If you've been struggling with how to price a product – whether your product is handmade or manufactured in a factory – today's episode is for you! This episode is especially geared towards Etsy sellers who often try to compete on price and under-price their products!
I'll share with you the exact formula I've been using for the past 8 years to price a product that I launched (I used this formula for both my t-shirt business and my soap business).
How to price a product
This is the simplest formula you can use – (Labor + Materials) x 2 = Wholesale price
The x2 takes into account your profit and overhead as well, so you’re covered.
And to set your retail price, use this formula – Wholesale Price x 2 = Retail Price (or MSRP)
So if each set of earrings you make costs you $2, and you pay yourself $15 for the half-hour it takes to make them, then your wholesale price is $34 and your retail price is $68.
If you decide to work with sales reps, distributors, brokers or large retailers, you might want to think about increasing your margins even more, so instead of multiplying your wholesale price by 2, you can multiply it by 2.3 – 2.5 to get your suggested retail price.
I hope the tactics above will help you figure out how to price your products and bring your prices to a level that treats you fairly and rewards your creativity and efforts. With this pricing formula, you'll be able to not only invest back into inventory but also pay yourself for all your hard work.
Thanx for the great and very informative podcast 🙂 I loved this episode and found it very beneficial. Pricing my products was always a difficult step and never found a clear method to follow until I listened to this episode so thanks 🙂
I do have a question, you mentioned that distributors and sales reps might take up to 20%, what about concept stores? I wanted to get my products into a newly opened concept store and they asked for 40%, is this normal?
Yusra, 40% is normal. Usually stores take 50%, so this is great!
Thank you so much for the advice on pricing… my concern is that I crochet and barely anything I sell takes ‘half an hour’ – my products usually take 2-7 hours to make, but pricing them at $15/hour is prohibitive, particularly as other shops sell similar products for maybe double the price of the yarn itself… Do you have any advice?
I know this is something that a lot of makers struggle with. I don’t think that you should ever compete on price and if you brand yourself properly, then people will buy from YOU because of you and your story, despite your pricing.
May I know what about shipping costs – how do I include it in if I want to provide free shipping internationally? Thanks in advance!
I have products made by a contracted packager. They have averaged one product at the same price for all of them. The other product is all over the map. Prices vary over $1.00 per unit. I have that product priced at the same point for all different scents. Is that wise? One product is set at a level point for mfg costs and the other is variable. The formulation is exactly the same, fragrances are different, but that is true for the other product as well.
I think it depends on the final price. If your product is $50 on average, for example, an extra dollar or two won’t matter. But if your product sells for $5, for example, then it would be wise to price it closer to your costs.