Monday, August 13, 2012

How to price your creations to make a living...

There are a lot of articles out there that talk about pricing crafts, but not many go into details about how to actually do it.

I've seen lots of creations out there (mostly on Etsy), that I find under priced for the amount of work put  into it, and I think personally that these people are not so concerned with making a living from their craft. It's very highly possible that they're doing this as a hobby, and if that's the case, then that's fine. But when someone is trying to make a business out of their craft, and wants to do it full time, there comes a time when you have to evaluate your pricing strategy. For example, if I were still selling my monsters with the prices I had in 2011 ($28 for a furry monster), yes I may have had more sales than today, but I have to work almost twice as hard to make the same amount of money as today. To be honest, last year's prices didn't cover my time and I was also just starting out. When I was already a month into my entrepreneurship program, they told us that if we have low prices that aren't properly priced to cover our expenses, time and even a profit, it will be a lot harder to raise them in the future than to do it right now. They explained to us that customers have a harder time dealing with a huge price increase than a price decrease. That's why in January 2012, my furry monsters went up to $44. I took into account the time and my hourly rate. Yes, I was worried that I'd lose customers, but I think because of the new price, I am respected more because my work is reflected in my price (or vice versa).

This blog post is going to break down how to properly price your work so that you can pay for your supplies, time, and even make a profit.

I want to start with this "Pricing Your Craft Worksheet - Part 1" file I found on the Louisiana Voices website. This is the key to pricing your stuff appropriately so you can start making money from your work. This is what I used to get the right price. :)

(the following text is directly copied from the Louisiana Voices website, and can be read here:)

After completing the Blank Pricing Your Craft Worksheet, read about the two topics below and answer the questions as best you can. Then use all of the information from the two worksheets to write a short essay that explains
why you are making this craft,
what factors influenced your decision for choosing the costs you would use,
what your final price will be.
1. Prices need to please both the buyer and the seller.

Even if you have accurately figured the Wholesale Cost of your craft item, the price may not be appealing to you or it may appear to be too high to attract buyers. These are some of the things you need to consider:

• Do you want to work for minimum wage? If not, you can change your hourly wage.

• Even with minimum wage, has your price for one item priced you out of the market?

• Is it too expensive? Will people pay that price for the item?

• If it is too expensive, can you change your materials or methods so that your cost is lower?

• Does changing your materials or methods lower the quality? People often will pay more for a handcrafted item of high quality than a manufactured item of mediocre quality.

• Have you gained a reputation for producing your craft? If so, you may be able to ask higher prices.

• Consider the example provided. The quality of duck decoys can range widely. Duck decoys can be "toy" quality and cost a few dollars. The price of more serious carvings can range from $50 to $10,000. Methods, quality, and the reputation of the carver are some of the factors in determining the price. Other types of crafts do not command such high prices and are not as appreciated by the general public, so it is unrealistic for the craftsperson to expect the public to pay the price determined by the formula.

2. Is money the only motive for producing craft items?

Some craftspeople are hobbyists rather than professional craftspeople and do not rely on their craft work to make a living. They are not so focused on the money as enjoying creating the work. This can be true of traditional, revivalist, or contemporary craftspeople. They may not need to follow this formula so carefully, but they do need to decide whether they want to be paid adequately for their work. These are some of the things you need to consider:

• Do you work on your craft item as a hobby rather than to make money?

• If you should sell your craft items, do you want to make a profit or merely cover your wholesale costs?

• Would you consider the costs you incur for making this item as recreational expenses, similar to expenses for going to a movie or dinner, or going to a concert?

• Would you consider it enough of a reward if you gained a reputation as being one of the best in your field?

This is a good starting point, and what I would suggest from here is if you have Excel, to create yourself a new document with all the equations worked out, so you can just punch in a dollar amount, and the file will do the adding/multiplying etc for you. Below is an example of an Excel file that I have for my products. I have one tab for each different price point.

Sorry if some of it is in French. The important stuff is in English.

I want you all to know that I didn't build this file, and it's set up for Quebec's taxes etc. I suppose if you wanted something similar to this in your own province/country, you could go to your local office that helps self-employed people, and maybe someone there can help you with the Excel sheet. OR... you take the Louisiana voices file, and modify that. Essentially it comes to the exact same retail price at the end, except you don't have a complicated file.

What's important for you are the following points:

1- Cost of raw materials  (fabric, buttons, thread, stuffing, etc.)

2- Hours per unit (How many hours does it take you to do ONE of whatever you make?)

3- Hourly rate (how little or much are you willing to work for? If you want your work to be priced as low as possible, you may have to work for minimum wage).

4- Overhead costs (how much do you spend on electricity, water, heating, cost of your apt/house).

5- Wholesale price (this is the price of everything above, minus the profit. At this point you've paid off your materials, hourly rate, and overhead without making a dime. This is also the price stores will buy your product, or consignment price (if they do 50/50)). **If a store does 60/40 (you get 40%) on consignment, then you need to increase your prices so you aren't selling at a loss. There's nothing worse than being in business for yourself, and not making any money, but losing it! You'll never make a living that way.

6- Retail price (this is your price in store, and the little profit you're making from your work. If you sell your work for $50, that's your retail price. In this case, your wholesale price should be $25.)

• • • • • • •

I hope this helps you to price your work according to your needs! Good luck! :)

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