{Handmade Business in 31 Days — Day 31, How to accurately price your handmade items.}

Day 31// About this time one year ago we realized two huge somethings: if we didn’t change the way we made and priced our handmade items we wouldn’t remain profitable, and if we didn’t change these things we wouldn’t be in business for very long. Gussy Sews is my full-time job, the blog + shop take equal dedication and I absolutely love my job. There’s hardly enough time to describe all that it’s done for our family, others, and lastly, myself, so ensuring we make smart choices is super important. Lastly, Gussy Sews supports our family, not the reverse.

We took a few months {let’s be honest, it wasn’t a quick activity} to review our processes, pricing and overall goals. And what we realized is that we weren’t headed down the path we thought we were. We needed to act quickly and so once we had shipped all Christmas orders we took a short break from the biz to rest. In early January we re-grouped and worked incredibly hard to design, create + photograph a new line of Gussy products. We reworked our pricing guidelines and made sure our overhead costs were accurate. And then lastly we created some buzz to help with the upcoming launch.

Pricing your handmade items correctly is just one aspect of running a successful handmade business. You must perfect the art of saying “no”, you must know your goals + elevator speech, and you must take some time to rest, among other things.

LET’S TALK HOW TO ACCURATELY PRICE HANDMADE ITEMS. Here are some key factors you must know:

  • What is the cost per material item? {calculated down to the exact amount of material you use}
  • How much time does it take to make a finished item? {account for each step of the process}
  • What is the rate of pay to make a finished item? {include all positions/process steps; will you pay per hour worked or per finished task/piece}
  • What kind of profit* % must you make to remain a sustainable business?
  • What kind of overhead costs do you have? {your salary, accounting costs, newsletter subscriber fees, site hosting fees, basic office supplies, travel costs, site design fees, giveaways/donations, rent/utilities + more}

*The amount of profit you make could cover overhead costs {how you actually configure how to pay for overhead can vary {example: add it in to the product price like an expense/material; know how much product you have to sell each month in order to break even with your overhead costs}.

Oftentimes shop owners under-price their handmade items. This could be because they haven’t adjusted their prices as their experience/style develops, they don’t feel confident asking for what they deserve to be paid, or they don’t want to “compete” with neighboring shop prices. Here’s how I feel about that: you absolutely cannot compare yourself to other shops {for all you know THEY are underpricing your work, now you’re really losing money}; your story is uniquely yours therefore your prices are uniquely yours; if you don’t know what it costs to make an item how {seriously, how?} do you expect to stay in business?

Most handmade business aren’t properly priced, and actually — many lose money. The difference between a business and a hobby is a business makes money. One of the major problems facing our industry is handmade is expensive to create. A handmade shop owner has to set their prices higher than a big box store in order to reach profitability. However, the trade-off is a more unique shopping experience for the customer.

Knowing where to shop for materials was a huge reason we were able to go from a made-to-order to pre-made process in January of this year. Yes, we were suddenly buying larger quantities of materials but we could afford this simply because we knew we were getting the best price on the quantities we needed.

SO LET’S DRAW UP A SAMPLE PRODUCT PRICE FOR A ZIPPED POUCH:

Shop Owner A: your product retails for $9 and the total cost of all materials used is $2. Somewhere you heard you should triple the cost of materials to determine the retail price, so that’s what you’ve done. Your shop has been open for 6 months and while you’ve sold a fair amount of items since opening you have just enough money to cover your next batch of items but you’ve saved nothing and you have no capital set aside {for funding large projects, investing in new supplies + more}. Final grade: F

Shop Owner B: your product retails for $20 and the total cost of all materials used is $2. You also spent $2 making the item, bringing your total costs to $4. Now what about the time it costs to photograph, edit, list for sale + promote said item? Yup, you’ve got $16 left to cover all of those costs, not to mention have enough leftover to cover your monthly overhead expenses which remember, covers paying yourself! Your shop has also been open for 6 months and you’ve sold the same amount of items since opening as Shop Owner A, but you’ve been able to save a set amount each month as well as build a decent amount of capital. Final grade: A+

So… what’s the difference between Shop Owner A and Shop Owner B?

Having an accurate understanding of what it costs to run a business will immediately set you apart from others, but knowing + implementing what you know allows you to run your business much more easily.

Above is a list of some key factors to accurately pricing your items. Now, let’s talk in greater depth about this…

KEY FACTORS YOU MUST KNOW ABOUT PRICING HANDMADE ITEMS {for consistency purposes we’re basing the instructions on making a zipped pouch}:

  • What is the cost per material item? {calculated down to the exact amount of material you use}
    • Take that zipped pouch you are working on. Here’s a breakdown in materials you use: outside fabric, inside fabric, interfacing, thread, zipper, embellishments, name tag {for example}.
      • You buy the outside and inside fabrics for $5/yard and the interfacing for $4/yard. To determine how much material in the outside and inside fabrics you use, figure out how many finished pouches you can make from 1 yard of fabric. Let’s assume you can get 12 pouches from a yard of fabric, making each outside/inside fabric cost you $0.42.
      • Apply this same formula to determine the cost of interfacing used, noting that the outside/inside fabrics are doubled over and the interfacing is not, meaning you use twice as much interfacing per yard than you do of outside/inside fabric.
      • Thread probably costs you pennies {if that} per finished piece, and while this dollar amount seems insignificant it is important to include it in your costs.
      • Use the same formula to figure out the cost of the zipper, any embellishments you use and name tag added to every zipped pouch. For example, if you buy a lot of 12 zippers for $4 then each zipper costs you $0.33
        • You now know the cost of all materials needed to make your handmade item — yeow!
      • Repeat this for EVERY ITEM you sell in your shop. Each of your items has unique measurements, material uses + costs, so taking the time to determine a unique price for each is an absolute must! Hint: use a spreadsheet to create a formula that’ll allow you to simply plug in your item measurements, material prices + production times to determine a suggested retail price
  • How much time does it take to make a finished item? {account for each step of the process}
    • Prep work: 2 minutes {includes cutting and ironing fabric}
    • Sewing: 7 minutes {start to finish, the amount of time to sew 1 zipped pouch}
  • What is the rate of pay to make a finished item? {include all positions/process steps; will you pay per hour worked or per finished task/piece}
    • Prep work: $10/hour {may also be paid per finished task}
    • Sewing: $12/hour {may also be paid per finished piece}
  • What kind of profit % must you make to remain a sustainable business?
    • You’ll have to work a few scenarios to know which % is the right amount. Start with 50% — are you able to pay yourself, cover overhead costs, and save/pay for anything additional with this number? What if you bumped your profit to 60%? How about 70%? Running a handmade business, like any business, is extremely expensive. It’s important to keep this percentage in perspective, realizing there are many expenses we don’t account for {due to infrequency or inexperience}.
  • What kind of overhead costs do you have? {your salary, accounting costs, newsletter subscriber fees, site hosting fees, basic office supplies, travel costs, site design fees, giveaways/donations, rent/utilities + more}
    • Breakdown quarterly AND yearly costs so they become a monthly expense {site hosting fees, accounting fees, etc.}
    • Will you include a fraction of your overhead costs with each product you list, or will you focus on reaching a specific sales goal in order to cover your overhead costs? Or, consider covering your overhead in a way that works best for you!

The bottom line is accurately pricing your handmade items will push you towards success whereas using a set formula, like “3x the cost of materials” will quickly pull you towards failure. It may sound harsh, but the reality of not accurately pricing your items is harsh. It’s exactly what challenged us to change the way we made and priced our handmade items. And, it’s what’s allowed me to take some time off over the summer as well as in September when we moved from Minneapolis to Los Angeles.

 NOTE: This post explains how to accurately set retail prices, not wholesale prices. Wholesale is another language entirely ;)

Homework// If you haven’t already done some, revisit your pricing formula and make appropriate adjustments. If you’re concerned about the difference of what you currently sell an item for to what you should being too dramatic, increase your prices in small increments. Remember, your end goal is profitability + sustainability :)

Any questions? Let’s chat in the comments!

Read, study + excel at being a Handmade Business owner! Click to see all posts.

Comments

  1. 1

    sarah says

    Wow, this has been such an amazing and informative series! Thank you for sharing your pearls of wisdom… I dream about/threaten/hope/fear/etc. to have a handmade business as a creative outlet. I completely admire you for your dedication, motivation, and for just doing it! I have three little ones who demand a lot (okay, all) of my time. But I love to sew and create and read blogs. I’ll be re-reading this series again and again. :)

    [Reply]

    Gussy Sews Reply:

    @sarah, Thank you Sarah! xoxo

    [Reply]

  2. 2

    says

    I didn’t realize how low I had priced some of my items until a good friend of mine told me I was cheating myself. I really didnt know how to price things at all(I wasn’t even using the triple equation, I was just making stuff up!). I am slowly readjusting my prices.

    http://owleyevintage.blogspot.com/
    http://www.etsy.com/shop/OwlEyeVintage

    [Reply]

    Gussy Sews Reply:

    @sarah, Please promise me — but more importantly, promise yourself, you’ll revisit your prices soon! Having your items priced correctly is so incredibly important. Imagine how much more productive + encouraged you’ll feel knowing you’re being paid exactly what you deserve. Your shop is lovely — seriously lovely. xoxo

    [Reply]

  3. 3

    says

    I second the Wow at comment #1; it’s been a great series so far with lots of info on things I’ve often googled but found no real answers to (like where to find material). I’ve been struggling to take the next step with ‘a great idea’ because the cost of materials is a lot higher in Australia – but this post helps to show the final price can stay in perspective of that. Thank you :-)

    And Sarah of Owl Eye Vintage at comment #2, your jewelry is gorgeous! I LOVE your peacock necklace and vintage rose ring – I just emailed my sister with a heavy handed hint for my birthday – fingers crossed, lol :-)

    [Reply]

    Gussy Sews Reply:

    @Donna, We struggled to find answers on a lot of these topics, too :) Thanks for the sweet comment! xoxo

    [Reply]

  4. 4

    Claire says

    Maggie, thank you so very much for this fantastic series. You have put so much time and effort into giving away this information. Your generosity is amazing. Thank you again, and may Gussy Sews prosper.

    [Reply]

  5. 5

    Alice says

    Love this! But please, PLEASE make a “wholesale pricing” post as well. It would be so helpful. Thank you.

    xo

    [Reply]

    Gussy Sews Reply:

    @Alice, Wholesale is basically 40%-50% off your retail prices. We don’t do too much with wholesale so I’m not sure if I’m the best to write a post on it. But Megan Auman does — google her!

    [Reply]

  6. 6

    says

    WOW. I could just sit and read your posts for hours.

    I am just starting this handmade business up with my mother in law. She sees it as a hobby, as do I, but the thought of making a well known handmade business is a dream.

    So, my question is, do we start low, as a hobby just selling to make money to buy more? This way we get our ‘name out there’ prior to setting the bar higher for a handmade business?

    Overwhelming but OH SO EXCITING!

    [Reply]

    Gussy Sews Reply:

    @Kari Willis, You mean, do you set your prices low (for now)? If you could elaborate that would be great! xo

    [Reply]

  7. 7

    Amanda says

    My biggest problem is worrying about pricing myself too high so people won’t buy my items, and feeling guilty if I do raise my prices…bc I’ve had a few repeat buyers who would notice. So I’ve generally priced my items comparatively with other etsy vendors that sell similar things. I deserve an F! And then what do you do with friends who constantly ask for a discount just because they know you? I’ve had that happen more times than I can count this year! I hate to say No, but there has to be a line somewhere!

    [Reply]

    Katy (lil' alice) Reply:

    @Amanda, I have thoughts on this one Amanda, but I want to hear what Gussy says about this.

    I have friends that order from me & don’t expect a discount at all. They know they are supporting my handmade business & they are not going to get a lil’ alice item from anywhere else! Some joke that they owe me the national debt when they place their order around the holidays!

    They need to be supportive & respectful of you & your talent. Not everyone can sew!

    [Reply]

    Gussy Sews Reply:

    @Katy (lil’ alice), I write a novel reply to Amanda on pricing, click over to see what I wrote :)

    [Reply]

    Gussy Sews Reply:

    @Amanda, I have a lot of passionate thoughts on these questions… Let me explain:

    1. You absolutely can not set your prices based on what other shop owners have set for their shop. SO MANY sellers buy overly priced materials, don’t account for their labor/time, and then under price their products. How in the world a shop is supposed to grow when they do things like this is besides me.

    Your time is so precious. You are talented, you are creative, you were made to share your talents + creations. We all have purpose and it’s not to be dismissed.

    You can’t worry about what other people think. There will always be someone who thinks your work is priced too high. These people ARE NOT your target customer. Someone will always complain and do things to make you feel bad, all in hopes you’ll lower your prices or give them a discount. What people don’t realize is how rude this is.

    If you need to review your prices and raise them I suggest “closing shop” for a couple of days to get everything sorted out. Make it a fun, exciting moment for your business. Maybe change your overall site design a bit — do all the things with your shop you’ve been waiting to do (update your FAQ page, update your About Me page, revamp the way you package your products, etc.) Then when you reopen the focus isn’t only how your raised prices. Make it really exciting for your customers, maybe you offer “free shipping” for a day or two to your email newsletters subscribers? You want to create excitement + buzz, and you can do this by taking the focus off of the raised prices and doing some things I suggested above.

    Your other question was on giving friends discounts. Let me ask you this: that small, locally-owned store you love to shop at, where the owner knows EVERYONE’S name, and everyone knows the store owners name? Do people walk in and say, “Hey Tim! Can I have a discount because you know who I am?” No they do not. Just because you know the owner doesn’t mean you deserve a discount. In fact, it’s the owners job to know their customers by name.

    If family + friends ask you for a discount perhaps they need to be informed that this is your business and it provides you with a livable income. You take it seriously and they need to, too. Perhaps you give a small 10%-15% discount to friends and family, but it should be more of a once-in-a-while discount and not every time they order. And certainly not more than 15%!

    The bottom line is you were given a passion in life, and to give it away is to discredit the Creator’s work.

    [Reply]

  8. 8

    Amanda says

    Also-bad about knowing how long it takes me to create an item. I’m stop n go trying to parent a busy 3 yr old, but also I enjoy “making”, so I don’t rush through it!

    [Reply]

    jessamy Reply:

    @Amanda, you posted the exact same worries I have!! I am so nervous that I won’t get any clients if my prices are too high and that my return clients will get upset. I have priced my items mostly based on materials costs and I do need to value my time as well, especially knowing how precious my time is too my kids, but I’m just too nervous to go any higher. I also always give my friends a discount, whether or not they ask, but most of the time they get mad and tell me they want me to charge full price. Thank you for this series Gussy, it has really showed me to value my time and business, even if I want to keep my business small and manageable, I still want it to be a successful, money-making business.

    [Reply]

    Gussy Sews Reply:

    @jessamy, I wrote a very lengthy reply to Amanda, I encourage you to click over + read it :)

    PS. If you don’t account for your time you’ll never reach that money-making status.

    [Reply]

    Gussy Sews Reply:

    @Amanda, I encourage you to take the time to know exactly how long it takes to finish an item. Maybe if you knew how quickly you could finish something (all the while enjoying it) you’d revisit starting + restarting so often, which is probably costing you a lot of money.

    [Reply]

    Alys Hejl Reply:

    @Gussy Sews, how much do you charge yourself per hour? I’ve seen some people do $10 if I did that every piece I made would be well over $20 & I know people wouldn’t buy it. How do you factor that in?

    [Reply]

    Gussy Sews Reply:

    I think it’s more important to pay yourself what you’re worth. And if your current customers won’t pay that much for a finished piece then they’re not your ideal customer. Hard stuff to process, but true! The next area I’d encourage you in is finding your ideal customer. They probably have a bit more disposable income, for example.
    Where are these people? Where else do they shop online? What are their schedules like? Once you learn more about your customer you can work towards increasing your sales.

    [Reply]

    Alys Hejl Reply:

    @Gussy Sews, thank you so much! That’s exactly what I need to do! I’ve been pricing stuff off the, “if I were to buy this how much would I be willing to pay?” principle, when I’m cheap & I know it lol.

    [Reply]

  9. 10

    says

    How would you figure very small things like a barrette that’s crocheted? Another words I only used a few yards of yarn that I’ve had for a long time? Do I price per yard or project ?

    [Reply]

    Gussy Sews Reply:

    @Sasha, You need to figure out how much 1 yard of yarn costs. How much was the whole skein? How many yards is in 1 skein? Divide the price by the yardage to get you the per-yardage price.

    Same with the barrettes: how many came in the pack? What is the price per pack?

    If you’re selling the finished product you need to price it out per finished product (because there’s more than just yarn to account for).

    [Reply]

    Alys Hejl Reply:

    @Sasha, I have this same question! Sasha how do you determine how much yarn you’re using? That’s my main problem is learning how much yarn I am using.

    [Reply]

    Gussy Sews Reply:

    Measure it! :)

    [Reply]

    Alys Hejl Reply:

    @Gussy Sews, so measure the skein after the product is made?

    [Reply]

  10. 11

    says

    I want to thank you so much for writing this series of posts! To say that it has been eye opening and helpful is an understatement. I’m a mom of two young children who really only gets to sew during nap time. I would love to turn my part-time hobby business into a full fledged income for our family by the time my youngest goes to school (in two years). I’ve been on Etsy since January, but really just started setting goals for my shop this past August. I found this post incredibly insightful… knowing what to charge has been one of the hardest decisions. I finally sat down last month and timed each and every processing step only to realize that I was in fact undercharging for my totes. I was so afraid to raise the prices, so I chose to do so gradually. And you know what… I still sold totes even with the new higher prices! After reading this post tonight, I feel like I should go back again and make sure that all of my costs are covered, since I feel like I may have overlooked a few things.
    I just wanted to thank you for putting all of this out there and helping those of us who are just starting out. I’ve been following your blog since before you quit your day job, and you are such an inspiration. I wish you, your family and of course Gussy Sews all the best!!

    [Reply]

  11. 12

    Susan says

    Thanks so much for this post. I make pincushions from old “cutter” quilts – filled with ground walnut shells and embellished with vintage buttons. I sell in the Antiques mall where I work and sell other stuff. The pincushion biz has been an essential part of my sales for about a year and I’m slowly fine tuning my construction process and have breaking down my costs (right down to figuring the price per button based on the cost of jars of vintage buttons and counting how many pincushions I fill out of one 20 lb. bag of ground shells!) Your outline has helped me to feel better about my price point. I will be working through older posts on your site and watching for new posts for some guidance about expanding my product to online sales – probably Etsy. Can you point me to a specific post or series if you have covered this topic already?

    [Reply]

  12. 13

    says

    Thank you so much for these posts! They have been a great help and inspiration to me. Still extremely nervous, but I’ll definitely be referring to these posts to get me through the tough bits!

    [Reply]

  13. 14

    says

    This has been an amazing series, Gussy, and I look forward to learning more from you and just following along with your site – and business – in general! You have given me the encouragement to actually rent out that table at a craft fair, and start listing things on Etsy. You’ve encouraged me to do it – and do it right! Thank you SO much!

    [Reply]

  14. 15

    says

    this post is soooooo informative!! I recently just opened a shop and pricing items is the hardest/scariest thing to do! i am definitely going to have took over my stuff and re-price since i seem to be wayyyy under!! thanks!

    [Reply]

  15. 16

    says

    Hi there!

    I’m new to your site, but I wanted to take a moment to thank you for putting together such a great collection of posts. I just read all 31 days! I’m feeling a boost of motivation now to go out and fix the things I know need work in my business. Thank you again- I’ll be back to visit often. :)

    [Reply]

  16. 17

    says

    Hi! Thank you for this post! This has been one of my biggest struggles. I’ve done the comparison thing and have been left severely discouraged. I also have some friends who’ve said i could raise my prices, and others say that wouldn’t pay so much for something like that. Handmade pricing is incredibly difficult. I don’t think people realize what all goes into it. I don’t want to pay myself cheap labor like a child in a sweat shop. I can’t live on that kind of pay, and we shouldn’t be expected to. This is the first post I saw in this series and will definitely be going back to read the others. I create mostly knit and crocheted items. I’m currently transitioning to crocheted jewelry for the warmer months.

    Again, thank you for this!

    Casey

    csqdesigns.blogspot.com
    https://www.etsy.com/shop/CsqDesigns

    [Reply]

  17. 18

    says

    I was wondering most of my materials are found on the oregon coast yet some i do buy so i do i determine the cost of the items i dont buy i do spend time and gas. Also when i decorate my sea kelp baskets sometimes it takes me hours upon hours to get just the right look and that can add up to 12-24 hrs but that is just how i figure out what jumps up at me. So how do i calucate that and one more thing i expanded my shop with many different beach items and i dont price them high because its only when i dont have kelp to make my unique baskets so i guess im not really calulating my other items thanks for the great info

    [Reply]

  18. 19

    says

    Thanks for sharing.I am really appreciate it that you shared with us such a informative post.
    this kinds of information very helpful for all a lot of thanks sharing that’s kind of valuable
    information & spending a lot of time.

    [Reply]

  19. 20

    Knit-buG says

    I thank you so much for this information……

    People sometimes think homemade things are expensive, but they dont realized all the work that goes into them

    [Reply]

  20. 25

    says

    Wow thank you so much for this! My mom and I just started our etsy shop, making patterned totes and bags (http://etsy.com/shop/luckystarsbags), and have been arguing about pricing. I am afraid of pricing it too high and then no one ends up buying it…but the fabric and time it takes to make it is significant depending on what item it is. What would your advice be to someone who is afraid of pricing their item too high? What if no one buys it due to competitors being priced at a lower price?

    [Reply]

  21. 26

    Ashley says

    I have been contemplating starting a handmade business for so long but I have been so overwhelmed with the logistics. This series is so helpful. Thank you so much for sharing.

    [Reply]

    Gussy Sews Reply:

    I am so so glad!!! Xo

    [Reply]

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>