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If you’re new to all this, how do you figure out how much you will sell in a year?
This question relates to how to calculate your overhead rate, part of your pricing formula equation, which requires an estimated number of items sold in one year. If you’re a new business, I’d come up with a very conservative (on the low side) estimate and go from there. After a month or two of business you can always adjust up or down.
Another option that I think is more appropriate for a new business (since sales usually take a while to get going) would be to base your overhead rate on an estimated number of products MADE in one year, rather than sold, since you have more control over that number and it’s easier to estimate. This concept still works because over time, all the products you make will eventually (ideally) sell and that cost will be recouped.
Your overhead rate calculation will always be a work in progress and should be continuously monitored. Remember, the goal is simply to make sure your pricing formula calculates a price that allows you to recover all the expenses your business faces.
“My crocheted items take some time to make and it kills my profit margin, so I’m not sure if there’s a realistic solution for my business other than to try a different craft or only make quick and easy items. For example, I have some small stuffed bears in my shop. They take about 45 minutes each to make and the yarn is $1. Let’s say I’m paying myself $10 an hour. ([$1+$7.50 labor]x2)+$4 overhead=$21 wholesale, $42 retail. No one would pay that much for a little stuffed bear, so it definitely gets discouraging trying to price for profit. It seems easy to use this pricing model on jewelry items and other quicker crafts but difficult on the more time consuming. Do you have any suggestions?”
This is a great question because I’m sure it’s a scenario that a lot of artists face. Certainly don’t give up on a craft or product you feel passionate about and enjoy making just because you aren’t sure how to price it. That being said, you should always strive to price for a profit if your goal is to have a successful business. You want your craft to be both profitable and enjoyable. I have several thoughts and ideas about tackling this.
Here are some questions you can ask yourself about labor-intensive products that seem to be highly priced for your comfort.
Can I make it more efficiently? First, let’s examine our labor element. $10 an hour seems reasonable; I wouldn’t suggest paying yourself any less for your skilled crocheting. Is there anyway we can improve on 45 minutes per bear? Could we create the product in an “assembly line” way to make several at once in stages? Or will we possibly become more efficient over time, and maybe as we become more experienced we’re able to crochet one bear in 30 minutes? Basically, are there any systems we can implement to reduce our labor time for this product?
Do I need to re-evaluate my overhead rate? In my original post I discussed defining different categories of overhead. You surely have general business expenses (advertising, website fees, etc.). But do you have any expenses lumped into your overhead rate calculation that maybe apply to one group of products but not all of them? Make that a separate “category” of overhead, with its own rate, and only include it in the pricing formulas for those products. More refined overhead rates can help you more accurately price your products by more accurately knowing how much they truly cost you. Another idea is to compare calculating your overhead rate based on your estimated annual products sold verses your estimated annual products made (as discussed above) and use the rate that makes more sense to you.
Should I change my profit multiplier? The profit multiplier I recommend in my previous post is x4 for retail and x2 for wholesale. If you feel like this number is consistently over-pricing your items, you could try 3.8 or 3.5, whatever feels comfortable to you. Just make sure you are still leaving plenty of cushion for profit and covering your costs. You might try using different multipliers for different product lines, which leads me to #4…
Could I shift my costs to other products? If your crocheted bears are your best seller, or your “hook” product bringing viewers into your shop and peaking interest, maybe you should price them a little lower and shift some of that missing cost to another product set that can handle a price increase and still sell. Maybe you’d price your bears at $32 and give a price bump to your crocheted baby blankets. This gets tricky, because depending on how many of each product type you sell, you might still lose out, but it’s another way to think about the issue.
Tweak and re-think your formula. Remember that this is the formula I suggested in our first post:
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
Wholesale Price x 2 = Retail Price
If you really think about this, for your wholesale price, you’re doubling the supplies and labor, and not your overhead, but for the retail price, you are quadrupling your supplies and labor, and doubling your overhead. If it makes more sense to you, and you want more leeway, you could not double your overhead for your retail price.
Have I lost you yet cause I’m losing myself with that statement! What I’m saying is, your formulas would look like this:
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price (the same as above) [(Supplies + Labor) x 4] + Overhead Rate = Retail Price
Both of the methods make sense. Both cover your costs, and both give you cushion for profit. One just gives you a bit more than the other, and is quicker and easier to figure out for retail purposes. If I used this new formula, the crocheted bear would then sell for [$1+$7.50 labor]x4)+$4 overhead = $38, rather than $42.
Finally, you know it’s worth mentioning…are you completely sure $42 is not a reasonable price for your item? When I look at crocheted animals on Etsy, I see prices ranging anywhere from $15 to $100. Just because it feels like it’s priced too high to you doesn’t mean your target audience will feel that way. Remember you are offering more than just a crocheted bear. You’re selling your brand, your awesome customer service, the story behind your amazing little bear, and the whole handcrafted experience, which has emotion and value all on it’s own
Remind yourself of this – if your pricing formula determines what price you really need to sell this bear at to make a livable, decent profit, then that is what you need to sell it at. It’s better to sell fewer bears at a good profit and have a sustainable business, than to sell tons of bears at a loss, and eventually have to shutter your business.
Do you sell an item for the same price both on Etsy and at a craft show?
My answer here depends a lot on your products and your tolerance for tedious tasks.
First, I’ll tell you what I personally do for craft shows. As you may know, I sell handcrafted jewelry. I have a lot of items; I generally end up bringing about 250 or so items to a show with me. Online, I have the luxury of using my pricing formula spreadsheet to individually calculate the price for every item I list for sale. I have a lot of different prices there! A craft show requires physically displaying all my jewelry on one or two tables, and thus I’m faced with the decision to either individually label 250 items with their already-calculated Etsy prices, or group them and make price signs for each group. It’s a lot less time consuming to just make signage to the effect of “all crystal earrings – $24” rather than tying tiny taggies with individual prices on 50 pairs of crystal earrings.
my early days of practicing my craft show set up. I gathered all my crystal earrings on one tray and labeled them with a single sign, rather than individually tagging each pair.
This “grouping” method requires a little bit of math work upfront to calculate the different pricing levels I want to use. I usually categorize my jewelry into different groups – studs, crystal earrings, pendant necklaces, painted earrings, adjustable rings, wire-wrapped rings, etc. I’ll have a list of what those items are priced on on Etsy, then I’ll decide on the best price point for each category. If I have a wide price range in one category, I might make 2 or 3 levels. For example, let’s say I sell crystal earrings on Etsy ranging from $15-$30. If I price all of them at a craft show for $25, my customers might shy away from buying the ones that seem to be way overpriced. So I might break out price points of $18, $22, and $28, or something like that. That helps me make more of the profit I need, encourages sales because things seem fairly priced, and makes the labeling situation a bit less time-consuming.
different price levels of earrings are grouped on different displays, with simple signage to label them
It takes some time for me to determine my price points, and then I make the signage and set up my display accordingly. But I find this to be a lot less work than keeping the same prices as on Etsy and having to individually label every piece. Plus, it’s a lot easier when I sell something because I’m likely to know the price off the top of my head.
And don’t forget about sales tax. I like to include sales taxes in the price of my goods already (this is ok to do in Texas as long as you have signage stating that you are doing this). This way customers can pay me a flat amount (I don’t like dealing with coins), and there are no additional surprises for them when they pay. This is another reason I don’t price the same at a show as on Etsy.
Finally (again just speaking about what I personally do), jewelry (and many products probably) sells differently at a show than online. I like to offer deals at shows, like buy 2 rings get a 3rd ring free, or buy 2 pairs of studs and get the third pair half off, to encourage people to buy more. These sort of promos are harder to do on Etsy, but are very successful at a show in person.
So, that’s the methodology I use. Your system really depends on your product and how much work you want to put into it. It also depends a lot on how easy your products are to label and tag. Jewelry is difficult, things like prints or cards that just require a sticker are much easier.
If you had fewer products to sell, especially ones that are easier to tag or label, it might be less work for you to just use your Etsy prices, without having to re-invent the wheel and recalculate all your prices or group your products into pricing levels.
That being said, remember what goes into your pricing formula. Do you have costs going into your Etsy pricing formula that don’t apply anymore for craft show items (for example, packaging costs that only apply if you’re shipping your products)? Might you have costs you should include in your formula that apply only to items you sell at the craft show (like the fee to participate)? Remember to price your items to recover all your costs.
As you can see, my answer is pretty complex and pricing is a complex topic. I hope my thought process makes sense to you.
Do you have anymore questions about pricing your handmade goodies? We’d love to hear them! We also want to thank everyone for participating in our pricing series and hope it was helpful to you.
On my constantly on-going quest to master social media, I’ve downloaded this fun app from A Beautiful Mess. It helps makes your pictures prettier! You can also add graphics, doodles, and text. Most awesomely, it allows you to easily share your pics on Facebook, Instagram, or whatever social media tool you’d like.
I conclude by encouraging you to visit our latest series on pricing your handcrafted goodies here at Lazy Owl. Our final segment on this topic will be a reader Q&A, so I encourage you to stop by and post any questions you have about the ginormous topic of PRICING!
To refresh, here’s the formula we discussed last time: This pricing formula is just a suggestion and can be tailored to meet your business needs, as long as you are leaving room for profit. Remember, you want those profit multipliers to be cushioning for profit, not covering the expenses you forgot to include.
If your price seems too high…
If the price seems too high there are several pieces of the equation you can examine, and then decide to tweak one, some, or all of the parts.
Look at your current supply costs. Is there a way to find less expensive supplies? Can you buy at a discount in bulk? Can you only shop sales or use discount codes? Is there a less expensive supplier around? Have you compared suppliers online vs. locally? Finding the cheapest source of quality supplies is one of the most challenging parts of being a creative entrepreneur, but once you’ve found one, it’s a gold mine that can help you keep costs under control and your prices at a reasonable level.
You can also try refining your overhead rates. Recall that your overhead rate is a little chunk of all the business expenses that aren’t directly traceable to a specific product. You include this in your price formula so that every time you sell something, you get reimbursed for a tiny chunk of those expenses. Sometimes, depending on the product, using multiple overhead rates can help refine your price. For example, with my products, I have a glue overhead rate and a jump-ring overhead rate. These are for expenses I have that I can’t trace the exact amount used to a specific product. Since I don’t use glue and/or jump rings in every product I make, I only need to use these rates in products that use them. I can leave that overhead amount out of my other products to get a more accurate picture of the expenses used to make that product. Another (perhaps better) example – let’s say I build an advertising campaign around one set of products. I might make an overhead rate for just those ad expenses and only apply them to that product group, rather than spread out that cost over all my products.
Think about your pricing in relation to all of the products you sell. You might have different “levels” of products. The market for rosette studs is very saturated. Maybe I want to have a really low price on those earrings to attract viewers and sales, so I am going to adjust by either giving them a lower overhead rate, or using a profit multiplier of 3 instead of 4. To make up for that, I’m going to shift some of those costs to my higher-priced rhinestone necklaces. This might lead to a situation where I’d sell lots of low-priced earrings with a lower profit margin, but also a few necklaces with a higher profit margin to balance it out.
Consider changing your profit multiplier for your retail pricing formula to a slightly lower number. Remember that your labor charge means you’re already paying yourself for your skilled work and time, and then your profit multiplier is (obviously) for profit. How much profit do you want and what are you doing with it? Are you saving for a vacation, or are you reinvesting your profits back into your business for an expansion? If you feel comfortable having a little less profit cushion, you can always multiply your wholesale price by 1.5 or 1.75 (or whatever) rather than 2.
You might also consider tweaking the retail pricing formula to look like this, to more truly mirror the wholesale formula you used:
This way you are just using the x4 multiplier on your supplies and labor, and not your whole overhead rate as well. Make sense? Clear as mud right. Just another suggestion that you can try out to see if it works better for you.
Are you paying yourself enough for your skilled labor and time?
Make sure you’re including all your estimated expenses (did you think of everything?) and be conservative when estimating your annual product sales when calculating your overhead rate.
Don’t be afraid to use a larger profit multiplier. You are the dictator of your prices. If you believe the market will support a higher price, do it. Don’t price your items lower just because that’s what the equation says. Who DOESN’T want more profit?!
Monitoring Your Pricing Strategy
Don’t hesitate to re-examine and re-tweak your pricing formula from time to time. Periodically re-examine the overhead rate you’re using. As you become a more experienced entrepreneur, you’ll have a better idea of the non-product expenses your business incurs every year. Ideally, you’ll be able to calculate a more refined and accurate rate over time. Your business expenses are going to change over time as well. The overhead rate you calculated 2 years ago probably isn’t still a reliable estimate now.
Always be on the look out for ways to save on supplies. If your supply cost for the same product goes down, you then have the enviable decision of keeping your price the same and bagging more profit, or reducing your price and maybe getting some more sales. Your labor rate might also need tweaking. You might want to pay yourself more per hour as you become more experienced, or you might be able to spend less time making one item now that you’re more experienced.
But What about the Competition?
Your product, brand, and shop are unique to you. A lot of your competition is probably under-pricing themselves; this is a chronic problem in the Etsy marketplace and puts pressure on everyone else. Your under-priced competition might be making lots of sales but still losing money at the end of the day. They might not still be in business next year. Don’t worry so much about competing with everybody else. Even if a higher price means fewer sales, you’d rather fewer sales and more bottom line profit than lots of sales but a negative bank account balance.
You want your business to be sustainable, and that means covering your expenses AND still having some money to put in your bank account at the end of the day. Why are you in business? To be able to quit your day job? To finance your supply purchases? To have extra vacation money? It’s likely that you won’t achieve your goals without making some money from this venture.
Think about pricing for your target market, not for the competition. Pricing is also about value, and value can be defined by the qualitative (your brand, customer service, etc.), not the quantitative. Your ideal customer is someone who values your product at the price you’ve calculated. You don’t need to be the Wal Mart of handmade goods. Don’t feel like you need to have the lowest price in town.
Here’s an honest story from my own experience. I sell rosette studs, which sometimes seems like the most common thing sold on Etsy. I sell mine for about $11-$13, which is what I’ve calculated as a profitable sales price for me. I believe that they are worth this price based on not only the inputs of my pricing formula, but also the quality of the materials, the customer service I provide, and the work put into each piece. But I see other Etsy shops selling them for as low as $3. Three dollars! Does it keep me up at night knowing my potential customer might not buy from me when they could get earrings elsewhere for $3? No. You might think I’m crazy, but my rosette studs are still, by far, my best-selling products. I might not sell as many as my competitor selling them at $3 a pop, but I can sell a lot fewer pairs and make the same amount of profit at the end of the day as a competing shop selling more for less. Make sense?
Pricing Too Low – Working Harder for the Same Amount of Money
Am I beating a dead horse yet? I apologize. Let’s use a lovely hand-lettered calligraphy print as a very, very simplified example.
a pretty handlettered calligraphy print by The Lettering Studio on etsy (please note this lovely item has nothing to do with my totally hypothetical example below)
My high-quality archival paper costs me 75 cents per sheet. It takes me 30 minutes to letter one print and I pay myself $12 an hour. My pretty black ink costs me $10 a jar, and the calligraphy pen costs me $20. I have $600 of other business expenses. I’m estimating that I will sell 250 prints this year, giving me an overhead rate of $2.40 ($630/250).
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
[($.75 + $6) x 2] + $2.40 = $15.19 for my wholesale price, x 2 = $31.80 for my retail price, or $32 flat.
Maybe I feel a bit hesitant to charge $32 for a hand-lettered print. I do an Etsy search and it seems like everybody else is selling their prints for about $20. So, I’m going to try to compete with that and just sell it for my wholesale price of $15, that way I’m even lower than my competition.
What if my goal is to make $1000 in profit this year? Then, this is what I’m going to be dealing with.
Scenario 1– I sell my prints for $15 a pop. After doing a nice little equation ($15x -.75x – $630 = $1000) and solving for x, I’d have to sell about 115 prints this year to make a profit of $1000 (meaning money I get after covering 75 cents of supply expense per item sold, and $630 of overhead expenses).
Scenario 2 – I sell my prints for $32 a pop. To cover same said expenses, I’d have to sell only 53 (that’s less than HALF as many in Scenario 1) prints to make the same $1000 of profit.
[Yes, there are a lot of assumptions and simplifications here (for example, you probably bought your paper in bulk and not by the piece for each sale, so you’d have to cover that bulk purchase regardless of how many items you sold, plus I didn’t include labor in any of this), but the gist of it is still important.]
To sum up that discovery – you can work twice as many hours and make 115 prints that sell for $15 each and make $1000 net income, or you can work for half as many hours and make 53 prints that sell for $32 each, still make $1000 in net income, and have loads more free time to make other products, spend on other business tasks, go the beach, drink tea, whatever. You might be afraid to set your price higher because that might decrease your sales…but you can sell fewer items and still make the same profit as if you had a lower price. You can even sell fewer items and make MORE profit than if you sold more items at a lower price. With the higher price, each piece you sell generates more profit. I’d rather work to make half as many prints, than do twice the work for the same amount of profit, wouldn’t you?
Another Downfall of Under-Pricing…Wholesale
Yet another problem you might face if you’re under-pricing your goods – selling wholesale and remaining profitable will be nearly impossible. At some point in your creative journey, you will hopefully get the opportunity to sell your goods to other retail businesses at wholesale. These other business owners will expect a lower (wholesale) price in exchange for buying in bulk upfront. You might face a similar price ratio if you sell consignment. Wholesale prices are usually around (give or take) 50% of your retail price. If you’re selling at retail on Etsy for less than what you should be, then making a profit at even lower wholesale prices will be a challenge. This is yet another reason why it’s important to start out with well thought out prices to begin with.
Bottom Line – Be Sensible & Find a Formula That Works for YOU.
Obviously, if this formula is giving you a price that you feel uncomfortable about it, then you should adjust it. If you are hesitant to price your item as high as the formula is calculating, make sure you aren’t selling yourself short. Price your product as close to that number as you’re willing to go, and see how customers respond to that price. You might be surprised.
A lot of us under-price and under-value our goods. Don’t let the fear of not making sales due to a higher price and/or trying to compete with other shops keep your prices too low. Remember the reasons why you started your creative business. Chances are, being financially successful was probably on that list. You will feel so much more energized, encouraged, and productive if, at the end of the day, you see that your business is thriving and making money.
Keeping all this in mind, I challenge you today to take a hard look at your pricing strategy. Your prices will determine whether or not your business is able to make a profit, no matter how many sales you’re making. So it’s really important for you to hunker down, examine your expenses, and make sure you’re pricing yourself for profit. Again, please let us know what questions about pricing we can answer for you in our reader Q&A post.
Today we’ll begin to delve into the topic of pricing your products. Pricing your handcrafted products can be one of the most challenging tasks for a creative entrepreneur. You can have an awesome product, a cohesive brand, a great webpage…you can even have amazing sales. But if your product isn’t priced right, you won’t make a profit and it will be hard to keep running your creative biz.
Please note, before you read this post, I suggest you read our articles on tracking expenses and overhead first to better understand the concepts we discuss below.
We could write a whole novel on this topic, so we’ll divide it into a series of posts. Please feel free to comment with any questions! This is a tricky, but important, concept that we owe it to ourselves to get educated about and get it right!
The Unprofitable Pricing Formula
Browsing the interwebs, you’ll frequently see a pricing formula that looks a lot like this:
Supplies x 2 = Wholesale Price Wholesale Price x 2 = Retail Price (or Supplies x 4)
I’m hesitant to even type that one on here because I don’t want you to just see it, use it, and then leave. A pricing formula like this might be simple, but it most likely will not get you a profit. Why? Because it leaves out a whole bunch of other fees and expenses that you’re probably incurring. Sure, the “x2” or “x4” multiplier is probably helping you cover part of that, but it’s better to come up with a more exact measure of all your expenses and include them.
Pricing for Profit – A Better Formula
Here’s what I suggest:
My pricing formula also includes labor and what I’m calling an overhead rate. Yes, my formula is a little more complicated. Let me explain my reasoning by defining each piece of the formula. Then, I’ll give an example of pricing two hypothetical products, a wire-wrapped ring and a pair of stud earrings.
Supplies: As I explained in this post, your supplies expense is the cost of whatever materials went directly into your product. You should always have a record of what you pay for your materials (don’t forget what you paid for shipping too). You should be recording this at the per unit level, unless it is cost-prohibitive (basically, too time-consuming) to do so.
For example, if you bought 100 beads, you should take the price and divide it by 100 to get the price per bead. If you bought a bunch of fabric, you’d calculate the price per foot or yard. This will help you determine how much a product you made with 1 bead or 1 yard of fabric cost you.
Being able to come up with an exact supply cost for a product implies that you are tracking this data somewhere in your bookkeeping system, whether it be some accounting software, a giant shoe box of receipts, an email folder, or a nicely organized spreadsheet. So…I hope you’re doing that!
Labor: Just like with a “real” job, you must pay yourself an hourly rate. Decide what you want your hourly rate to be (please, at least pay yourself more than minimum wage!), and determine how long it took you to make the product. Labor cost should equal Time x Wage, so if you’re paying yourself $10 an hour and it took you half an hour to make it, pay yourself $5 for that product. Keep in mind that you spend lots of time working on your business that isn’t necessarily spent making products, and you don’t get paid for that. When in doubt, I suggest you round up your time to more make sure you’re paying yourself what you’re worth.
Overhead Rate: We’ve previously discussed what overhead is, so check out this article to get the full rundown. Basically, overhead is all the other expenses you have that 1) go into your product, but you can’t get the exact amount per product (the cost of the thread you used in your apron, the ink you used to write the calligraphy, etc.), plus 2) all of the other business expenses you pay that don’t have directly go into a product (advertising costs, a web domain, your crafting tools, etc.).
The best way to include these expenses in your pricing formula is to come up with a rate. You are basically putting a little chunk of these expenses into the price of everything you sell. Please refer to our other article on how to calculate your overhead rate. I suggest calculating your rate based on your estimated products sold in a year.
To refine your formula further, you can even have multiple categories of overhead with their own rates. In my own practice, I don’t have the time or energy to count how many jump rings I have, or how much adhesive went into a specific item, so I just have separate overhead rates for those categories that I use for the applicable products. Then I have a “general business” overhead rate that I use to price all my products.
Don’t forget that your fees should be included in your overhead rate calculation. These are the fees that you pay to Etsy, Paypal, Square, etc. to list and sell your products. Examples include Etsy’s 20 cent listing fee, their percentage of your sale, Paypal’s percentage of your sale, etc. To complicate things further, your total fee might vary based on whether you sell it via Paypal or Etsy’s Direct Checkout. Currently, Paypal fees are 2.9% plus 30 cents. Etsy fees are 3.5% of the sales price (this is their cut no matter which method it sells via), and their Direct Checkout takes a 3% cut and a 25 cents transaction fee. Whew, confusing!
Wait a Minute, What’s That “Multiplier” for?
The “x2” and “x4” is what I shall call your profit multiplier. It’s basically what’s ensuring you a profit at the end of the day. You’re taking your costs, multiplying them by the profit multiplier, and getting your sales price. Your sales price means you are getting paid back enough to first cover all your costs, then actually make some money on top of that.
Supplies – That’s the cost of the wire and the druzy stone. The druzy stone cost me $3. I buy the wire in 30 feet spools. One spool costs me $8. So, I can either measure exactly how much wire I used for this ring, or I can make an estimated cost based on an average for each ring. Let’s say I use an average of 2.5 feet for each ring, so that gets me about 67 cents of wire in 1 ring ($8 per spool / 30 feet = $.267 per foot x 2.5 feet = $.67). Am I confusing you yet? So, my supplies expense for this one ring is $3.67.
Labor – This ring takes me 10 minutes to make, and I want to earn $12 an hour. So 1/6th of an hour x $12 = $2 in labor for this ring
Overhead Rate – In my hypothetical situation, let’s say these are my estimated overhead expenses for the year:
$800 – Etsy fees
$250 – Paypal fees
$250 – Advertising & printing expenses
$300 – Craft show fees
$50 – Photo props
$100 – Editing software
$75 – Tools
$275 – Indirect product costs
$15 – Website costs
Wow! That’s a lot of overhead! These costs add up, that’s why it’s important to include them in your pricing strategy somehow.
I’m going to calculate my overhead rate based on an estimated annual number of products sold. Last year, let’s say I sold 400 items. This year, I’m estimating that I will sell 500 pieces. $2,115 / 500 = $4.23 per item for overhead. So, my formula would look like this:
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
[($3.67 + $2) x 2] + $4.23 = $15.57 for my wholesale price, x 2 = $31.14 for my retail price. If this were me I’d probably do some rounding and sell it for $31 flat.
Remember, there’s several ways you can calculate your overhead rate and incorporate it in your pricing strategy.
Supplies – Let’s say the rosettes cost me 20 cents a pair, 20 cents for the studs, and 5 cents for the earnuts. That means my supply expense is 45 cents.
Labor – I make a bunch of earrings at once, so each pair doesn’t take me too long. Let’s say I pay myself 50 cents for each pair.
Overhead rate – $4.23 as I calculated it in the above example, and you can use that same overhead rate across the board for all your products.
So, my formula would look like this:
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
[($.45 + $.50) x 2] + $4.23 = $6.13 for my wholesale price, x 2 = $12.26 for my retail price. Again, that’d be $12 flat for me.
The Big Picture
Does it seem crazy that a ring that cost you less than $4 to make should be priced at $31? Or a pair of earrings that cost you less than $1 could sell for 12 times that amount? That is why soooo many artisans underprice their goods, or make awesome sales but never turn a profit. It all boils down to two things when coming up with a pricing formula that works:
Covering all of your costs – find a reasonable, doable way to include all your business costs in your pricing formula, not just the obvious ones, whether this is by using an overhead rate, a percentage markup, or something else that works for you.
Making a profit – here’s the kicker. If all your business expenses are represented somewhere in your pricing formula, that little “x2” or “x4” profit multiplier is what will allow you to be profitable (duh!). Too many entrepreneurs forget to include all their true costs in their formula, and profit multiplier that should be giving them a profit is really just covering all those forgotten expenses instead.
Trust me, it’s a lot easier to price your product for a profit now, even if it feels too high, and lower your price later for whatever reason, than to be in business for a while with prices that are too low, realize you aren’t going to have a sustainable business, and have to raise your prices later to stay open.
kraft price tags, from wishdesignstudio on etsy
Next time we’ll continue the conversation about pricing your creative goods and discuss tweaking the formula to fit your business, checking out (or not) your competitors’ prices, and why it’s so important to not under-price yourself. We might even be feeling really generous and include a little downloadable freebie spreadsheet with the pricing formulas already embedded for you!
In the meantime, if there’s any specific things you’d like us to talk about or any pricing questions you may have, feel free to hit us up in the comments.
UPDATE: Check out part 2 of our series, which discusses the pitfalls of under-pricing, tweaking the formula to fit your needs, and competing with other shops, here.
Hi guys. It’s me here today! After I converted this blog over to WordPress from Blogger back in 2012, I gave it a much more refined and defined feel and revamped it as a place where other creative entrepreneurs could access business resources, download free printables, and learn about relevant topics to improve their business skills.
I’ve really enjoyed growing this site, writing about all these fun business topics, and learning as I go along. The journey has been great thus far! But I’ve gone through a lot of changes in my own journey as a creative entrepreneur and in my personal life as well. I’ve gone from working as a full-time CPA to a work/stay-at-home mom of an 8-month-old baby girl.
I’ve never really enjoyed writing too much about my personal life or myself, it just doesn’t come very naturally to me, but it’s been challenging and a bit confusing for me to have this website, a pretty public forum, and NOT share any pieces of my life other than only the tiny corner of the me that is Lazy Owl Boutique. Thus, I’ve decided to add a new periodic series of posts, which for now I’m calling Work/Life Balance, that will serve as a more personal outlet for me.
If you’re like me, you probably follow a handful of really awesome lifestyle blogs, and if you have kids, maybe even some mom blogs too. I know you don’t come to our site here to learn about makeup, cupcake baking, or parenting,… you come for the business resources and tips (I hope)! My goal is not to turn this into a lifestyle blog or spend days chronicling my baby girl’s motor skill development. However, I do think (and hope) that it’ll be refreshing and interesting to add a personal touch to my site, and that you can relate to the challenges of running an at-home office and business alongside a household and a family. Even if you aren’t a parent or working from home, I think we can all relate to the constant hustle and juggling of trying to make it as a creative entrepreneur.
My hope is that this new article series will reconcile my innate need to include a more personal side to this site (which before everything else, is really simply a blog!) with the helpful educational tidbits you’ve already come to expect from Lazy Owl. A lot of my favorite blogs in the handmade business realm are written by ladies that do a wonderful job of giving their readers a peek into their home/personal lives as well. I think this is what makes them relatable, interesting, and successful. I find that I trust their business advice and experience more since I feel like I know them a bit better as a well-rounded person, and not just an entrepreneur or a faceless blogger.
I hope you agree, and I’m really looking forward to this new venture! If you find the new article series boring or pointless, I also don’t mind if you skip them and just read all the free business goodies 🙂
Exciting news! Lazy Owl will soon be releasing our very first Crafting a Business 101 e-book and e-course, Creating a Business Plan. The e-book will be a thorough expansion of our popular Business Plan blog series, with lots more printable worksheets and valuable content added. It’ll also include some inspirational info and links to other resources and goodies. Since this will be the first release of our first e-course ever, for a limited time, we’ll be offering it for a very special rate to our email subscribers. Enter your email address below to be added to our subscription list, and be the very first to know as soon as the Creating a Business Plan e-book is released (and get it for a very special low price)!
We’re offering so much more than just a simple, boring, static business plan! Completing our e-course will help you…
Hone in on why you became a creative entrepreneur in the first place, and inspire you to keep on trucking through any bumps in the road
Research and define your ideal customer and your target audience
Determine the best outlets to both sell and promote your creative business
Spend your marketing time more effectively
Craft the best message and language to sell and market your products across all platforms
Stand out from your competition
Build a solid foundation for your creative business
Create a simple, usable business plan that you can use and get inspiration from both now and as your business grows
Our Crafting a Business Plan e-course and workbook will include:
An in-depth guide on how to create a usable and effective business plan for your creative business, whether you’re new to being an entrepreneur or just want to re-tool your current plan (or lack thereof!)
Printable worksheets and prompts for each step of your new business plan
Over 50+ pages of helpful content, printable worksheets, inspirational quotes, and other resources
As they say, those that don’t plan, plan to fail. A solid business plan is essential to succeeding in today’s competitive handmade industry. Enter your email address below to receive our newsletter and learn more about our upcoming e-course!
We’re now moving on to test #3, reviewing the sources that lead traffic to your Etsy shop.
#3. Review Your Traffic Sources
The Thought Process
How are viewers and potential customers finding you? Are they searching for a keyword or phrase on Etsy or Google that eventually brings them to you? Are they clicking on a pin on Pinterest, or were they reading a blog article about your product? There are so many ways customers can find you; it’s essential to monitor how viewers are and are not finding your products. This is especially true if you are participating in any sort of marketing campaign, like using a Facebook business page, participating in a giveaway, or pinning your items. You want to know if you are using your time effectively or wasting energy.
The Testing Procedure
Let’s take some time to check the traffic sources listed on our Etsy shop stats page to see how viewers are finding you. Once again, filter to a monthly or weekly view and check out the “traffic sources” box just below the graph. This box lists all the places that your views are coming from.
“Etsy.com” means traffic that came from “within” Etsy, via search or other internal Etsy links. Note that these views are further broken down in the box to the right, “Traffic Sources on Etsy”.
Direct traffic generally means someone who typed in your Etsy shop URL, clicked on a bookmark, or clicked on a link in an email or on their phone.
This box will include third party search engines (like Google or Yahoo), Pinterest, Facebook, blog URLS, and other social media sites as sources as well if they are applicable. You also might see traffic from Google Product Listing Ads that Etsy has placed on your shop’s behalf.
Questions to Ask Yourself Now
While looking at your list of traffic sources, think about the following questions:
Did I perform any marketing or promoting efforts this month to generate traffic to my shop? Do I see an increase in views from a previous month due to this?
How much traffic do I see resulting from my social media sites (like from Facebook, Pinterest, your tweets, etc.)?
What social media outlet seems to be working the best for me this month and bringing in the most traffic?
Do I have any traffic coming from an unexpected source, like a blog or site I didn’t know about? You’ll want to be sure to check these sources out, if anything, to say thank you!
How much direct traffic do I have? This is potentially from people with your business card or who have heard about you via word of mouth.
Did I buy any online advertising space this month? If so, how much traffic am I seeing from this?
What social media sites or other sources seem to be missing from my list this month?
This analysis helps you determine whether your marketing and promotion efforts are effective. It can also help you decide where to allocate your precious time. For example, is Pinterest bringing in twice as much traffic as Facebook, Twitter, or Instagram? then spend more time pinning.
This test is also helpful if you compare your results and traffic sources to past time periods. If you’ve ramped up your Facebook marketing efforts or started a new blog, you can see whether traffic from those sites are increasing over time.
This process can also be particularly educational if done following a specific marketing effort on your part. For instance…
Did you just do a craft show and hand out lots of business cards? Monitor to see if handing out all those cards helped increase your direct traffic.
Are you selling on a group deals site or participating in a giveaway on a blog? Monitor to see if you’re getting traffic from that source to make your participation worthwhile.
Did you just write a blog article about your product or brand, or start a new blog recently? Keep an eye on your traffic to see if your new work is affecting traffic.
This analysis will tell you what’s working, and you can obviously capitalize on that. But don’t forget to look for what sources are missing from your list. Are you tweeting all the time and not seeing any incoming traffic from Twitter? Then you may need to reallocate your time or adjust your Twitter marketing plan to be more effective. Did you pay for ad space or participate in a giveaway and see hardly any incoming traffic from that? Now you’re armed with more info before participating in something similar next time.
How are your traffic numbers for Etsy.com and Google/Yahoo/Bing searches? Monitor these stats over time to see if you’re doing well with SEO/keyword tagging or if it’s time to adjust and boost your page rankings.
The general idea behind this test is two-fold: 1) You are learning how to use your time wisely. Spend your marketing time on the venues that are driving the most of your traffic. 2) You want people to find your shop and products from a healthy mix of searches and links around the interwebs. You need lots of both types of traffic to be truly successful. We recommend a site like IFTTT.com to set up automated processes on your social media outlets to help increase traffic from these sources.
Check back soon for our fourth test with your Etsy shop stats. We hope you’re enjoying this series! What questions do you have about reading and analyzing your Etsy shop stats?
Let’s move on now to a few quick and simple tests or processes you can perform every so often while checking out your shop stats. I try to give you some procedures to perform and things to think about that might not be as blatantly obvious as just glancing at your stats chart every few weeks.
#1. Review Your Most Popular Keywords
The Thought Process
Most of your listings are probably found via search, whether on Etsy or another search engine like Google. Using smart keywords, tags, titles, and descriptions and making your shop SEO-friendly will go a long way in boosting your search page rank and thus your views. A thorough review of the keywords section of your stats will help you spot weaknesses and opportunites in your listings’ tags.
The Testing Procedure
To make things more manageable and effective, I suggest looking at your stats in chunks of at least 1 month’s time (like “last month”’s view for example) for this analysis. Take a look at your top 10 or so keywords in the “Keywords” box in your shop stats. It might even be helpful to start a spreadsheet or Word file where you make note of which keywords seem to be drawing in the most traffic over time.
Questions to Ask Yourself
What are my most effective keywords? Which keywords are showing up time after time?
Can I apply these popular keywords to more of my listings?
Do I have any keywords or phrases showing up here that I’m not already using as listing tags?
Do I have any keywords or phrases showing up that I’m not using in my titles or the beginning paragraph of my descriptions?
Are there any tags I’m using a lot in my listings that are rarely showing up here?
First, make sure that all applicable listings have your most popular keywords and phrases as a tag, part of the title, and somewhere in the first few sentences of your description. This ensures max SEO-ability. When I talk about tags, I mean those 13 special words you enter in the tag section when you create a listing. Tags influence where and how your items show up in an Etsy search. Good keyword usage in your title and description helps you for offsite searches, like on Google.
Second, see what keywords might be listed in your top 10 that you aren’t already using as a tag. Start using these more often in your tags, titles, and descriptions.
Finally, look at this as a sort of round-about way to figure out what tags and keywords are not working. Sometimes, using keywords that are too “generic” can be a waste of important tag space. You will likely show up on results page 100 for the keyword “purse”, but you might show up on page 2 of “leather crossbody purse”. Being more specific will also bring you viewers that are more likely to buy your product, since it’s exactly what they are looking for.
Don’t be afraid to experiment with your tags and keyword usage, especially if you are just starting out. If you have two similar listings and you’re debating how to tag them, you can use them as a testing ground. For example, if I have two pairs of crystal earrings, I might use “estate sale” type tags on one, and bridal & wedding-related tags on the other, to see which type of keywords are being searched more often.
Paying attention to your keyword stats will help you improve your listings and boost your views. Tune in for our next Marketing Magic segment for test #2 on how to effectively analyze your Etsy shop stats.
Here’s what I’m digging on the interwebs this week!
I’m loving all the pretty things over at I Heart My Dream Job. This new site by Andi from madebyandi.com is all about inspiring you to go “off road” and attain the life you dream about. Right now, she’s offering some great free resources via video and a fun inspirational printable to frame in your office. Can’t wait to hang mine!
I just enrolled for another free artistic business webinar starting on March 30 over at Create Make Money Be Happy. The site promises a lot of goodness will come out of attending this free telesummit, so it’s worth checking out!
This recommendation is not so much business-related as just good living-related! I’m currently reading The Power of Now and really enjoying it. It almost feels a bit like meditating as I read it. This book is all about how your mind and constant over-thinking can be your enemy, how to control negative thoughts, and how to really embrace living daily in the “now”.
This week I listened to this free recording from Launch Grow Joy all about Instagram and how to use it to build your business. Learning more about how to use and effectively utilize Instagram is something I’m struggling with right now, and it really helped to hear the basics of how to use the app and tons of tips on how to leverage it for business purposes.