It’s a story that’s familiar to many artists and makers: You make something beautiful (I’m a jeweler, so I’ll use jewelry as an example).
Then, your friends start to notice what you’re making.
“Can you make me one of those necklaces?”
“You should open an Etsy shop!”
And you think, “I bet I could sell these and make some money!” So you set out to do just that.
You register an online shop, upload photos of your work, and then you hit the big blank—price. If you’re anything like I was when I started out, maybe you think “How much would I pay for these earrings if I saw them at [insert your favorite store]?” You pull a number out of the air and type it into the blank. . .
STOP RIGHT THERE, PARTNER!
Before you hit that “post” button, there are a few other factors you need to take into consideration—especially if you intend to make that online shop into a bona fide business. You need a pricing strategy that will enable you to build a thriving, profitable business—and that means factoring these four things into any price that you set:
1. Cost of supplies
This one is a no-brainer. If you’re making a necklace, how much did the beads cost? The string or chain? How about the clasp and other findings?
Are there any other costs you will incur while creating the item that gets delivered to your client? (Here’s one you might not think of initially that will eat into your bottom line: how much did it cost to ship those supplies to you?)
2. Labor and time
If you’re just starting out, this is the hourly rate you will pay yourself. That number is entirely up to you, but I’d suggest researching what the industry standard is for your particular craft. At the very least, you need pay yourself above your state’s minimum wage.
Be sure to factor future growth into this part of your pricing equation, too. For instance, if you were to hire a production assistant to help with larger-volume orders down the road, how much would you pay them?
You should also ask yourself how your own pay rate as CEO will evolve over time as you gain skills and expertise.
In addition, you may want to reflect on how fast you are working now vs. how quickly you or an employee could make your product in larger volume once you have more experience. When I first started making bridal headpieces, it took me hours to figure out how to wire-wrap individual pearls and I spent a lot of time fiddling with the design. But now that I’ve made dozens, I can do it quickly according to a set system. The latter scenario is what determines the hours I factor into my pricing.
Overhead is the day-to-day cost of doing business. It includes everything from rent, internet, and electricity to larger purchases like computers or power tools.
Here is a simple way to calculate your overhead:
- Total up all of these expenses for one year. (If you’ve been in business for a while, you can look this up in your records. If you’re new, do some research and make a projection.)
- Divide that number by 12 to calculate your monthly average.
- Then, divide your monthly average by the number of pieces you sell in a single month. The resulting number is how much overhead you need to include in your per-piece overhead calculation.
Profit is the factor that I see the highest number of makers overlooking when they price their work. But in reality, profit is the most important factor, because it determines how much you can grow. Simply speaking, profit is the amount of money you make on each sale that you didn’t spend on making the product. It’s money you can reinvest into your company or spend however you choose. (Hey, you’re the CEO!)
Profit has enabled me to invest in my own education as a jeweler to learn skills I wouldn’t have been able to teach myself. These skills have increased the value of my work by giving me a larger menu of services to offer, experience working with higher-quality materials, and expertise that my customers can trust when they commission a piece from me.
In your business, profit can provide you with the means to invest in the things that you know will increase your value as a maker. Maybe you’ve been wanting to hire a coach but just haven’t had the cash. Or maybe you’re dreaming about an expensive tool that would cut down your production time. Whatever your goal, profit is the vehicle that will get you there.
Now that you know all the factors that should go into pricing, go ahead and post those numbers—and start selling your work.