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 tried and tested tactics that work for how to 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 your and find the average price.
2. Introduce a new line
Many sellers fear they’ll loose steady customers if they suddenly raise prices. I suggest you try an experiment. Launch a new line of items priced fairly and leave your old prices alone. You might be surprised how much faster the newer higher priced items sell.
3. Include your labor costs
If your price includes only material costs, you’re not paying yourself for your labor costs. Increase your prices to add a small profit on every item, and take that money out of the pot every month. Seeing the result of your efforts will keep you motivated.
4. Think about your wholesale price
Your business just you right now, but down the road your hobby business could become a full-time job. At any moment a boutique or e-retailer could contact you to carry your product. Would you know what to charge?
How to price your products – handmade, Etsy and beyond
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. As far as what your labor costs should be, think about how much you want to pay yourself per hour or how much you would pay someone per hour to make your products and divide that number by how many products you think you can make per hour. 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.
If you plan on selling your products to other retail stores, you’ll have to take that into account. Your retailers will usually mark up your wholesale price at least 2 times.
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 in materials, 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. 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 in to 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.
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.