Another Pricing Formula that I learned in school

[#1]

Hey Everyone,

I just wanted to share the pricing formula that I learned in college for Fashion Design. It's the one that's used in the Fashion Industry, and it's easy to alter to suit Etsy.

First of all, here's Etsy's formula, that I love and wished more people would follow:

Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail

and find the article here:
http://www.etsy.com/blog/en/2012/a-simple-formula-for-pricing-your-work/

Here's the one that's used in the Fashion Industry:

(Materials + Labor + Expenses) x 120% = Wholesale x 120% = Retail

NOW, here's an altered version, so as not to overcharge people the extra 20% twice over:

(Materials + Labor + Expenses) x 2 (or 100%) = Wholesale x 2 = Retail

So there it is--similar to Etsy's--but works especially well for Fashion and Accessories. This wouldn't work well for Fine Art, where it makes more sense to come up with a profit for yourself.

I decided to share this after seeing some curiosity about what to add in as profit. And, I'd love to be able to say that I price all of my products accurately and follow Etsy's formula and my formula--but, in the cloth diapering and nursing pad categories most items are so underpriced that I feel that I have to alter my prices. We'll see--I've just opened my shop and I still have a lot of stocking to do. Once I start seeing sales and getting feedback maybe I'll have another look at my prices.

I hope this helps some people out!

[Former_Member]

Chrissy, your clothes are really cute :)

[Former_Member]

I think pricing is the hardest thing in the handmade industry; the retail formulas do not really take into account the fact that these items are handmade, created by people who are sitting down and doing nothing but creating the item(s). For a manufacturing compnay, this is a completely straight forward process, even in the manufacturing hand-knits field; speed knitters are paid per piece (generally), which encouranges faster kniot times, and sets the price per unit. On the otherhand, a small business only has 2 hands and they must use both (generally) to create that piece. My biggest suggestion after spending years burning myself out creating, sewing and designing fabric dolls is this: figure out the fastest way to mass-produce the items. Even though all dolls that we made were original, most of them followed the same body structure. Thus, I would keep a huge box next to my sewing machine & would make a few dozen arms, legs, bodies 7 toss them in the box. Then I would sit down, turn them rightside out & stuff. Latter, I would start the clothes for each doll, which because most followed the same clothing guidlines, I would cut a bunch of skirts, pants, tips from layered fabrics, sew them, turn them, then fit onto dolls. once a dozen or so were dressed, I would break out the glue gun & accessorize :-) This made each doll faster & enabled me to restoch a booth in 1-4 days fo the next sale

[Former_Member]

I don't think I follow this, as I would NEVER sell my items at 1/2 of their price wholesale- but I regularly increase my prices. I've increased them a lot since I started selling plush toys, and increased a bit this week even. I still sold more of the same items I'd sold for less last week. I'm sure I'm still underpriced a bit- but it's really my only way of controlling how many sales I get. I'm already nervous of the holiday season coming up and keeping up with demand.

[Former_Member]

Great info Nicholette. I think that creating in batches is a great and efficient way to work.

And Adie, that's a good idea--just regularly increasing prices. That makes a lot of sense.

[Former_Member]

You know, these formulas are great and all, but if I really followed them, NOBODY would buy my stuff, because it would be way too expensive.

[Former_Member]

I love your hats Jennifer! And same here. I can't follow the formulas in my field, but they're inspiring.

[Former_Member]

I find all pricing formulas to not work the best for my products. I just don't see anyone paying $20+ for my headbands, but maybe I'm under-estimating myself too. I don't know.

[Former_Member]

I am using the food industry [restaurant/retail bakery, etc] average for profit in my pricing. It was scary to hit Publish on those listings I needed to increase, but it seems to be working for me.

I only wish SHIPPING weren't so expensive for perishable items. I totally understand why I sell so few pound cakes - shipping for a $16 cake costs $12!!!

[Former_Member]

All those formulas tell me that I'm underpricing my items.... Like many of you I'm affraid nobody would buy them if I increased my prices.

[Former_Member]

Gena, your baked goods look so delicious! I think most people would have no problem paying what they're worth--shipping included. :)

And Kristina, you're bags look so well-made that you could probably get a higher profit. Beautiful work!

[Former_Member]

THANK YOU SOOOOOOOOOOOO MUCH!!! I new my pricing was off but this will certainly help put me on track. Now, the other question is how do you create a bit of averaging when for example one item takes you minimal time to make and another takes you several hours? You know what I mean? Sometimes something that takes hours to make still more or less looks the same as something that takes only a few minutes but the buyer who see a HUGE price jump might wonder why? I hope this makes sense, anyone with advice feel free to message me. Thanks! :) So glad I found this post!

[Former_Member]

I started off by using a formula around Expenses + materials + labour = final price. If I would've used the etsy formula, the prices would've sky rocketed.

But because I was still not making any sales I started discounting and discounting, and discounting and... you get the idea. Which got me to my current prices. I'm still not making any sales.

Funny, maybe I should've gone with the Etsy pricing formula, maybe then I would've actually sold smth.


@Melanie: You don't need to create an average, in my humble opinion and from what I've seen recommended on Etsy, it's better to have tiered prices. That way people get to see the quality reflected in your prices but those who can't afford the really expensive stuff will go for the other ones.

[Former_Member]

Melanie: I agree with Andrea about having tiered prices. And, if something looks like way more time was spent on it, then it seems that people don't have a problem paying the extra. And you can always start with a general formula, and then make adjustments to make the price fit better.

*People's perception is important (according to Etsy, and I agree), and it's also important to value your work so that others will too. I just came accross this Pricing Workbook that Etsy put together to go along with one of their labs "The Art of Pricing for Profit."

http://www.etsy.com/blog/en/files/2012/05/TheArtofPricingWorksheet.pdf

It looks really helpful. And takes into account the fact that it's good to begin with a formula, but then it adds in ways to adjust it, and how to take a look at your price from other perspectives.

Check it out everyone!

[Former_Member]

Thank you Melissa for your kind words!
I already printed Pricing Worksheet and I agree it's very helpful! Thanx again.

[Former_Member]

No problem Kristina. I was really excited to find it myself. :)