How to price your products – this is a question I get ALL the time. And every time I browse Etsy and many other online stores I see it – the shockingly low price. Too many sellers think low prices mean selling more. Are you one of them?
The reality is that savvy shoppers looking for handmade goods disagree. Pricing low could mean pricing yourself out of a sale. Your price communicates your product’s value to the consumer and is a major factor in your success.
How do you choose your prices? Do you look at competitors’ prices and chose a comparable price, or do you aim lower? Do you factor in labor, materials, and profit? Do you keep your prices low because you are afraid that pricing higher will mean selling less?
Instead of asking yourself what an item is worth, you might tend to ask what will consumers pay? If that’s the case, not only are you cheating yourself with an unfair price, but also other sellers. When too many sellers in a niche under-price their products consumers grow accustomed to the low price and feel cheated when asked to pay a fair rate.
It’s time to change that.
If you’re looking for a way out of the bargain basement and into profitability, here are some things to consider when you price your products:
1. Price your products according to the market
One simple way to ensure your prices are fair to you (and other artisans) is to look at sellers in your niche. Find 3-5 who are selling items similar to yours and find the average price. This can give you an idea of where your own pricing might fall, but should, in no way, determine your final price. This is just a starting point…
2. Price your products according to your manufacturing costs
How much does it cost you to manufacture your products? Make sure to include all materials, including raw materials or ingredients, hangtags, labels, packaging, taxes and duties, shipping costs (how much it costs to have the product shipped to you from your manufacturer) and so on. These are often referred to as variable costs. There are also fixed costs, which include your rent, your utilities, storage, etc. I don’t recommend including your fixed costs in your pricing. Instead, these will be automatically added in Step 4.
3. Price your products according to your labor costs
If your price includes only material costs, you’re not paying yourself for your labor costs. Do you personally spend your time making your products? How long does it take you to make each product and how much do you want to get paid per hour? Do you want to get paid $20 per hour or $200 per hour?
This depends on your skill and experience, the uniqueness of your product and the details in the product. It might take you 5 minutes to make a pair of earrings, but it might take you 5 hours to knit a baby blanket. Your time should definitely be taken into consideration and should be built into your price.
If an hourly wage is not what you want to measure, then think about how much salary would want to pay yourself per month (or per year) and use that number instead of the hourly rate.
4. Price according to your business strategy
Do you want to sell your products on your e-commerce website only? Or do you want to also sell them to other retail stores for re-sale? Do you plan on working with distributors and wholesalers? Are you going to use a fulfillment house to ship your products or are you going to ship them yourself? These are all questions you should ask when determining your final price.
Keep in mind that distributors and wholesalers take 10-15% and fulfillment houses charge a flat fee plus a percentage for each shipment, in addition to storage and packing fees.
How to price your products – handmade, Etsy and beyond
This is the simplest formula for pricing your products:
WHOLESALE PRICE = (Labor + Materials) x 2 to 2.5
The x2 to 2.5 takes into account your profit and overhead as well, so you’re covered. If your products are in the luxury or upscale market, you’ll be closer to 2.5. If they are mass marketed, you’ll be closer to 2.
If you plan on selling your products to other retail stores, you’ll also have to take that into account. Your retailers will usually mark up your wholesale price at least 2 times.
RETAIL PRICE (MSRP) = Wholesale Price x 2 to 2.5
Let’s say you are a jewelry designer and it costs you $10 to make a necklace( this includes your time and materials). You should charge $20 to $25 wholesale (to stores) and $40 to $50 retail (on your website).
To figure how you should price your products, download the free pricing worksheet below – simply plug in your own numbers and you’ll have a range of pricing to start with. Please keep in mind that if you plan on working with sales reps or distributors, you will want to factor that into your pricing.
I hope the strategies 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. Pricing your products fairly tells consumers that you have a quality product to offer, so start spreading the news.
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In the comments below, I’d love to know about YOUR pricing strategy. What pricing formula do you use and how is it working out for you? Leave a comment and let me know.