Wednesday, June 6, 2012

*Series* The business of being Mama, Part 3: Pricing your handmade items...

(Part 1:  Is it a good idea to turn your hobby into a business?...)
(Part 2:  How to sell your wares...)
Wicked basic pricing formulas for selling handmade products:
~Cost to make product x 2 = Wholesale price
~Wholesale price x 2 = Retail price

So, what are the costs of making a product?
~Listing fees, if selling online
~Entry and/or membership fees if selling at craft shows or farmers markets
~Wages.  Please pay yourself.  It takes time to make products, take photos and write descriptions for online listings, drive to shows, and meet with prospective buyers.  If all you factor into your cost is your materials, then you're shorting yourself your entire paycheck, and only covering your operating costs.  Basically you'd just be covering the costs of buying more materials, to sell more stuff, so your business would keep rolling along, but the bacon wouldn't ever come home.  Folks, you are an equal opportunity employer for yourself.  Please compensate yourself fairly...

Now, I'm going to make a hypothetical batch of a hypothetical product (Product X), and show you an example of how it (hypothetically) all comes together...
~I used $4.37 in ingredients/materials for the batch.  The batch made 10 jars of Product X.  $4.50 / 10 jars =  $0.45 in materials per jar.
~Each jar that I package my Product X in cost $0.67 per jar.
~It's going to cost me $0.20 to list my product on Etsy (also just FYI, they charge a 3.5% transaction fee when one of your items sells.  So you should factor that into your cost as well).
~It takes me 20 minutes to whip up a quick batch of Product X, and another 40 minutes to take some photos, of it, edit them, and write up a listing to sell it online, for a total of 1 hour.  Let's say I want to earn $20.00 an hour.  Since it took me 1 hour to get 10 jars made, I'll divide my $20.00 by the 10 jars, and get $2.00 in wages per jar.

~$0.45 in materials + $0.67 per jar + $0.20 to list my product + $2.00 in wages per jar = $3.32 per jar.

So if I were going to wholesale this newly created wonder product, I'd multiply my cost-per-jar x2, and sell it to a shop for $6.64, and if I were going to sell it retail, I'd multiply that wholesale price x2, and charge $13.28 per jar of Product X.

Tomorrow we'll chat about the legal mumbo-jumbo of being a small business owner.

Thanks for stopping by,

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