Pricing Hand Crafted Makes
If you’ve made so many items that your house is full, and every friend, relative and neighbour has received a handmade gift, you’ve probably thought about turning your hobby into a business and selling what you make.
There are lots of things to take into consideration such as where to sell, brand identity, sourcing materials etc but one of the first questions people normally ask themselves is ‘How much should I charge?’
This question appears regularly on many craft forums, but it’s a question that only you can answer as everybody’s situation is different. Before you can set a realistic retail price [one that returns a profit] you need to know what your costs are.
Spreadsheets such as Excel, are really useful for helping to keep your costings organised. You can create a basic template with general costs and adapt it for each item that you make.
Cost of materials and overheads + time + profit = retail price
Costing is easy isn’t it? I just look at how much I spent on materials and add on a bit of profit? No no no – absolutely not.
If you want to run a business that works efficiently and turns a profit, you need to know what ALL of your costs are per item. So, lets identify them using needle felting as an example.
This is likely to be the most obvious cost. If you make needle felted birds for example your materials will include wool, wire for the feet, possibly beads for the eyes and maybe some type of clay for the beak. Your receipts will show you how much you paid for each item but working out exactly how much of each item you used in each item you make will help to keep a more accurate track of costs. Investing in a set of micro scales is a good idea as they will help you to accurately record how much wool you use. They cost less than £10. Don’t forget to factor in any postage that you paid when you bought your materials.
When you buy fibre, work out and keep a note of the cost per gram and label the container. This way you can weigh the amount of fibre used in your creation and will know exactly how much it cost. Don’t forget to include any postage costs when working out the price per gram.
You can reduce costs by buying in bulk. Share purchases with other felters to take advantage of bulk discounts.
Buy in person where possible to reduce / eliminate postage though beware of being tempted by other goodies and spending more than you had initially planned.
Go to yarn shows and woolly events with a shopping list and stick to it.
Use ALL of your fibre - nothing should end up in the bin. Mistakes can be used at the core of larger makes [unless there’s a broken needle inside it!].
As well as consumable materials, like wool, you will need a number of other items of equipment depending on what it is you are making. At a minimum you will use felting needles and a stab pad. Neither of these last forever so need to be accounted for when costing your creations for sale. This is difficult at first so you’ll just need to take an educated guess but over time you’ll get to know roughly how many makes you can create before your needles need replacing. Then its simply a case of dividing the cost of the needles [including postage] by the number of items you have made, then you’ll get an approximate cost of needles per item made.
The time that you spend making an item does not equate to profit. It is a basic cost of producing your item. Without your time the item would not get made. Decide on your hourly rate and cost your time according to how long the item takes to make.
If you are a very slow worker you cannot expect customers to pay a higher labour cost so you need to be working at a commercial speed before you can pay yourself an appropriate hourly rate.
You can increase your speed by working in bulk making similar parts together rather than making everything individually. For example, if you make birds, spend an afternoon making a pile of birds’ legs, or beaks. This is a more efficient use of your time than working every item individually.
Your time needs to be accounted for elsewhere too. Designing for example and listing items online. Travel to and from the post office to post your items, time spent marketing on social media, travel to craft fairs and manning your stall etc. This time is not free and needs to be accounted for in your costs.
If you sell items online, then there is a cost associated to postage. There is the actual cost charged by Royal Mail but what about the packaging materials that you use? Bags, boxes, tape, labels etc all have to be paid for. Before you set your postage rate for your items, double check that that is the actual cost and that you are not undercharging and therefore minimising any profit.
Do you have to pay to park when you visit the Post Office? Don’t forget to include that cost too.
If you sell via an online marketplace such as Etsy, Folksy or Not on the High Street, have you looked thoroughly at the selling fees. At the moment, Etsy charges 16p per listing plus a 5% transaction fee on the selling price [including postage of your item. You’ll also have payment processing fees on top of that at around 4 or 5% so your total fees might amount to about 12%. If you sold an item for £8 with £2 postage that’s £1.20 that the online marketplace will be charging in fees meaning that your return from them will be £8.80. From this £8.80 you’ll need to pay to make and post your item. This is fine if you’ve taken those fees into account, but it can be quite a shock if you didn’t.
Online marketplace fees might seem excessive but if you were to run your business in a bricks and mortar shop, the costs, and risks, would be much higher. Know your costs in advance and you will price your items to ensure that your business is sustainable.
Packaging and presentation materials
As well as packaging for the postal journey, do you use any presentation packaging such as gift boxes, tags, tissue paper, cellophane bags etc. Work out the cost per item and don’t forget to include any postage you paid when you bought it.
Payment processing fees
Whichever payment processor you use [such as PayPal, Stripe etc] make sure that you are aware of the fees as these do vary.
Your business will incur other costs that aren’t directly related to the production cost of your creations. These might include books, courses, computer software, apps, bank charges, website maintenance costs etc. They might not be directly applicable to costing individual items but its important that you are aware of them.
Skilled handmade items should never have bargain basement prices. If you use price as a competitive edge, the only way it can go is down. If you under price your creations it can suggest a lack of quality to potential buyers. It also gives you no wiggle room when it comes to discounts, sales, or special promotions.
A quick way to see if you’re under pricing yourself without doing any complicated accounts is this:
If you sell item A for £10 and a customer asks you to make 20 of them, would you be happy to spend all the time required making the bulk order for the amount that the customer will pay? If the answer is no, you’re likely to be under pricing your work.
Retail price = costs plus profit. As we’ve seen above, the costs are very variable so there is not a ‘one size fits all’ system. Remember that your time is not profit, it’s a cost. Profit is what you add on top and this figure very much depends on the environment that you’re selling in, target market, competition, economic climate etc.
Don’t base your price solely on what others charge. If their prices are very cheap, they are most likely to be working at a loss. If you are pricing for profit, you cannot compete with hobbyists who are prepared to sell for less than the cost of making.
Review your costs regularly and amend your retail price accordingly.
You can find the pattern for the crochet birds here.