by James Dillehay, author of “How to Price Crafts and Things You Make to Sell“
Thinking about selling those crafts you’ve been giving away as gifts or maybe you are just running out of rooms to put them in? Sites like Etsy.com are reporting record sales of handmade items. But craft makers taking the initial leap into starting a home business share a burning question: “How much should I charge for my handmade products?”
The key question you need to focus on is this: “How much will people pay for products like mine?”
Here are some ideas on the proper pricing of crafts and unique personal creations:
Know Your Production Costs.
1. Identify the material costs – know exactly what it costs you to make an item. Include all materials, even small stuff like thread, paint, accessories, and other items that may have cost you only pennies. Example: a handmade gift contains $4 worth of materials.
2. Determine the cost of labor – what your time is worth to you. If your personal minimum wage is $12 an hour, then multiply $12 times the hours it takes you to make one piece. Example: the handcrafted gift takes one hour to make for a labor cost of $12.
3. Identify all your overhead costs. Cover overhead expenses like rent, utilities, phone, etc. Look at your monthly costs and divide it by the hours you work or the number of items you produce. Calculate a unit cost for overhead.
4. Calculate a total cost per unit. Add the material cost, cost of labor and overhead cost together. Example: $4 + $12 + $4 = $20. This is the minimum amount you must recover when you sell the item, but not necessarily your asking price.
Research the Market Price.
5. Identify similar products in the marketplace where you will be selling. Document the retail prices. Research prices for similar items online. Visit local craft fairs or retail stores. Talk to the owners and ask them what items like yours sell for and what they are willing to buy them for. Note: stores will usually double or triple their cost to arrive at the retail price.
6. Decide if you can make a profit. If the average retail price of similar items is higher than your minimum recovery cost, you stand to make a profit. Go ahead and start selling.
7. Reduce your materials, labor and overhead costs so you don’t lose money. Stop and reconsider. Can you lower your costs? Can you make the item faster? If not, look at alternative products to make.
8. Improve the perceived value. Increase the perceived value of your item by improving or enhancing any number of its core elements, packaging or the creator’s reputation. Photography, product samples, packaging, display, location, environmental qualities, media coverage, the creators’ qualifications and unique accomplishments and credentials, every and any known way to add uniqueness and quality to the product for the customer.
Don’t lower the price.
Resist lowering the price. Don’t think that you’ll sell more because you won’t. Unique handmade products command higher prices everywhere. People associate low prices with cheaply made items. In fact, you may have to raise an item’s price till you find the best selling price.
James Dillehay is a professional craft artist, gallery owner, and author of nine books. He has been interviewed in The Wall Street Journal Online, Yahoo Finance, The Chicago Tribune, Bottom Line Personal, Family Circle, The Crafts Report, and many more including Entrepreneur Radio and HGTV. James is founder of www.Craftsu.com, a social network where craft artists can buy and sell for free.