How do you calculate the cost of handmade items?

Here's the Craft Pricing Formula Cost of Supplies + Labor + 10-15% Overhead = Total Costs. Total Costs x 2 = Wholesale Price. Wholesale Price x 2 = Retail Price.

craftprofessional.com - Craft Pricing Formula and Downloadable Calculator

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Craft Pricing Formula and Downloadable Calculator

If you buy something through links on Craft Professional, I may earn a referral fee. To learn more see my disclosure Using a craft pricing formula is an excellent starting point to determine how much your products should sell for. It can help you see: all of the costs involved in making and selling your handmade items, where you can be more efficient, how much you need to charge to make a profit, and whether you can actually sell your particular product profitably. To be clear, a pricing formula is not the only factor you should look at when calculating the selling price of your art or craft. It won't take into account everything you need to know about pricing your crafts. However, beginning your pricing decisions with a mathematical formula is a good starting point. It can take the emotion out of pricing and help you determine fair and profitable prices. Running the numbers through a craft pricing formula can really open your eyes to the true costs of doing business. It can show you the approximate price you need to strive for to make a real profit and help you uncover potential pitfalls and hidden opportunities. You might have questions and concerns about using a formula to price your crafts. That's smart. You should be thinking critically when you make important business decisions. A formula won't give you all of the answers. It's just a single tool of many for making your pricing decisions. So before we dive into the formula, we'll look at a few important things to keep in mind.

Here's the information we'll cover about pricing crafts with a formula:

Why use a craft pricing formula?

Yikes! I'm supposed to charge HOW MUCH for my crafts?!

Here's the craft pricing formula

The formula explained

Get the craft pricing calculator

I earn a commission for purchases made through links on this page.

To learn more, please see my disclosure.

Why Use a Craft PRicing Formula?

Applying a craft pricing formula to your work will... take the guess-work out of assigning a price

help prevent emotions from clouding your judgment

ensure you have factored all of your costs into your craft pricing

give your business room to grow and be truly profitable

help you discover opportunities for increasing profitability and reducing waste

How do you price a product?

There are plenty of considerations that go into craft pricing. In fact, there's a good chance you won't end up using the exact price the formula calculates once you take other factors into consideration. However, I believe a formula is a smart place to start. It gives you a good, objective foundation to determine your prices and helps ensure your won't under-value your work.

Please, Please, Please Don't Under-Value Your Work

It breaks my heart when I surf around Etsy or wander through a craft show and find absolutely beautiful handmade pieces that are completely under-priced.

I see it all too often.

There are plenty of factors that cause artisans to under-value their work. It's easy to: forget all of the costs that go into making and selling a piece

or neglect to pay yourself a fair wage for your time

or misjudge the amount of time, start to finish, it takes to create a piece or let emotions about the value of your work get in the way of making good business decisions A good craft pricing formula eliminates those problems!

Limitations of Using a Formula to Price Your Crafts

Some people will debate the value of using a formula when pricing crafts because they believe it oversimplifies a complex decision. I do agree that if you simply plug numbers into a formula and don't consider other factors, you won't cover all of the issues around pricing. It would be wise to read more about pricing your crafts to ensure you have a deeper understanding of the considerations that go into getting the best price for your handmade items. However, you need to start somewhere, and a formula provides an excellent starting point. Let's not throw out an extremely useful tool just because it addresses some, but not all issues and doesn't completely eliminate the need to think about pricing decisions. I believe, in the early days of building your business, when you are still learning the ropes and building confidence, a tool that simplifies the task of setting prices and helps you price your products strategically and not emotionally is exactly the kind of starting point you need to stay on track and ensure your business is set up to be profitable. Once you've applied a formula, you can take into account other issues such as the expectations of your target market and competitors' prices. But the formula will give you a good, object starting point.

Yikes! I'M SUPPOSED TO CHARGE HOW MUCH FOR MY CRAFTS?!

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Be warned, when you apply the formula to your work, you might be completely shocked by the price you come up with. I know, many years ago, I was absolutely floored the first time I ever used a craft pricing formula on a piece of jewelry I had made.

That's okay. Don't panic!

There's a good chance the price you calculate might seem exorbitant to you. It might be well above what you were thinking of charging or what others charge for similar items.

That doesn't mean you should completely ignore the results.

The results of Your Calculations give you important insights into your business

The formula gives you an objective estimate of what you need to charge to build a business that is viable and has room to grow. It doesn't tell you anything about your customers' expectations or the current market for your product, or the perceived value of your work. If the amount you have to charge to be profitable is well above the amount you think your could sell your crafts for, you need to take a serious look at your business. If the price you come up with seems too high, you need to think about a few things: What is the biggest factor contributing to the high price? Usually it will be the cost of raw materials, or the time you spend creating each item. What you can do to change those factors that make the price higher without reducing the perceived value of your items? For example, finding a better price for your raw materials, or streamlining your process for creating items. What can you do to increase the perceived value of your items without greatly increasing my costs or time invested in each piece? Often gorgeous packaging will increase the perceived value, or beautiful photos if you're selling online. There's actually a lot you can do to affect the perceived value of your products. James Dillehay's book, How to Price Crafts and Things You Make to Sell has some excellent advice on that topic. In other words, if you come up with a price that seems far too high, don't just react with frustration and ignore the number. Instead, think about how you can bring that number down and still create valued work, or consider what you can change about your work and the way you sell it to ensure more customers would be willing to pay that price. For me, when I was shocked by the numbers the formula was giving me, I made a few helpful changes including: Establishing wholesale accounts with a major raw materials suppliers to get raw materials at the best prices. Finding ways to streamline my production process to create less labor-intensive items that were still valued. Creating some lower-priced (i.e. quick to make and with less expensive materials) bread-and-butter items that would sell well as impulse purchases to supplement the higher-priced items. Using raw materials with a high perceived value. It might sound counterintuitive to use pricier raw materials, but for me, the labor cost was driving the price up more than anything else, and it takes the same amount of time to make sterling silver, gemstone jewelry (high perceived value) as it does to make base metal and plastic jewelry (low perceived value). Rethinking where I sold items. People's price expectations vary a lot by venue. Developing skill with some less common jewelry making techniques so customers wouldn't dismiss items as being something they could make themselves. In the end, you might not use the exact price shown by the formula. It's not meant to dictate price; it's just there to give you a baseline. The formula will allow you to make some smart choices for your business, and it will push you to avoid under-selling yourself. When you price your crafts, you need to think about how those decisions fit with your larger business goals. A formula can give you the clarity to think in such a strategic manner.

How do you find the selling price for crafts?

There are a few different pricing equations that are typically used. The one outlined below is the craft pricing formula that I like, and many professional craft artists seem to like this formula as well. Here's the Craft Pricing Formula Cost of Supplies + Labor + 10-15% Overhead = Total Costs Total Costs x 2 = Wholesale Price Wholesale Price x 2 = Retail Price For example: Imagine you designed and made an item that used $5.00 worth of materials and took 30 minutes to complete. Assume you paid yourself $20.00 per hour of labor, so the labor cost for the item would be $10 (because it only takes you half an hour to complete each item, and half of $20 is $10). In that case, the pricing formula would be as follows:

$5.00 (Cost of Supplies) + $10.00 (Labor) = $15.00

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Take 10-15% of the combined supply and labor cost to get your overhead

10% of $15.00 is $1.50 ($15.00 x .10)

Total Costs = $15.00 (Cost of Supplies and Labor) + $1.50 (10% Overhead)

Total Costs = $16.50

$16.50 (Total Costs) x 2 = Wholesale Price

Wholesale Price = $33.00

$33.00 (Wholesale Price) x 2 = Retail Price

Retail Price = $66.00 So, in this case, in order to ensure you are making a fair profit and giving your business room to grow, you could sell your item to a retail customer for $66.00, or you could sell several items to a wholesale customer at $33.00 each.

Let's Look At The Formula In More Detail

Determining an Hourly Rate for Your Labor Costs

Notice that the labor was calculated at a rate of $20.00 per hour. Be sure to pay yourself a fair wage for labor. Many professional crafters use a rate of $12.00 to $20.00 per hour to calculate their labor costs in more depth. When you determine you own labor rate, use a wage that allows you to grow your business and accounts for the skill required to make your product. Consider how much you would have to pay an employee if you outsourced part of your production process to an assistant. That's a good starting point for your hourly labor costs. The US Department of Labor provides wage statistics for all kinds of professions, including the hourly wage for craft artists. Take a look at their data if you want to research labor costs.

what Are Overhead Costs?

Overhead covers expenses like tools and equipment, utilities, business insurance, packaging, office supplies, etc. These are the kind of sneaky, sometimes underestimated business expenses that can really add up. If they are not accounted for in your craft prices, they can eat away at your profits and negatively impact your ability to grow your business.

Wholesale Price

How is wholesale different from retail?

Your wholesale price is the price you would charge if you sold multiples of your product to a single buyer, a store owner, for example. Selling a large volume to a single customer (wholesale) generally costs you less than selling individual items to many customers (retail). That's why wholesale prices can be lower than retail prices but still profitable.

How to calculate the wholesale price

Notice that the total costs were doubled to arrive at a wholesale price. Charging for the total costs just gets back the amount it cost to make the item. Doubling the total costs builds your profit into your craft prices. Some people make the mistake of not including profit in the price of their craft because they feel that the labor cost is their profit. Keep in mind that labor is not profit. You may be paying yourself for the labor for production time right now, but your business may not always be structured in that way. You may need or want to hire an assistant in the future, and that kind of business growth will only be possible if you've built that expense into your prices.

Retail Price

The retail price is determined by doubling the wholesale price. This is the price you would charge when selling to individual customers at a craft show, for example, or on Etsy. Doubling your wholesale price to arrive at your retail price accounts for a couple of issues. First, by doubling the wholesale price to determine the retail price, you are accounting for any selling costs you encounter such as booth fees at art and craft shows, web hosting fees or third party website fees. Second, the typical markup from wholesale to retail is 50%. That means most retail store owners and buyers expect to be able to purchase your product at half of the retail price if they are interested in placing a large wholesale order. By doubling the wholesale price to determine your retail price, you are ensuring that you can afford to sell your work at standard wholesale prices and still make a profit. You might not be ready to accept wholesale orders yet, but if you don't build that factor into the price of your products, you will not be able to grow your business to a point where you do accept wholesale orders without significantly increasing your retail prices.

Get the Craft Pricing Calculator

craftprofessional.com - Craft Pricing Formula and Downloadable Calculator

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