When I started my business I had one product, my crocheted handwarmers. I had no idea what to sell them at, so I low-balled it. I low-balled it about 11 dollars less than I sell them for now. That is a BIG difference. My original price wasn’t even going to give me the profit I needed if I wanted to get paid minimum wage (which at the time had just risen to a whopping 7.25 per hour).
Nowadays I have a larger product line, and I’d like to think I’m getting better at pricing my products. Remember that prices can always be tweaked if, say, the price of your materials or the amount of money you need to survive changes. So this is just to get you started.
Step 1: Cost of Materials
First, you need to know how much your materials cost you.
As an example, I’ll talk about the hair clips I make from felted wool sweaters (because I know that I learn better through example.) Make a list of what you buy and how much it cost you. If you know the exact number, put that down. If not, then over-price things so you know you’re getting your money’s worth (but not too much, because we’re trying to start on the low end here).
1. Hair clips from King Soopers ~2.50 for 10
2. Wool sweaters from the ARC ~5.00 per sweater (lets say I can get 10 out of one sweater once it has shrunk down from the felting process)
3. Buttons ~1.50 for 10 buttons
Total: 9.00 for 10 hair clips; 0.90 per each hair clip
Step 2: Your Time
Your time is worth some money, so figure out how long it took you to make your product and how much money you want for that time. My go-to for starters is 10 dollars per hour (because it’s a nice round number and may as well make the math easier for yourself.)
It takes me about 20 minutes to cut out all the pieces, piece them together, sew them, and attach the hair clip part. That’s 1/3 of an hour, so $3.33 per hair clip.
Step 3: The Wholesale Price
Now you have your materials and your time. Get out your calculator or pen and scratch paper and add those together. That’s your wholesale price (that’s right, it’s that easy). That covers your costs and gives you money for your time.
If that seems pricey, you can cut costs on time, cut costs on materials, or take less money per item. If you sell multiple types of products, maybe another product can get more money to compensate for your loss on this one.
My wholesale price for hair clips should be around $4.23. I round mine down to $4.00 when I sell wholesale to stores. Part of this is to keep the actual cost of the clip down for retail stores, and part of this is because I actually make these from the scraps of sweater I don’t use in my other products, and those sweater parts would be trash otherwise, so I don’t think as much about the sweater costs.
Step 4: The Retail Price
I’m a wholesaler. BUT! I also do craft fairs. Craft fairs are your opportunity to charge retail price for your items. Retail price is roughly twice the amount of your wholesale price. This is important at fairs, because you might also be trying to pay for your booth and your time sitting there trying to sell to people. You’re going to need that extra money.
You’re also not “paying” for a middle man (the retailer) to sell your items. That means you get ALL the money.
My retail price for my hair clips is $8.00. If you go to my online Etsy store, my hair clips are $8.00. If you visit a store that my hair clips reside, the price will probably be around $8.00 (retailers will sometimes charge a little more because of shipping charges they have to think about). And if you find me at a fair, my hair clips will cost $8.00.
Step 5: Make it the Optimal Price
Now you know where to start. But you should always remember that tweaking prices can help you. You have to think about how much your customers are willing to pay for your product. Maybe you can get more for a product than you’re charging, or maybe you have to drop the price just a little to get more people interested in it.
I try to optimize my price by charging the most the customer is willing to pay. I don’t think I can get more than $8.00 for a hair clip unless I make it seriously cool, but when I started my handwarmers obviously were not living up to their pricing potential.
Take feedback from your direct customers and the stores you do business with. See what is selling well and if people think something is too much or whether they would pay more for it. See what other businesses that are similar to you are creating and what they price their items at (this is SUPER helpful).
If you have any questions, comments, or suggestions, leave a comment, or I have a nifty Contact Me page where you can leave your information and I can get back to you directly.