There are so many craft sellers who struggle with pricing—me included! When I first started my Etsy shop, I was so focused on creating products and getting them out into the world, that I didn’t really give my pricing the attention it deserved. Honestly, I priced based on what I felt the item was worth instead of what the numbers told me. I’m relieved to say that I quickly learned from my mistake and adapted my pricing to start earning a profit before I lost any money. Here are the 7 things that actually matter when you price handmade products and how to use them.
How to Price Handmade Products on Etsy the Right Way
1. Cost of Materials (COGS)
Cost of Goods Sold, or COGS, helps you determine the true cost of what it takes to make a product. You may be accounting for how much a material cost you within a particular time frame, but did you consider how much of that cost goes into the item? Determining each material cost per product you make is crucial in setting your price. It’s a large chunk of what you’ll be deducting from your profit.
To calculate COGS, you’ll want to take the total cost of each material you use for a product, let’s say a sheet of wood, how much of that wood you use in your product, let’s say a sign, and then divide the total cost of the material by the amount used to determine your COGS. If you also use paint and hooks, you’d have to do the same for each of these materials as well. Then add up all of those individual material costs for your total COGS for that item.
Common Mistakes
Maybe you’re on top of it and you’ve already been accounting for each of the materials it takes to make each item. Yay, you! It’s important to keep in mind that there are other costs that go into your product that you may not consider like shipping supplies or marketing ads. These are also important to include in your per-item COGS calculation.
This stuff is important to log in a planner or spreadsheet for future planning when it comes time to adjust your pricing. You may need to look back on the costs and find cost efficient alternatives or scrap something that’s not necessary.
2. Time Spent (Hourly Rate)
Oftentimes, us craft sellers sacrifice our own bank accounts and avoid paying ourselves for the sake of keeping the business going. This is not a great move long term. Even if it’s low, you should assign yourself an hourly rate for the time spent creating your work and factor this into your pricing. Especially if you’re an artist and your products are unique to you. No one else is producing your stuff, so shouldn’t that be of value? Yes, yes it is!
Assign yourself a wage, then multiply that by the time it takes to create each product from start to finish.
3. Overhead Costs
Overhead costs also need to be factored into your pricing. These are things like rent if you have a warehouse or workshop, electricity, software costs—you get the idea! It’s not the things that go directly into your product, but the unavoidable costs of making your product. Essentially any cost that is incurred just for running your business.
If you need Canva to develop signs for your notebooks then that cost needs to be reimbursed one way or another—and that’s in your pricing.
In order to calculate overhead costs, you’ll want to determine what each of these costs are per month. Once you have that, you’ll need to figure out, on average, how many products you’ll make within a month.
Let’s say you’re a candle maker and you tend to batch out 100 candles per month. You’d then divide the total monthly overhead by the number of products, let’s say $50 between electricity and Etsy fees because you work at home. You would want to factor in $0.50 of overhead costs into each of your candle costs.
4. Profit Margin
A profit margin is what’s left after covering costs. Ideally, you’ll always want your profit margin to be at least 50% and always above. The higher the profit margin, the more money you’ll be able to keep when you finally sell your product.
To reach a good profit margin, you’ll want to calculate your total costs (materials, time, overhead, etc.), then add your desired profit on top — don’t just absorb it into your pricing. This ensures your business is sustainable and not just breaking even.
5. Platform Fees
When most makers start selling, they usually sell through e-commerce since it’s the quickest way to get your product up and in front of a paying audience without such a pricey investment and high overhead costs. But just because you’re not paying for a physical storefront, doesn’t mean you’re not paying for a virtual one. Platform fees, like monthly website costs, transaction fees, and processing fees are all still very relevant as an online seller.
These need to be accounted for in your product pricing. Even if you start with a marketplace, like Etsy. Yes, these costs are lower than having your own website, but that doesn’t mean they should be ignored. By neglecting to factor these into your costs, you can quickly crush your profits and sink your business.
6. Shipping & Packaging
As creatives, we always want to make the experience of unpackaging our products or art special. This could be in the form of branded boxes, bonus stickers, and necessary packaging like shipping label costs and bubble wrap.
These are very important to consider when it comes to pricing, but the good thing is you get to decide whether you want to roll these costs into your pricing or charge your customer a separate packaging fee. Each option has its pros and cons, so there is no right way, but it IS wrong to ignore these costs and not have them come from somewhere.
7. Competitor Pricing (Market Comparison)
Competitor pricing is an extremely important step in your pricing process. It should be done prior to launching a product and then monthly after your project has launched. When you research competitor pricing before launching and after you’ve calculated your potential COGS, you can start to understand whether or not your product idea is worth selling.
You shouldn’t solely use competitor pricing to confirm whether you should produce an item. However, it can be a very strong indicator of the future success of that product. For example, if you sell soap and you find that your COGS is very high and your profit margin is looking low, you may not be able to just hike up your price to compensate. Selling a bar of soap at an outrageous $399, would never fly. That’s because consumers generally have a reasonable figure in their minds for what a single bar of soap costs and they’ll likely never justify spending such an amount based on the general market of soap or bath products.
Once launched, it’s also good to keep researching similar listings because it will be a hint as to whether or not you should reduce or increase your price. Fluctuations like seasonal trends or material costs will affect all sellers and you’ll be able to price accordingly to stay fair.
Why Guessing Doesn’t Work
Learn from my mistakes! As I mentioned, when I started selling I used my hunch just to get products out and listed. It was only after I devoted time to creating an actual pricing sheet did I see I was just barely making a profit and could have been making A LOT more money.
Steer clear of emotional pricing, when it comes to making money, data-informed decisions and pricing are the only way to be successful in the long run.
Remember, although it’s creative making, it’s still a business!
How to Track Your Costs Going Forward
Now that we know the important factors to keep in mind when pricing our products, how do we keep track of all these numbers? The idea alone of adding another business task to the list can feel overwhelming—not to mention manually logging this in a notebook! But it is critical to the success and future of your creative business.
To simplify this process and help fellow creatives save time, I developed the Craft Seller Pricing Sheet. Designed for handmade sellers, I included all of the important numbers that we talked about in this article and turned it into an easy plug and play spreadsheet, so you can keep making and selling. You can find this resource in my shop.
Alternatively, you can start with the basics like logging your material costs and operating expenses at the end of each month in a book or on a simple spreadsheet. Once you get accustomed to doing this, you can start adding in other figures to get a better overview of your business.
Recap & Reminder
Keeping track of the numbers helps you know what’s working and when you need to make adjustments. Accounting for things like COGS, overhead, and competitor pricing will drive your business in the right direction and keep you profitable. Even the little things like packaging and subscription costs to run your shop are important to factor into your pricing.
I hope this article was informative and helped you get a better grasp on the less exciting, but essential side of craft selling, so you can focus on the fun stuff. I encourage you to start logging this info as soon as you can.
