Pricing your handmade items the correct way is essential to having a successful small business. No matter what type of business you have, your pricing will make or break you.
Many sellers make the common mistake of setting their prices way too low while others tend to price a little too high. I’m here today to help you find a happy medium with a simple formula.
Be warned, there is a bit of math involved 🙂 I’ve included a free worksheet with this blog post at the bottom that you can use to price your handmade items.
Gather the Cost of Materials
The first thing that you want to do when pricing your handmade items is to gather the costs of your materials. Determine the cost of materials used per product. Here is an example:
I sell invitations for baby showers, bridal showers, etc. The materials that I use for invitations are cardstock, toner, and envelopes.
I buy my cardstock in bulk. For 8 reams of paper I pay $125.00 with shipping included. Each ream of paper has 200 sheets and I can print 2 invitations per sheet. So, 8 reams of paper x 200 pieces = 1600 sheets. 1600 sheets x 2 invitations per page = 3200 invitations that I can print per 8 reams of paper.
Next, I’ll figure out how much 1 piece of cardstock costs me per invitation. To do this I’ll divide $125.00 by 3200 invitations which equals $.039. If I round the price up it’s about 4 cents that I pay for cardstock per invitation.
Next up is my toner for my printer. Luckily I already know that I will pay .08 per color sheet printed. This is my contract rate with my professional printer. If I can print 2 invitations per sheet than I figure that I am paying 4 cents for the toner per invitation.
Lastly I’ll figure the pricing for my envelopes. I pay $646.95 for 10,000 envelopes. 646.95/10,000= $0.064. If I round the price up it’s about $0.07 that I pay per envelope.
After I figure out all of my material costs I will add them all up, giving me a total of $0.15 per invitation.
Next let’s establish your labor costs. You have to pay yourself after all, right? Make sure that you’re paying yourself an hourly wage.
So, say that you want to pay yourself $15.00 an hour. Figure out how long it takes to create your product from start until you ship it. For example, let’s say that you figure that it takes about 2 1/2 hours per item. $15.00 x 2.5= $37.50 in labor costs.
My situation is a bit difference because my items are sold more in bulk so that’s why I didn’t use my example.
Now let’s figure out the costs of your overhead. Gather all of the expenses you pay each month such as bills, office supplies, etc. Here’s another example:
Store rent: $795
Tailwind App: $9.99
Hosting for Website: $8.99
Bookkeeping App: $9.99
Graphic Design Program: $31.70
Add the entire total up. Next, determine the amount of sales that you get each month. If you’re not sure or if you’re just starting out, create a ballpark figure and go from there.
Divide the total cost of your expenses by the number of sales that you get each month.
So, for every listing that I have I’m going to add $3.60 into the price for my expenses.
Finally, even though you are paying yourself a labor wage you’re still going to want to charge a profit for your items. Don’t forget to do this! Determine a profit margin for each item that you make and sell.
The Final Formula
Next, gather the cost of your materials, labor, overhead and profit and add them all together. The final price would be your wholesale price. Wholesale pricing is when you sell items in bulk.
To determine your retail price multiply your wholesale price by two! This is a wonderful calculation method for determining final prices.
If you’re interested in download my free Handmade Pricing Workbook then just click on the link below!