Pricing your work is an important part of your success on Etsy. If prices are too high, sales will drop…or simply not even begin. If prices are too low, you’ll find yourself unable to continue making new items. The sweet spot between these extremes, the price that is just right for your wonderful products, is not that hard to discover.
The formula. It’s been around for decades and has been the backbone of many successful businesses. It goes like this:
Materials + Labor + Overhead + Profit = Wholesale price.
Wholesale X2 = Retail price.
The first element, Materials, is everything that goes into your product. If you are sewing elf dolls, it’s the cost of fabric, stuffing, buttons, ribbon and yarn. Remember to include little things like the cost of thread. Figure this cost of a batch – buying everything you’ll need to produce 10 items for example – then dividing by 10 to get your cost per item.
The next element, Labor, is the time it takes you to make and ship the item, and how much is this time worth per hour. Be sure to calculate this at a fair wage. You don’t want to base your business on “sweatshop” wages, whether for yourself or anyone else. Likewise, if you value your time too highly, you will soon price yourself out of the market. Be fair but don’t be greedy.
Overhead: Add up everything it costs for you to be in business for a month…then divide by the number of items you plan to sell each month. What do you spend on your business that you would not otherwise need to pay for? These costs are things such as
- office supplies and packing tape to seal shipping boxes
- the cost of your business bank account if you opened one
- rent for studio space
- the fee your tax person charges
- long term costs should also be factored into this…a new computer every few years, repair on the sewing machine
- ….and so on
At the beginning there will be expenses you do not include. If you are working out of your home, in a spare bedroom perhaps, you might choose to ignore expenses like rent, electricity and heat. After all, you’re living there and would need to pay rent and utilities anyway. But remember that such costs are a legitimate part of doing business. As you grow, you may want to add these costs in anticipation of the day you will need to rent larger studio and office space.
The number of items you will sell should be an honest guess if you are just starting out. After a few months of sales, you will be able to track and project the real number. So overhead total divided by number of sales = the per item amount.
The last element in the formula is Profit. This is the value you put on your investment of energy, your creative spark, your unique talent, and the money you’d like to make to expand your business. Accounting for profit right from the beginning will give you a wholesale price you can live with. Some people double the manufacturing price to get their profit – saying that “materials + labor + overhead X2 = profit”. Other folks add much more, while yet others set their profit far lower. The profit figure is yours to set and to change as time goes by. Only you can decide what it should be.
Back to elf dolls then…let’s say you carefully track what it takes to make dolls.
Materials: You buy enough cloth, yarn, stuffing and buttons to make 10 dolls. The bill is $30 at the fabric store, so that gives you a materials price of $3.00 per doll.
Labor: After carefully logging in the time you spend, you discover that it takes you 5 hours to sew 10 dolls start to finish, another 2 hours to photo them all and add them to your Etsy shop, and finally about 18 minutes to package and mail a doll order (another 3 hours of your time if you sell 10 of them). This all comes to 10 hours per 10 dolls, or an hour each. If you figure a fair wage is $12 per hour, the labor for each doll comes to $12.00.
Overhead: After figuring all of your costs for Etsy fees, Paypal fees, the packing materials, office supplies, sewing supplies, and every other business detail, you come up with a monthly overhead cost of $40.00. You’re working at home, so right now you are not including rent or utilities into overhead. You also have a computer and Internet access for personal use, so you are not going to count that cost either. You average 10 doll sales per month. So $40 divided by 10 sales means each doll sale needs to cover $4.00 of overhead.
Profit: You decide to add $5.00 per doll for business expansion and because your dolls are so unique and awesome!
$3 + $12 + $4 + $5 = $24 is your wholesale price. Double that to get retail, so you sell your dolls on Etsy for $48.
Inspired by Chapter 14 in Selling Arts and Crafts Online, a great resource for new sellers!