
This can be a very controversial and stressful topic…
I'd say that if your friends and family are trying to support your business, then paying the regular price is the fair thing to do. But what if you don't have an established business yet, and some friends have seen what you can make and are now asking you to make some for them?
This can be your chance to test the waters, start tracking your time and expenses, and, why not? Maybe even get your first raving 5-star reviews!
So, if it's a very close friend or family member, at least charge them the cost of the materials. Never cheat yourself out of your own money.
But if you are doing this for someone who is not close, also estimate the cost of your time and don't sell yourself short. It takes time and money that you have invested, so please do not work for free.
An Introductory Price Strategy to Get Reviews
You can also use an introductory pricing strategy by doing your research (as we discussed in step 2) and pricing your products at -or slightly below- the average market price, but be sure to cover your material costs and make some profit if you decide to go this route.
Once you've impressed them with the quality of your product and stellar service, if you decide to pursue this professionally, price your products at their true worth, following what you've learned here so far.
When is the Right Time to Raise Your Prices?
Imagine this: your products are selling consistently (yay!) and your schedule is filling up. Even though you're happy with what you're charging, you're starting to feel overwhelmed. So, when should you raise your prices? The answer is simple…
1. When you've developed a following and are having a hard time meeting demand. Raising your prices won't buy you more time, but it can help you grow and hire more helping hands, which will give you some of your time back.
One pricing strategy is to start by raising the price by $0.50 or $1.00 when you have a product that sells fairly quickly and has sold multiple times.
If it keeps selling regularly, you can keep raising the price by another $0.50 or $1.00 each time. Keep doing that until it stops selling. Then, back off the last amount you raised it. This way, you can gradually raise your prices without driving away customers.
Another situation where it's necessary to raise your prices is:
2. When your costs go up. If you need to raise your prices by more than $1 due to circumstances out of your control, there are a couple of things you can do.
First, send an email to your mailing list letting them know about the new prices. Offer them the chance to order at the current price before a certain date. This can even get you some additional sales, and people will appreciate you letting them know in advance.
Second, give a limited-time discount to returning customers to help them through the transition. This shows them that you value their loyalty and that you're adjusting your prices to reflect your increased costs
Don't be afraid to raise your prices if you feel it's necessary, remember that with every product you've made, you've gained valuable experience and improved your work significantly, and that’s also a good reason to adjust your prices accordingly and reflect the value of your expertise and quality of work.
The Psychology Behind Pricing Strategies Like Ending Prices in 9 and 7.
Have you ever noticed that some sellers set their prices at $19.99 or $47 instead of rounding up to the nearest dollar? This is called the "left-digit effect" or "charm pricing.”
When consumers see a price that ends in 9 or 7, they tend to focus on the leftmost digit (e.g. $19.99, $27.97), which creates the perception that the price is closer to the next lowest number (e.g. $19 instead of $20, $27 instead of $28).
Another reason why ending prices in 9 or 7 works is because it can make the price appear more precise and calculated. For example, a product that costs $20 might seem like a round, arbitrary number, while a price of $19.99 or $19.97 can make it seem like there was careful consideration given to the pricing.
Generally, ending in 9 is more commonly used and has been studied more extensively in research. This may be because it has been used for a longer period of time and is more established as a pricing strategy.
However, ending in 7 has also been shown to be effective in some cases. For example, one study found that prices ending in 7 were more effective than prices ending in 9 for luxury products, while prices ending in 9 were more effective for non-luxury products.
Overall, ending prices in 9 or 7 can be an effective pricing strategy because it takes advantage of psychological tendencies and can make prices seem more attractive and lead to increased sales.
If at the end of the day your niche isn't as profitable as you need it to be, try this…
So let's say you've crunched the numbers and realized that even at the highest price point, selling your goods is not as profitable or time-effective as you need it to be to live the life you dream of.
Not all is lost! There's another fun way to leverage your creative skills and turn them into a very profitable online business.
That is, taking your expertise and the talent you already have and turn it into content!
You can document your creative process and start a blog that you can monetize in many different ways. (here’s how )
There are people out there who would love to know how you do what you do and who will not only consume your content but are also willing to pay you money if you take the creative skills you already have and package them into step-by-step lessons.
Wrapping up: How to price your handmade items
To build a profitable handmade business, you need to be realistic about how much it costs you to bring your items to the market. So, go get your craft pricing calculator and start pricing confidently and accordingly.
Otherwise, you'll be running from a 9-to-5 job to a 24/7 experience that could potentially turn something you love into something you dread.
Only you know how much you need to charge. Do market research to determine what's possible, but don't compare yourself to others.
Document every step of the process. It will help you not only as a tool to market your art on social media but also, in case you decide to pivot from e-commerce to a content business, you'll have everything you need to repackage your experience and keep making money out of your creative talents.
Lastly, bring your A game and remember that there’s clients for every price point and people out there actively looking for exactly what you have to offer.