It’s come to my attention that some of you are probably losing money. Some of you are probably losing lots of money. And most of you probably don’t know it. I know this because I look at the costs I’m paying for items. I shop around. I Google-fu out of everything. And I have multiple spreadsheets and calculations that I update regularly. And I know that some of you, unless you are buying your supplies in the kind of volume that involves big truck unloading a pallet of goods, you’re probably losing money or at least not making the kind of profit you should.
Before you figure out your price, figure out your costs.
Figure out your what each item costs
Most of you have done this, or thought you did this. A year ago, I thought I’d done this. But I was still forgetting things. Case in point: shipping. If you haven’t factored shipping into your cost-per-item, you’re leaving money behind. When I buy wax, the shipping cost is almost as high as the wax itself. If you’re buying glass, clay, large quantities of beads, metal… even bulk paper, and you haven’t accounted for the shipping, it’s time to go back to the spreadsheet.
Do you use labels or tissue paper to wrap your items? Do you giveaway bags with purchases at shows? All these things come out of your bottom line. If you aren’t factoring those costs into your price, you’re giving away profit margin. (Don’t think McDonald’s and Nike aren’t charging back the costs of their packaging. It’s just they can buy packaging and raw goods in greater volume, but they also spend millions on advertising and I’m guessing you don’t)
Don’t forget to include your overhead costs
Do you have seller fees (at shows, online, that percentage Paypal and Square take, your online e-commerce software, etc.)? Do you have shipping costs you haven’t otherwise accounted for? (Maybe you mailed some postcards to customers alerting them to a sale, had to buy a pack of boxes or tape for mailing but only charged the customer for whatever USPS or UPS wanted.) Did you need special equipment to get setup? A tent for shows? A table? A paper trimmer? New pliers? Then, there’s internet hosting. If you have your own website (aside from Etsy et al) or you have a domain you forward to your Etsy, don’t forget to include your fees.
All that gets added up. For big ticket items you’ll use for a year or more, divide the cost by twelve and set it aside a sec. For the monthly items, add them all up and then include that number we just set aside.Now, divide that sum (total) by the total number of items you plan to produce in a month or you think you can produce or you regularly produce.
Add that to your per-item cost.
Time — yours isn’t free
And don’t forget your time. Time was the last thing I added to my spreadsheet, but why is that? Because crafting is a “hobby”? Not if I’m selling it. Your jewelry product is no more a hobby than the earrings on the wall at Claire’s. That northerly-named candle company isn’t churning out products to satisfy its deep and abiding need for something to do while catching up on Netflix marathons. (As an aside, in one of my parallel lives, I’m a writer — an occupation often denigrated with the hobbyist or “past time” title and treated as a twee thing bored people do because they failed at investment banking.)
Which is not to say there’s anything wrong with crafts as hobbies, if you’re crafting because you genuinely like doing it and for no one else or no other reason. If you share your goodies with friends and neighbors as gifts, drop off your knitted caps at cancer centers, send your hand-crafted cards to pen pals for fun, or just make ceramic bowls so you have something to eat out of. However, if you decide to sell your bowls or caps or cards, make sure you calculate a wage for yourself, even if you don’t actually take it back out of your company or craft-show till.
Don’t forget to include all the hours you spend working on your business that aren’t directly involved in making your crafts. That three hours spent updating products on Etsy wasn’t spent with your kids or drinking with that friend who always has a great blind date story. It was spent working. You should be getting paid.
Price your items to include a profit
Your profit per item doesn’t have to be huge. But it should be something. And, let’s be honest, it should probably be at least 50% of your cost per item. Remember, cost is what you paid to make it, including your time and all that money paid to UPS and Squarespace.
Assume your retail price, if you aren’t selling your items directly, will be roughly 2 or 3 times your cost+profit amount. The cost+profit is what you’d be willing to part with your craft for if you sold it to stores. (Consignment is often 20-40% as opposed to the 200-300% figure of retail, but can be higher depending on market and risk involved in stocking your craft (e.g. cutting the space of another product to make room for yours).
If you only sell your item directly, consider pricing it as though you were the retailer. Why? Because YOU ARE. You’re the one schlepping tables and carts and tents into vendor spaces. You’re the one on your feet, talking up your product, eating hastily-bought pizza slices while your nephew watches your table for five minutes, etc. You deserve to get paid for that time spent selling in addition to the time spent making.
Example time — because I used to teach math
So, if your direct costs for making a pair of earrings came to $2, your overhead came to $3, and you can make so many earrings in a month that even “paying” yourself $20 per hour comes to only $2 per earring set, you shouldn’t be pricing the pretty purple butterfly dangles at $5. You’re losing money. And you’re undermining the seller next to you. You’re BOTH losing.
So, 2+3+2 comes to $7 per pair of earrings. If you decide you aren’t feeling greedy and you really just want to see your sparklies on someone’s ears, let’s say you decide your profit margin should be 50%. So, that’s 7 + 3.5 or 10.50. Your new wholesale price is $10.50. Feel free to round up (or down if you’re still feeling generous).
Let’s say you think retailers are greedy to double wholesale prices (even though they have good reasons for doing so), so you decide to sell your items at double your wholesale and not a penny more. Fine. your new price is $21 (or $20, if you rounded your wholesale price down). If you sell your item for less, you’re undercutting potential retailers and you’re undermining your competition — and not in a good way.
But, you say, no one will pay twenty-one bucks for two dollar earrings.
Well, if you view your earrings as two-dollar earrings, no one will buy them for more, that’s true. You have to believe in your own product. It’s your craft. It’s your passion. If what you’ve created is no better than the cheap factory-produced goods coming out of sweatshops overseas, why are you doing it?
But, if your earrings are unique or beautiful or created with great skill or talent or sold with the kind of flair and story no one can look away, they certainly are worth more than $2 and should be priced that way.**
But, you say, if I price my goods too high, people will go to Big Lots or Walmart instead.
Then let them. You’re competing with Big Lots and Walmart indirectly, in the same way that the craft fair you’re vending is competing with a Little League game across town, the 5K in the park, and a marathon of movies from Netflix. Which is to say, the craft show is one option, one way to spend a few hours on a particular day, a form of entertainment. Your earrings are not the same earrings Walmart sells. Your gluten-free, hand-decorated, vegan cupcakes aren’t the same people make with an expired box of mix from Big Lots. Your hand-crafted shelves aren’t the same thing people get in a box with an allen wrench at IKEA.
You’re selling them a piece of you, a story, a chance to be special. You’re selling them a chance to talk about what they did over the weekend — “Oh, I got these at a craft fair down a the high school.”
The people who ask to haggle, who tell you similar items are cheaper at the drug store, who treat you like you think too highly of yourself? They aren’t your customers. (Unless, maybe you have a bunch of cupcakes left at the end of a show and want to slash the prices to sell them. The earrings, on the other hand? They’ll keep until they find the right buyer.)
But, you say, if I price my items too high, people will shop from other crafters who are losing money.
First off, if other crafters are losing money, they’ll eventually either raise their prices or go out of business. Unless you’re a billions-losing Wall Street darling with tons of venture capital like Amazon, you’re not going to max out all your credit cards buying parts, sell all your products for less that the bill, and then double down on that decision too many times. If you think your prices are so high the market can’t bear them, look for ways to cut costs without sacrificing quality or your pay. (You are not a Chinese sweatshop even if you have a day job as an investment banker.) Look for other markets. Branch out and make some less-intense products that you can sell for less without giving them away.
And keep in mind that one GREAT pair of earrings is better than 50 pairs of meh, oh-look-it-broke-getting-it-off-the-card earrings. You want the customers who are looking for the pair of earrings they’re going to wear a lot — because hey, free advertising — and love. Claire’s already has the market cornered on earrings you change more often than your underwear and look dated and worn after a wearing or two. Your customers are the ones who appreciate quality over quantity, who want ONE thing that works the way they want it to rather than seventy-five impulse buys.
**This is where I get a little ranty.
Sometimes, we get sold this idea that we need MORE MORE MORE all the time and we tend to wonder why the hell we need so many and so much. Why do we need that many pairs of shoes or that many necklaces or that many hair bows? Places like Walmart want you to think you need a lot of variety because it helps their bottom line — and maybe because a lot of their goods aren’t made to stand up to wear and time. (If it breaks, you’ll buy a new one, you know.) Which means, if your items are high-quality and well-made you HAVE to charge more than Walmart (because no one’s coming back to replace the thing they used twice and it broke in half).
Moral of the story: Don’t be Walmart. Be you.