I’m writing this piece for several reasons: 1) to address the critique that the prices on my web store are too low and 2) to help other artists and crafters figure out how to start really making a living from their work. I realize that this is a special skill and I’m happy to share my opinions on it. Enjoy!
One of the most difficult things for an artist is setting a price on the finished work. For professional crafters it’s a little easier. We often make variations on the same thing over and over again so we have a good idea how much time is actually required to do it.
In this post, I’ll walk you through the steps of pricing your work for wholesale and for retail. If you price your work fairly, you will be able to stand by your prices with resolve. You will also be able to “wheel and deal” while knowing just how low you can go and still make a living.
It’s extremely important to make sure that you’re ready to sell wholesale when you price your work. Imagine what you would do if a local boutique offered to buy a large number of pieces every month from you. If you’re a serious crafter who wants to make a living from it, you will want to be ready to sell to that boutique and be happy doing it! You will need to already have created a fair wholesale price.
Pay For Your Time
First and foremost, pay for your time. If you’re crafting as a business, this is the place where you, the crafter, make your money. To pay for time, you need to calculate your time per piece. You won’t be able to accurately do this after making one piece. Depending on your type of work, you may not know even after making 20 pieces. After 100 or so, you will probably have started to create a workflow and may be getting a good feel for the time you need. Most craft production requires doing the same step to multiple pieces before moving to the next step. Time yourself making a number of pieces and calculate the “per piece” time. If you take breaks or get interrupted, don’t forget to stop the timer! If it takes 45 minutes to do one step for 10 pieces, that’s 4:30 for each piece. Figure out all of the per-step times per piece and add them together to get a “minutes per piece” or “hours per piece” figure. Now, decide how much you should make per hour. Be honest about your skill level and charge appropriately. Don’t ask your customers to pay extra to make up for your lack of skill. In my case, I’m a skilled weaver and should earn $25/hr for my weaving time, including every aspect of loom setup and cloth production. I’m not as skilled at sewing, so pay myself only $15/hr for those tasks until I get better.
Don’t forget setup time! In my case, it takes about 30 hours to prepare the loom for weaving 90 yards of cloth. That’s 20 minutes extra per yard.
Pay Your Taxes
If a one-yard piece takes 20 minutes of setup, 1 hour of weaving and 2 hours of sewing, that’s .33@$25 + $25 + 2@$15 = $63.33 for labor. And don’t forget that you’re responsible for taxes on that income, too. I figure on 25% income tax. That’s $63.33 for me and $21.11 for the tax man giving a final price of $84.44.
When you get to this point, if the price seems too high to compete with what’s on the market, don’t change the price. Change the product, change the marketing or change the production. Maybe you can make a similar product that would sell for a higher price, maybe you can market this one differently, or maybe you can speed up your production.
Pay For Materials
The next step is to estimate your material costs. How much of each material is used to make a piece? Don’t forget about waste! If some of a material ends up on the floor, think hard about ways to prevent this, and then calculate a higher material cost to cover it. Also, don’t forget to factor in the shipping of your materials. Let’s say for this example, that my yarn costs $15/lb including shipping, and 2% ends up on the floor. That means I am spending $15 per pound and using 98% of that pound. $15/98% = $15.31 per pound of yarn used in finished work. If you can, weigh the finished pieces to figure out how much materials each one is using. Otherwise, keep track of how many pieces you can get from a set amount of your raw material. Let’s say my woven cloth pieces each weigh 1/2 pound. That’s $7.66 in yarn per piece.
Again, if this seems high, there are a few things you can do. Use less expensive materials or use less of them. Customers are smart, so don’t try to fool them into paying a high price for low quality materials. Have you considered using recycled materials? This is a great way to reduce cost, and sometimes even increase the quality of the materials. (Think of thrift store cashmere sweaters vs. new wool cloth.) Using recycled materials also opens up a new market to you: eco-conscious customers.
Pay For Your Overhead
Next, you need to cover your production overhead. Figure in everything that you need to pay in order to produce your stuff: studio rental, electricity, heating, transportation, a tool budget, and more. Take your time to think of everything that you need to do your work. A bookkeeper can help you here. Add up each of these expenses per month and divide by the number of pieces you can reasonably make in a month. Notice we’re not talking about how many you can sell or how much it costs to sell them. That will come later. Do, however, remember that you will be spending some of your time selling. Assess your production capacity based on the time you actually have available to produce your merchandise. Let’s say that it costs $1000/mo to keep the studio running and you can make an average of 250 pieces a month while leaving enough time to sell. Each piece needs to pay $4 toward production overhead.
This is the place where you can get quite creative looking for alternatives. Can you rent studio time to others who want access to your equipment? Do you have space to rent out to other crafters? Is there a local collective you could join to pool your resources? Can you cover some of your costs by teaching your craft? Little bits of money you reclaim every month will add up fast!
Your Wholesale Price
To calculate your final wholesale price, add all of these together: $84.44 + $7.66 + $4 = $96.10 each. This is the absolute minimum that you need to make from each piece to stay in business and pay yourself fairly. It’s fair at this point to round up to a nice round number. (I’d use $100 in this case.) This makes it easier to remember and gives you a little something for the time it will take to negotiate and fulfill wholesale orders.
Your Retail Price
The goal in setting a retail price is to cover the time and costs associated with getting your items purchased by customers. If you can find enough outlets to buy your merchandise at wholesale and sell it for you, then you won’t even have to worry about this.
Many retail stores use “keystone” markup, meaning that they mark things up by 100%, doubling the wholesale price. Some markets are cheap, with customers only accepting a 15% markup. I’ve also seen luxury stores with markups as high as 250-300% or more, necessary to pay for a prestigious location and other services like parking and security.
Rather than try to guess what your sales and overhead are going to be, you can start out just using the 100% markup. This means that you are expecting to earn just as much from your selling as you do from your crafting. This is a good way to start because you won’t know how much time and cost is associated with sales until you’ve done it for a while and you can’t begin to sell without setting a price. So, at first just double your wholesale price to find your retail price.
This simple method requires you to watch your expenses. Make sure you’ve got the income before you gamble on “extras” that may not actually enhance your sales. Later on, you may need to use a higher markup, but you probably won’t know how to figure the new markup until you’ve been selling for a while.
When the time does come to increase your markup, there are some expenses that you may be looking to cover: show fees, travel expenses, signage, advertising, packaging, collateral material, and more. These expenses are all directly related to selling your products and should come from your retail price.
You can figure them in the same way as you figured production overhead. If you’re considering a per-piece sales cost like fancy hang tags, add it directly to the price of each item. If it’s a monthly expense like a magazine advertisement, divide the expense by the number of items you sell in a month and add that amount to each item.
And, actually, you’re not going to add these costs to each item at all. You’ll be modifying your markup to cover the new costs and then applying that markup to each item. It’s best, for the sake of your customers, if you only raise your markup once or twice a year, and even better if you only apply the higher prices to new items as they’re introduced.
Be sure to keep your wholesale and retail prices clear in your head. Expensive sales choices increase the retail price, not the wholesale. You may be shooting yourself in the foot if a wholesale customer comes along and you ask too much (or too little!) because you’re not clear on your own costs and prices.
Review your costs periodically to make sure that you are charging what you really need to make it all worthwhile. This is a business after all, and it’s easier to stay excited and engaged as a business owner when the money is flowing well. Enjoy it!