Let’s say you want to launch a craft business, and one of the major steps you will undertake is to search “pricing of handmade products” on Google, which is absolutely right. Every single entrepreneur or artist on this planet who has ever started a handmade business did the exact same thing at a certain point (including us). Needless to say, it’s extremely important to calculate the perfect price point that will satisfy your clientele and let you sell handmade items online to create a sustainable and profitable business empire.
If you price your artwork too high, your target customers won’t purchase it. If you price it too low, you will have a very low profit margin. So, in the effort to guide you about the right price for your craft supplies, this article will help you in each step of the process.
Step 1: Cover Costs
There are several ways to define expenses in order to submit tax returns, but to keep things simple when setting up prices of your products, we have to consider the company’s expenses in the following way:
A) Production Costs
Production costs are the cost that you need to shell out to create your product and make it ready for sale. These costs include:
- Materials
- Time consumed while making the item
- Price tags
- Packaging and labels
You’ll need to monitor these costs carefully. For instance, if you’re making jewelry boxes and stands, you can’t just split the cost of all materials evenly among the box and stand. You will have to figure out how much a single item costs based on the materials used for that particular product.
B) Overhead Costs
Overhead costs cover anything related to operating your business that is not related to the production phase. This comprises your time invested on multiple tasks, like marketing, admin, and selling. Some of the common overhead costs are:
- Annual expenses (like a business license)
- Photography equipment
- Marketing materials (business cards, flyers, etc.)
- Shipping supplies
- Equipment repairs or maintenance
- Membership fees (like a wholesale store membership)
- Wages for activities like photographing products, responding to emails and packaging orders.
Step 2: Add Profit
In the context of business in online stores to sell handmade items, profits are the key marker of success. Without profits, your business is just like a childhood hobby that you love the most, where you allocate your hard-earned money and get it back, but you never grow. Profit is the only amount that’s left after all costs (including your wages) are deducted.
A profit margin is a financial ratio that is described in percentage. To calculate it, divide your profit by your gross revenue and then multiply it by 100. For instance, if you charge ₹700 for a flower vase and your expenses are ₹600, you’ll have a ₹100 profit.
(₹100 profit ÷ ₹700 revenue) x 100 = 10% profit margin.
Here’s the general classification of profit margins:
- 5% profit margin is low
- 10% profit margin is average
- 20% profit margin is high
You can readily set your margin based on your long-term goals. If your purpose is fast growth, aim for a higher margin (20%+). On the other hand, if you’re more focused on selling more units at a lower price, target the lower end of the spectrum.
Step 3: Add Markup
In this pricing strategy, “markup” works a little bit differently than the traditional way. Instead of following basic rules like “Production Costs x 2” to get your retail price, you can adjust your markup based on your online marketplace for handmade goods demands. Now the question is, ‘how much to mark up handmade items?’ The amount you mark up will vary with several factors:
- Your business model (do you plan to sell wholesale, retail, or both?)
- Discounts/deals you want to offer
- Sales channel fees (craft shows, consignment shops, etc.)
- Extra fund for unexpected costs
For the majority of handmade enterprises, a 100% markup is common, especially if you plan to sell wholesale. But if you’re only selling retail, or if your products are valuable items like Champion Series chess pieces boxes, eucalyptus wood bookends, teak-wood bathroom accessories, etc., you might want a smaller markup (like 60-80%). The priority is to ensure that you’re covering all your costs, including sales fees, shipping, and discounts. Your retail price is the total the consumer pays, and it includes both your base cost and your markup. To calculate this:
- Determine your markup percentage
- Multiply your base price by that percentage
- Add that amount to your base price
Reasons You Need a Decent Markup
Here are some justifications for giving your markup careful thought:
- Wholesale: In reality, retailers expect to buy products at about 50% off the retail price. If you intend to sell wholesale, you’ll have to mark up your prices far more than average to offer them that discount without loss.
- Customer Discounts: If you want to offer discounts, such as during sales, festive seasons, or to repeat customers, your markup should support this.
- Free Shipping: Offering free shipping is a terrific service, but it can eat into your profits if you don’t account for it in your pricing. With markup, you can absorb some of those shipping costs while still regulating your profit margins.
- Guarantees/Repairs: If you also provide additional services like free returns, repairs, or guarantees, your markup helps cover those costs. The money from the markup makes certain you’re not losing out if you have to fix or replace an item.
- Incidental Expenses: Unexpected costs can surface (like broken equipment), and your markup can help you cover those without dipping into your profits.
Step 3: Test & Adjust
Before you settle on a final price, test it with the sales fees and expenses you’ll incur. For example, if you are interested in selling on the best online selling platform for items like Etsy, use an Etsy fee calculator to check if your price ends up with enough profit after the platform’s fees. If you’re exhibiting at a craft show, consider extra charges like booth fees, food, parking, or travel expenses.
If you discover that after covering all your fees you’re not making sufficient profit, you can alter your markup or profit margin. Prices can be flexible, especially as you learn more about your costs and business needs. Don’t hesitate to raise prices later if you need to do so to pay your expenses. Prices can always change as your business grows!
On the Whole
Like any other business, there are many variables that make a handmade brand special. Pricing your handmade items is also an art, and it’s totally fine to tune your method as you learn the ropes. Remember, your work is worth what you believe it is. Platforms like ArtistryBazaar, a B2B e-distributor offering multi-category products, can also help you reach the right audience and grow your brand. Stay adaptable, listen to feedback, and keep refining your strategy. By valuing your handmade work, you’ll ensure your efforts are both fulfilling and financially rewarding.