Craft Fair1

How important is pricing to your craft business? Award-winning handmade business owner Joanne Dewberry, founder of Charlie Moo’s, says it’s one of the critical differences between an enterprise with prospects and one that remains little more than a hobby.

In this extract from her new book, Crafting a Successful Small Business, Joanne outlines her guide to getting your pricing right.

Pricing your products right is vital, writes Joanne Dewberry. You don’t want to pitch too low and risk not making a profit, but at the same time you don’t want to go too high and price yourself out of the market. You will find that some crafters sell their creations extremely cheap in comparison to your well thought out prices, either because they are not registered as a business and do this for pocket money, or they have not got a clue about pricing.

This can make it harder for those who play by the rules and, more importantly, know their product’s value. Do not be lured into lowering your prices – remember you are crafting a successful small business. You need to know these three key prices for each of your products. This is where your business success will lie. 

1. Cost price – this is the actual cost for you to make each piece, including time, overheads, raw materials, etc. 

2. Trade price – this is the price you’re willing to sell to stockists and enable you to still make a profit. 

3. Retail price – as a general rule the retail price should be twice the trade price . If you do sell to stockists – whether that be via wholesale or ‘sale or return’ (we will come back to these terms later in Chapter Four) – stick to this retail price as you do not want to undercut your stockists. 

Make sure you know these three prices off by heart, or if not then always have them to hand. It will make you look far more professional if you are asked unexpectedly. Also make sure you review them on a regular basis, and think about the elements which may change, such as the minimum wage or the price of raw materials. You do not want to suddenly find you are only breaking even, or worse still making a loss.

Working out your cost price

My advice is to devise a simple formula. The figures you need to include and consider are: your time, the cost of raw materials, and what others are charging for similar products. I think this is the fairest way to develop a pricing scheme. Example This is a very basic example to give you the general idea.

Cost of supplies per unit: If a metre of material is £2.50 and that is enough to make eight bags then the unit price is 31p (£2.50 ÷ 8 = £0.31). I buy all my cotton, labels, swing tags and string in bulk, which per item costs less than 1p, so I add 5p to each bag, which brings the total to 36p. £0.31 + £0.05 = £0.36

Your time: You want to earn £6.08 per hour (the minimum wage in 2012) and can make five bags per hour, so each one costs you £1.22 in labour (£6.08 ÷ 5 = £1.22).

Is the price right?

The competition I would take the average price from three similar businesses. For example, A = £1.99, B = £1.49, C = £2.00, so the average is £1.83 ([£1.99 + £1.49 + £2.00] ÷ 3 = £1.83). The break-even point is £1.58 (36p + £1.22), meaning any money made above that is profit, and your competitors’ average selling price is £1.83. 

Taking all this into consideration I would look at your recommended retail price (RRP) being between £1.85 and £2. If you make more substantial items such as jewellery, paintings or clay hand casts, then Viv Smith of PoppySparkles’ formula would work better for you: “I have a formula – although I do occasionally tweak it if I feel something is coming out too pricey and just won’t sell: materials + time + overheads. I then add 20 per cent and then double it. 

This means that I have priced in a way that enables me to do trade and retail without making a loss. I see so many handmade items priced in such a way that it’s not even a self-funding hobby! I won’t compete on price – I’m working on building a strong brand and offering a great shopping experience.”

Things to take into consideration when pricing:

  • When calculating your cost price, do factor in

waste, shipping, equipment and advertising, as well as utilities such as broadband, electricity and calls. You will probably need to make an educated guess for this.

  • Weigh up your target market. 

High-end clients will expect to pay a premium for handmade products.

  • Do not pitch yourself too low. 

When the orders start flying in and you are up at all hours making products and the cash tin is empty, you will struggle to raise your prices and keep the orders coming.

  • Be reasonably competitive but DO NOT compete on price. 

Your products will inevitably vary from those of your competitors as they have been handmade by two completely different people. Competing on price is never going to be sustainable – it is also very poor practice and not an ideal business model. It can only lead to failure in the end (unless you are selling vast numbers of units and benefitting from large economies of scale). For handmade businesses, your USP (unique selling point) is that each item has been made by you and not mass-produced. Your prices also reflect the standard of your product. If you price too low, customers will not have confidence that your product is well made.

  • Value your time. 

A crafter’s most valuable resource is their time; some may have more than others, but ultimately this is what prices your products at a premium. If you’re going to give your time away for free then you will not develop a successful business. Instead of seeking to lower your product prices in order to compete with others, look at your USP. Think of ways in which you can develop a strong brand, ensuring potential customers will want to do business with you even if you are not the cheapest on the market. Costing correctly is vital to the success of your business so take the time in the beginning to develop a formula and get to grips with your pricing.

Buy Crafting a Successful Small Business for just £4.25 - Crafting a Successful Small Business is a comprehensive guide to setting up and running an artisan business, covering everything from what to sell to where to sell it and how to find customers.

Have your say

Emily Coltman
Emily Coltman

My only concern with this is that I would never encourage anyone to settle for earning the minimum wage - it's far too low. Otherwise great formula!

M

Joanne
Joanne

I take on board what you say but I used minimum wage as its a universal basis for all crafters. I would expect most people to add their own desired income into the formula. I actually found from my research many weren't even paying themselves minimum wage so hopefully having a basic formula to work towards will help crafters to at least take an income.

Joanne
Joanne

I take on board what you say but I used minimum wage as its a universal basis for all crafters. I would expect most people to add their own desired income into the formula. I actually found from my research many weren't even paying themselves minimum wage so hopefully having a basic formula to work towards will help crafters to at least take an income.

Joanne
Joanne

Thank you lovely
Hope you enjoy the book.

Emily Coltman
Emily Coltman

That's a fair point, Joanne - it makes a good point to start from.
M

Joanne
Joanne

So true - when producing handcrafted items time is such a huge factor which I think sometimes consumers don't take into account. But I guess that is why your website/promo material is so important for showing the journey.

I saw a women recently spinning wool at a craft fair she talked my 4&5 yr olds through the stages from manky sheeps wool to beautiful coloured soft yarn - it was fascinating. I definitely had no second thoughts about paying a premium then for her products as opposed to synthetic wool for £1 on the high street. Have confidence in your products and your talent.

Good Luck :)

Nikki Stark
Nikki Stark

Thanks Joanne :-)

Nikki Stark
Nikki Stark

Really helpful advice! I struggle massively to work out how to price my products professionally, especially when there is so much variety in the marketplace.
Trying to work out what to compare your pricing to is so difficult, and I find it a bit depressing people will pay so much for something worth so little with a big name attached, but don't always see the value in things crafted with love and care by an individual.

Patricia van den Akker
Patricia van den Akker

I would add much more for labour costs. Firstly I wouldn't base it on minimum wage but on what you want/need to earn per year (and that's a personal decision).
Secondly more than half of your time will be spend on admin, marketing, holiday and other non-billable activities. So you need to include that time too, which means that you need to at least double your hourly rate to cover activities like that.
Also I would include a proportion of your overheads (especially important if you ate working from a studio and need to cover your rent) in the cost price.
If you leave these two price aspects out you will always be selling at a loss.
Another comment i would make is that you need to double your cost price to get your whole sale price, and retailers at least double that again to get the retail price. If you sell direct (e.g. Your website) then never sell below this retail price, as you would make retailers very cross! Good luck!

Sandra Butterworth
Sandra Butterworth

This is really useful practrical advice for a small company looking to pitch the price for their hand made products - well done Joanne and to Enterprise Nation for highlighting Joanne's book - Crafting a Successful Small Business - a good buy

Vivian
Vivian

Can anyone help with mark up
i have been approached for a company to sell my product and I would like to offer them a 35%/40% markup but I'm getting confused with the best formula
there seems to be several ways to do it
they are saying 100% which i take as 50% so we are finding it hard to explain our methods to each other logically
help!!!thanks!!!

Gary
Gary

A lot of artisans also forget to allow for their overheads in the business as well. There is usually at least 30% of time working on the business doing things such as admin, updatuing the website, updating Etsy etc etc etc. All of this is productive but does not earn direct money so it still needs to be accounted for when calculating the hourly rate. I've covered of ways that they can actually do that with accuracy in this A-Z series of articles. A lot of people are suprised when they work out what thei items really cost them to make.
http://www.craftmakerpro.com/a-z-handmade-business-guide/key-pricing-handmade-products/

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