Tips on pricing...

[Former_Member]

Hey all,

One of the biggest issues most small entrepreneurs face is regarding pricing. Am I charging too much? Am I charging too little? Should I only include cost and profit or add labor charge as well? etc. etc.

I'm sure all of you have struggled with this issue. However, after some trial and error or research you might have figured it out.

So lets share some ideas. What works for you and what doesn't? How do you finally determine the price of a product? Do you just pluck a number from thin air or do you have a formula? Do you revise your price once in a while? How do you decide how much profit you should make? Do you take into consideration the number of man- hours you spend creating a product, when determining its price?

Do share your views and tips.

Looking forward to hearing from all of you

Smita

[Former_Member]

Whew - there are so many variables in pricing. You MUST start with cost of materials, of course, but labor costs are quite variable. For my supplies shop I spend a lot of time cruising other shops and other places on the web to see what similar items sell for then start from there. Sometimes I come out a bit higher and sometimes a bit lower. I am very skeptical of shops that charge a lot less for the same/similar items. In some cases I need to add a bit for packaging and don't forget your listing fees and commissions - those really add up when you have several items under $5. I hate it when shops pad their shipping prices but I do have some packaging pricing built in because I do ship a few very tricky things - long paper tubes, fragile doll parts etc.

My finished artwork shop is a bit different since I do need to add a lot more for time, but I do have a bit more of a feel for what the market will bear since I also sell at shows and galleries. I don't want to under-sell galleries/shows so on many of my artwork item I offer free shipping since I'm not losing 50% on commission.

Anyone else?

[Former_Member]

Hi Debra,
Thanks for your reply.
Even buyers are skeptical of shops that charge a lot less for similar items because one does tend to associate price with quality.
Having your packaging price built in, seems like a good idea. Otherwise also packaging costs should definitely be accounted for.
If one can afford to provide free shipping, one should go for it as it seems attractive to buyers.
Does anyone else have any suggestions?

[FlahertyNaturals]

A lot of my items are under $5.00 (especially my lip balms) and I try to keep them competitively price with other organically made lip balms. I try to compare apples to apples as certified organic ingredients aren't cheap by any means.

I also comparison shop for all my containers and have approached several manufactures asking for a bulk discount and am pleasantly surprised by the number of them who will extend a 10% discount for X amount on an order.

The cost of my materials + my time to clean, label and fill the containers is figured into my selling price. Generally I find that the costs x 3 times is a "fair" selling price here on Etsy for "like" products.
This close markup prevents me from selling Wholesale, but I do offer a discount on custom or large orders, and I try my best to give them at least a 10% discount of the current price, and accurate shipping costs for USPS Priority Mail.

My Etsy pricing also allows me to sell it for the same price locally so I have many customers order online and then choose a coupon code that allows them not to pay shipping charges as they'll meet me within 5 miles of my home to take delivery of their order. Win Win all around :)

Since all my items ship USPS First Class mail in a thick envelope my shipping costs on Etsy are $1.93 for the first 3 ounces (or under) and my Etsy transaction fee as I use Direct Checkout (I stopped accepting PayPal because of the additional 4% they charge) auto renew/sold/multi quantity charges are all figured into my shipping price which also covers the cost of my shipping materials, envelopes, labels, toner to print them, and my business card, letter to customer, and a Sales Receipt. All these add up and are reflected in my shipping charges. Usually I'll have 40 or 50 cents left over, and when I do, I include a free sample of one of my products, or if I'm running a 10% sale it usually eats up this extra, so in the end I break even, or have a slight loss of maybe 10 cents or so.

Sometimes I'll tissue wrap several lip balms or put them in a gift box I make from 65lb paper and that handy glue stick :) It's usually appreciated, and done for free to customers that are nice and have Convoed me about a item. A little tissue wrap and ribbon or a handmade box with tissue paper in it goes a long way and only cost me about 15 minutes of my time and materials to print it, cut it out, and glue it together. Of course all my boxes have my logo and Etsy shop contact info printed on them, so it's also a chance to get some "free" marketing of my shop out there, especially if the item is given as a gift.

All in all, my customers seem to understand and I rarely have anyone complain about high shipping costs.

I like figuring my break even cost on a sample into the shipping price and being able to send one to them. While its not truly "free" as its built into their shipping costs, it gives them a "little something extra" to try, and me a chance to get yet another one of my organic skin care products in front of them for them to try.

Hope this helps some of you or gives you some different marketing ideas..

[TheOrangeApp]

Wow, that's some really great information, Debbie. Thank you for taking the time to write this!

[Former_Member]

Thanks for your reply Debbie. Loads of useful tips there.
I was just wondering if you take into account infrastructure costs such as rent (even if you work from home), utility bills like electricity/ internet costs/ phone bills etc.
Also, how do you calculate the hourly rate you pay yourself? is it the minimum wage or have you figured out an hourly rate, keeping your expertise in mind.

[Former_Member]

Can I just say one thing about pricing? It has become much more difficult to stay competitive now that Etsy has opened up to manufacturers. Handmade is handmade and while you can tell the difference if the products are actually in your hands, it is much more difficult when looking at photos so I am not a bit surprised to see mass produced/cheaper items taking over the "handmade" niche. This is more of a problem for my other shop but I know that it is a problem for others here.

[katherinefathisilver]

Maybe someone knows where I got this formula: materials x 4 + hourly wage + 10%= price. I make mostly one of a kind pieces and the labor can be high because the time designing isn't spread out over a large number of pieces.

[TheOrangeApp]

@Debra, completely agree. Plus, I believe some shops are actually using photos of handmade but selling mass produced items. I hope the reviews/complaints about these will cause them to be removed form Etsy, but it does seem to be an increasing trend. And it's difficult for Etsy to catch them all. Some sellers have also noticed the pics of their handmade items being used on other sites like Ebay without their permission.

@Katherine, one formula I've come across is: Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail

However, seems too general and doesn't really explain how intangibles and infrastructure costs should be calculated.

[katherinefathisilver]

I'm curious- do you all know your costs down to the last fraction of a penny? I just bought giift boxes and bubble mailers in bulk, so I know exactly how much I spend on them, but the small square of tissue paper I put in the box to keep it from rattling, the packing tape I use on the address, etc. I just guesstimate.

[Former_Member]

No, you can't figure costs that closely but I have a 5-15% cushion in my pricing to allow for incidentals and also to absorb the cost things like printer labels for shipping, copy paper for printing invoices, heating/cooling of my office/studio, gas to go buy printer cartridges and the like......you get the idea. None of these things seem like a big deal in and of themselves but they sure add up fast.

[katherinefathisilver]

Thanks Debra.

[FlahertyNaturals]

@Smitha
I don't figure any overhead into my costs, but do file long form and write off as many business expenses as I legally can, and my phone bill and internet connection are included.

I figure all costs as near as I can. Like tissue paper....I get a pack of 20 sheets for a dollar at The Dollar Tree. One sheet wraps lots of different items, and I just figure .05 cents per sheet. Ribbon is usually $1.00 for 6 yards, so I figure .16 cents per foot.

I agree with Debra, you can't figure it exactly, so build in a little cushion into your pricing. My toner cartridges have a "average page" per cartridge, and generally it cost 5 cents for each page I print, and the copy paper is another .02 cents per page. Try to average it out and lean towards the more expensive side. Again, printing, cards, invoices, etc. are figured into the shipping charge per item.

My labor rate I pay myself is $8.00 an hour when I'm blending, making, and labeling a product batch. If it takes me 2 hours to make a bath of 15 lip balms and label them, I break it down and add it to the costs. So it adds a $1.00 to the material costs of the product (per tube). If my costs per tube are .91 cents I'll round them up to $1.00 and times it by 4. .

Usually I'll figure my costs of all materials to make a item (no labor) x 4 and round it up to the nearest 10th. Usually this lets me be competitive with "like organic" products. Often that last 4th also pays for my labor rate per item. I tried using costs x 3 and the profit margin really didn't make it worth my while time and material wise. So my costing is X 4.
They will either pay the going competitive price or settle for a inferior "non organic" item. I have no trouble selling my products locally for the same price I'm charging on Etsy, and my customers don't have to pay shipping, and I don't have to pay transaction and listing fees, so it all works out about the same.

It's helpful to build a monthly expense page as you go, and whenever you have a little extra....save it for a rainy day. I have a mason jar with cash in it that's stashed just for emergencies, and I try not to dip into it, especially as I'm needing a new computer and would love to have a iPhone or Android to make accepting credit cards at craft shows possible.

[spacefem]

This is a really good thread!

First off I don't know if it'll help anyone but I have an etsy fee calculator at my website... those fees really add up if you're not watching! http://spacefem.com/etsy/feecalc.php

I try to get a 30% profit margin on my supplies that I sell. That's enough that when an occasional one gets lost in the mail, I don't panic, I can send another one and still be ahead for the month. But I've also noticed that my prices aren't too bad with that guideline.

On handmade items, that's trickier, because what's your time worth? I tend to price based on my competition.

One tip I've learned along the way... set your prices high, but have a clearance section. If your clearance items are flying off the shelves, maybe you need to lower your prices, because people love your items at lower prices. If people aren't buying even your clearance stuff, well then it's nice the prices keeping them away, you can be confident keeping them where they are.

And my last tip... keep your accounts separate! Buy your craft supplies with paypal, deposit your etsy direct money into a special business account. That way at the end of the month, you know that you're ahead because all your revenue minus what you spent is right there as profit. Helps make sure the little expenses like shipping labels, thread, whatever aren't adding up without you noticing.

[MushyP]

Thank you so much Spacefem for sharing your Etsy fee calculator. This is brilliant. Thank you so much for sharing!

[Former_Member]

Yes - thanks for the calculator - giving it a try.

[ALFAdesigns]

It seems that most of the shops' owners are afraid to loose some sales because of overpricing. Some stuff on Etsy IS indeed overpriced. However, I know from the experience that under-pricing may also undermine your sales.

I am designing and making OOAK jewelry, and so for me, the pricing formulas do not work particularly well. I was playing with pricing a lot, and in many cases a piece would sell right after I have RAISED the price. I guess for the luxury items like jewelry, the low price may suggest a low quality and turn the buyer off. Of course, I also sold some items after I lowered the price, or, even better, put a listing on sale.

Oh, and an interesting observation: a majority of my most expensive items were sold to men. I guess they do not rely on their knowledge of jewelry too much, and tend go by pricing, assuming that the higher the price equals better choice ;-)

[qwelqwel]

Lots of good information in here, thank you everyone!

[AjaiMillsDesigns]

I also compared my prices to other shops like someone else mentioned. Many shops were priced in the same range as my prices but I came across MANY sites that were priced so low it made me wonder why. I am sure all of us love hearing the "cha-ching" sound but I know the work I put in each piece. I still feel like I am selling myself short but do not want to keep changing my prices either.

[LindyLeeTreasures]

I'm still in the learning curve. To avoid irrational, emotional decisions in pricing I have created a pricing matrix using an Excel spreadsheet. While I am designing/building an item I record materials consumed, design time, assembly time. Those figures plug into the spreadsheet. The spreadsheet adds material markup, sales tax allowance, packaging allowance, plus 10% incidentals. I think I have the bases covered, but my actual experience online is too limited to discern for certain.

At street fairs and shows my items sell well enough to support my costs but the effort of doing the shows seems under compensated to me. Maybe I'm spoiled, but I believe our time is certainly something of value.

My heart sinks when I see Etsy sellers ( mostly from Asian countries) able to offer goods substantially below the prices I charge. But there is no way I can sell at their price so I just move on and hope to establish my own following of clients who are appreciative of my designs and pricing. As they say you can't please all of the people all of the time.