Even More About Pricing
The articles about pricing could be endless, but this will be the last one for now. I don’t want everyone to get “over priced”. (Sorry for the bad pun!) There are many ways to price your artwork and there is no one right way. If you have figured out a basic pricing system, then you can tweak it with these suggestions and see what works best for you.
These methods of pricing are from the book “Crafting for Dollars” by Sylvia Landman.
- Direct Material Costs – This method works when costs for materials and labor remain consistent. Take, for example, sewing work shirts. Assume you can make 15 simple shirts per week and that raw materials total $76.25. Assume you want to earn $100 per week for your labor. Add the raw material cost to your labor cost and divide by the number of shirts you can make a week. The resulting cost per shirt is $11.75. Assume your overhead cost is $59 per week. Divide the overhead (59) by the number of shirts (15) and the result is $3.93 per shirt. This brings the total cost of each shirt to $15.88. Add to this a profit of $10 per shirt and the total price of the shirt is $25.68, or $26 rounded up. (This book was written in the 1980’s.)
- Direct Labor Costs – This method focuses on labor. It works for crafts that are labor intensive but require very few or no raw materials. Take beaded earrings as an example. Seed beads and earring findings are relatively inexpensive, but what if it takes 3 hours to make a specific pair of earrings? You could charge $8 per hour and add $4 for supplies for each pair. You would then charge $28 per pair using this method.
- Hourly Rate – Setting a price this way works best when performing a service. Suppose you offer to re-string necklaces for your customers. You need no raw materials other than stringing cord. Time yourself to determine an hourly rate.
- Markup Pricing – This system works for pricing products rather than services. For example if you make gift baskets and the empty basket retails for $10 and you pay $6.50, the difference $10 – $6.50 = $3.50 or 35%. You can add 35% to any size basket you plan to resell. Check the typical markup price of items in your industry. Once you know the profit margin for the basket alone, you can use the same system to calculate the price to charge for each item placed inside.
- Break-Even Point – Try this method when making similar or identical items. The break-even point comes when income equals expenses. Take Christmas tree ornaments as an example. Suppose you make a hundred ornaments to sell. Add up the cost of all raw materials you will use. Say the total comes to $300.00, including freight charges to ship the supplies to your studio. Selling each ornament for $12, you will break even after you sell 25. Selling the remaining 75 would be all profit, including labor for all one hundred ornaments.
- Percentage of Actual Costs – Building contractors use this simple system. They add up the actual costs: labor, raw materials and overhead. To this they add 15 percent for profit. Artists who make objects requiring costly materials can make this system work to their advantage.
- Profit System When Selling at Retail and Wholesale – Sylvia offers a true example of a hard-learned lesson in her craft business. “Like many teaching crafters, I decided to self-publish instructional pattern booklets. Desktop publishing capabilities enabled me to produce them from my home office. I calculated labor at $2 to produce a single sixteen page copy. Raw materials totaled $1.50 for paper, plastic slide cover, and a color photo. Overhead came to $.50. Total cost to produce each booklet – $4. Several other teachers in my network charged $6 to $8, but I charged $5, feeling satisfied with my first self-publishing effort in 1980.” Sylvia sold her booklets through a specialty magazine and her first two titles sold well so she added four more. Sylvia was happy and thought “What could go wrong?”. But then she reports, “I found out the first time a shop asked to buy multiple copies. The owner wanted to use my booklet designs for group classes. She wrote that she expected the usual quantity discount of 50% off the retail price. Selling copies at 50% off would bring in only $2.50 per booklet, less than the cost to produce each one. Feeling like the novice I was, I realized that the more I sold, the more I would lose. I had neglected to build in an element of profit in my pricing system. Re-calculating my pricing structure, I came up with this: $2 labor+$1.50 raw materials + $.50 overhead plus $2 profit. The total of $6 became the new retail price. Still, I owed the shop owner information about quantity buying. So I used the method below.”
- The “Discount” System – “My ‘instant’ discount schedule for quantity buyers read as follows: For 3 to 7 copies – 10% off; for 8 to 12 – 15%; for 13 to 18 – 20%; for 18 to 24 – 25%; for 25 to 50: 30%; for 51 to 99 – 35%; for more than 100 – 40%. Adjust these figures and percentages to suit your needs and products. When selling at both retail and wholesale, you will still earn a fair profit for each unit you sell. Though you may make less than when you sell a single unit, you will make up the difference by selling in volume.
- By the “Each” – Grocers use this term to sell, for example, a single can of soda rather than the whole six-pack. You may find it easier and more practical to charge by each element consumed in producing your product or service. Sylvia explains “Quilters in our area charge by the spool of quilting thread. Thus, when a client wants a quilt-top hand-quilted, the price depends on the amount of thread consumed. Large quilts with sparse hand quilting may cost the same as a small wall hanging bearing profuse, close quilting. The concept is simple. It takes the same amount of time to make the same number of stitches, be they widely spaced or close together.” Consider charging by the board foot, by the yard, by the page, by the inch, by the pound, by the head or by the project.
Combining these ideas to make it work for your pricing system may make it easier for you to decide how to price. Some other pricing tips are:
- Offer a broad range of items so you have varying price levels.
- Offer quantity prices if appropriate. I sell cat toys and they are priced one for $3 or four for $10.
- Think about giving a small freebie item with a higher price item.
- Don’t apologize for your pricing. Just say the price and then explain the benefits, value and story.
- Don’t lower your prices at the end of the day at a craft fair.
- If you have a really hot seller that you can’t keep in stock, raise the price.
- Don’t lower your prices. Explore new markets or niches for your products.
- Start a pricing notebook. Look at the “going” price of others making similar items and write them in your notebook. Include your calculations and ideas for pricing in your notebook.
- Don’t feel guilty about taking a larger profit on some items. It will make up for the items that have a lower profit margin.
- Find ways to add “value” to your products. This may be through packaging or even just a good story to sell your items.
I hope these articles have helped you with pricing. It still isn’t any more fun to figure out prices but you shouldn’t be underselling your work. That defeats the purpose of selling your work in the first place and doesn’t help any other artists in the hand crafted market place.
If you’ve made it this far, Congratulations! I would love to hear about any topics you’d like to learn about in regards to selling your work. Leave a comment and let me know.
8 thoughts on “Even More About Pricing”
Good article Ruth and there is some really good advice in the bulleted list.
Thanks Lyn! I hope it helps someone with their pricing issues.
This is such a complicated issue. If I price my work according to time, costs and going wages, it is almost impossible to sell in the area which I live. In bigger cities where wages are higher, I could do better. So, the best solution is to get my work out there in another market. But then, when I check out those markets, I see that the sales are slow to poor.
It is complex, isn’t it? Finding your market is the most crucial thing though.
Great article Ruth. All your pricing articles together have been very helpful.
Thanks for this, Ruth, lots of great info as usual 🙂
I think one difficulty with handmade items is a lot of people do it as a second job, they already have a steady income or a partner with a steady income so they can afford to sell for cost or cover the cost of the supplies plus a bit more, which makes it hard for people trying to make a living from it.
That is true. I wish they wouldn’t do that though 🙂