Sunday, January 18, 2009

P.P's "No Freak Approach" to 'Crafting For Profit': Stage 2 - Getting Organized: PRICING YOUR WARES

Getting your Creative Business off the ground isn't all that intuitive. I am starting off this year by writing a series of posts with information that has helped me - and continues to help me - navigate through this adventure of selling my handmade wares. I, by no means, have all the answers, or consider myself an expert, but I do spend a great deal of time making sure that I run and cultivate my business in a well-thought out way. PLEASE feel free to comment with more information and links to resources.

Pricing your own works of art has to be one of the most difficult and agonizing processes when you begin your handmade business. When I first opened my shop on Etsy,
I priced my pieces and then repriced them, and repriced them again...until I decided that I needed a hard and fast system. The first thing I learned from all my pricing fiascoes is that it's better to price too high than too low. You can always lower your prices if you need to, but you look hugely unprofessional when you start jacking up your prices because you have decided you are not making enough of a profit. Start smart: Figure out your Product Prices before you even start to list, or sell your goods.

Let's first talk about:
Fixed and Variable Costs
Variable costs, sometimes called "out of pocket" expenses, are the costs associated with doing business: labor, materials, advertising, packaging, shipping, etc.

Fixed costs are those expenses that are paid regardless of whether you are creating/producing or selling a product: tools, equipment, utilities, taxes.

Both cost families need to be considered when deciding on the price of a single product.

What is Your Time Worth?
You love to be creative and feel that you could make a business out of your endeavors. You need to be paid, just as you would be with any other job. Would you be okay with getting paid $10/hour for what
you do? Maybe $20? The main goal is to not undersell yourself, but don't be too crazy, either. We all realize how valuable time is, but putting a figure on that time is the vital first step to pricing your works.

This part is a bit easier. You can easily add up how much it costs you just in materials to create one item, say, a bracelet. If you used beading wire, you need to calculate out how much of the wire you used for the bracelet so you are not charging yourself for the entire spool. Then all of the beads, findings, etc - everything needs to be calculated out per piece.

Labor Charge
You have now decided what to pay yourself an hour. Say, it's $10. How many of the same exact bracelet can you make in one hour? TIME YOURSELF - DO NOT GUESS. I have guesstimated creation times and I am ALWAYS wrong. So, do yourself a favor and don't mess around. Time yourself making a single item start to finish.

For exampl
e's sake, we'll say you can create two bracelets from start to finish in one hour. That means that your labor charge PER bracelet is $5 ($10 (the amount you want to get paid per hour) / 2 (the quantity of identical pieces that can be created in one hour).

Fixed and Variable Add-ins
When you're first starting out, it's difficult to decide what amount you should add-in t
o each piece to cover things like advertising. At this point, you may not have even started advertising or looking into how or where you would like to advertise. Eventually, you will need to set up a monthly budget for your marketing - whether it's Project Wonderful ads , mailing out postcards, taking out ads in the paper or magazines - whatever you decide, you will have a budget for it and then based on average sales per month, you can get a number that you can add on to each piece you sell.

I roll my packaging and actual postage I pay for shipping a package into the shipping charges I charge my customer. I know exactly how much each bubble mailer costs, tissue paper square, ribbon, box, etc - even the cost for the 1/4th of polishing cloth sample I put into each order - and come up with a total cost for packaging. Then my listing cost (for Etsy it is .20), and the actual amount it costs me to mail the package (based on the US, Canada, and International orders - so make sure you weigh the specific piece all packaged up so you can come up with an accurate postage amount). Everything is all added up and out pops my shipping charge. (I use and LOVE - check it out for your shipment needs).

As far as fixed costs, I, personally, do not add them into the price of my pieces. I consider them business expenses and record them as such.

Pricing Your Piece
Here's where we really get down to it. Now that you know what it costs in labor for each bracelet, you can begin to figure out pricing per bracelet. These figures do not have fixed or variable costs added in, but you can/should add those in as appropriate:

The price of your bracelet AT COST will be:
$5 (labor charge) + $8 (material cost) = $13

Your Wholesale price for this item will be:
$13 (cost) x 2 = $26

And your Retail price for this item will be:
$26 (wholesale) x 2 = $52

This is the technical way that pricing your goods should work. However, there are mixed schools of thought on whether or not this is even feasible in some selling venues. Some argue that online selling venues such as DaWanda, Etsy, ShopHandmade don't have markets that will tolerate this type of ma
rk-up. If you plan on ever selling wholesale, and offer keystone pricing to your wholesalers, then this formula is pretty much the only one that will allow you to make a profit. You cannot discount the idea of wholesaling even if right at this very moment in time you don't believe it's in the cards for you. A major department store, or high-traffic online store could approach you one day and then what? You tell them that you have to 'adjust' your prices? Hmmmm.... Well, I can't say too much because right at this very moment of my business, I don't take on very much wholesale due to the whole pricing issue.

Since my main selling venue is my shop on Etsy, I have seen what others charge for similar products - and those that sell them at ridiculously low prices, I know that the quality of their materials do not compare to mine. And those who charge higher, I can only understand it if the quality is as high as
mine and figure that they are (or want to) sell a lot wholesale.

However, my business plan has me on a track that will eventually lead me to having to raise my prices so that I can work with businesses that will promote me as an artist (so I don't have to sell my lovingly created works incognito) and still allow me to keep the integrity of my handmade, artisan works.

That's why all of the pieces used to begin and build your business are so important - starting with that business plan that I discussed in Stage 1. At the end of it all, it's YOUR business. Just stay smart.

Info About Pricing

Etsy: The Storque: Art of Pricing
Online Art Magazine - Archive - Pricing your work
Self Representing Artists
Don’t Sell Yourself Short: Price Your Art for What it’s Worth

Good Reads on Pricing

Pricing Guidelines for Arts & Crafts:
Successful, Professional Crafters Share Their Pricing Strategies to Help You Set Profitable Prices for Your Arts & Crafts

by Sylvia Landman

The Crafter's Guide to Pricing Your Work
by Dan Ramsey

The Basic Guide to Pricing Your Craftwork:
With Profitable Strategies for Recordkeeping, Cutting Material Costs, Time & Workplace Management, Plus Tax

by James Dillehay

Feed Shark


GalleriaLinda said...

Great article on pricing details!

I have linked to this article in my recent post about pricing on my "strategic marketing" Indie Arts Business blog:

Your article adds a lot of great detials to the topic.


skinner studio said...

Excellent post! What great reminders. It would be such a shame for artists to undersell themselves. I see so many amazing things on Etsy that seem so cheap for the amount of time it must have taken. But alas, for what they're making in actual profit, these talented artists might as well close up shop and get a job at Burger King! (Not knocking BK, I love their chicken sandwich) Yes, please place a high value on the time, effort and love you put into your creations.

The Pretty Peacock said...

skinner studio: thanks for the comment! I can't agree with you enough - (re the BK thing & yes, their chicken sandwich is too tasty!!). It's heartbreaking to see the underselling...I hope you have a stellar year!!! :)