When I first started my business, Bath, Body, Candle Moments, I had no idea what I should charge for my work. As a maker and entrepreneur, one of the most difficult aspects of the job is figuring out the proper pricing.

The first step is to start doing research before launching your products. Check out independent businesses, Etsy, and commercial-level types for your business. Get a general tone for what your product costs across levels and then take note of who your target market is to determine the price range.

Understanding Your Cost
Before you create a price schedule, you absolutely need to know your numbers. You must know exactly how much it costs you to get your product from your hands to your customers. When determining this price, the term is called “COGS” – Cost of Goods Sold.

Your COGS are comprised of:

  • Material
  • Packaging
  • Labor
  • Shipping

Let’s make up an example for someone knitting scarves. Assume the yarn you purchase allows you to make 10 scarves. You package each scarf in one box, and it takes you two hours to make one scarf. You ship them in a USPS Priority Mail flat-rate padded envelope with two sheets of tissue paper.

Yarn for 10 Scarves = $45    = $4.50 per scarf
Boxes (Packs of 50) = $25    =$.50 per scarf
Labor = $15 per hour            =$30 per scarf
Shipping Material – Tissue Paper (Pack of 40 sheets) = $1.00        =$.05 per scarf

Your total COGS for one scarf = $35.05

So, if this costs you about $35 to make, how much should you charge for it?

It Costs More Than Your COGS

The reality is that your COGS are the first place to begin your product pricing, but not the only step. You must consider other factors involved in running your business:

  • Website maintenance
  • Insurance
  • Licenses
  • Future employees
  • Losses and Incidentals
  • Sales

Now, you cannot expect to make all of this money back on one scarf, or each scarf would be thousands of dollars. However, you must consider these as a factor when pricing your products as a whole.

How to Begin Pricing

Start with your COGS, do the math to figure out the cost of every other factor, and then decide what your main goal is. If your main goal is only sell retail, pricing your products at roughly 4x your COGS is a safe way to begin.  If you plan to wholesale, you want to price your products at 5x-7x your COGS because wholesale accounts expect to receive a 50% discount off the retail price.

So, for our example above, we would want to charge $140 for the scarf at retail, and then about $210 if we ever want to wholesale.

Get Your COGS Under Control

If your product pricing seems extraordinarily out of the ballpark of your competitors, the first thing to look at is how to reduce the price of your COGS.

In the example above, you could look to buy large bulk orders of yarn to reduce the overall cost of yarn. Another large factor above is labor. You NEVER NEVER want to eliminate labor costs! TIME=MONEY. Even if you’re doing it for yourself, you should expect to be paid.  Instead, consider how you could reduce the time it takes you to make products without reducing the quality.

For the knitting example, perhaps you could master a few stitch types so that you become quicker at creating over time. If you’re making other products, figure out a way to master-batch to create more than one at the same time, which would reduce your overall labor costs.

Offer less options. You may want to make custom orders for every person, but it simply isn’t feasible. You’ll be paying the highest-price for materials because you’ll be buying them in small quantities, and you’ll be spending much more time creating because you’re not mastering one type. To grow your business, you must reduce your options.

What Not to Do

Don’t low-ball your prices just to be competitive. This is detrimental for several reasons: 1. You never know what incidentals will come up, 2. The cost of goods creates an impression of the quality, 3. You will become exhausted feeling like you’re working for nothing, 4. You lower the general market perception of handmade goods.

Price For Your Future Self

In all, you have to do some soul-searching about your business and come up with a business plan to start pricing. If you ever plan on growing your business, or running holiday sales, etc., you need to price higher to accommodate for growth and changes.

Don’t be afraid to charge higher now. It’s better to charge higher and aim for that type of customer than to under-charge and lose out on your potential.

kristen-fusaro-pizzopresident-2

 

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