If you want to sell items on Etsy, it's important to have a good product pricing strategy. You want to make sure you cover all your costs. You also want a consistent pricing formula throughout your items. People are usually willing to pay more for handmade items so don't be afraid to price a little higher than you think you should.
Use this selling price formula as a guide for pricing your handmade work. See what price you come up with for each type of item you sell.
Materials
The most important thing you want to cover in pricing is the materials you use to make your item. If your item price costs less than the materials you used to make it, you are losing money.
Save all your receipts for Etsy related shopping trips and materials. Keep these in a folder or some other way to keep them organized like through the online service Shoeboxed You will also use your receipts, especially ones for smaller and non material expenses, to calculate expenses.
When you calculate your materials price, you should consider how much material you use for each item. I like measuring items like fabric or decorative paper in square inches. You can use the method of measurement that works for you. For example, find out how many square inches are in the full size of a product you bought. Then find how many square inches of a material you use in your item and use it to calculate the approximate price of the material you used. If you buy a roll of decorative paper that has 100 square inches and costs $4, a measurement of 25 square inches of decorative paper you use in a product would cost about $1.
You only want to include the main materials you use in a product. Don't include smaller materials like thread or glue in your materials price. These go in to the expenses price.
Expenses
What are expenses? Expenses are those hidden materials and costs. Hidden materials are things such as glue, measuring tape, scissors, thread and needle and other materials you use multiple times to make your products.
Your packaging supplies and any materials you use to ship things are also expenses. Think of mailing envelopes, packages, bubble wrap, tissue paper and computer paper and ink to print out shipping labels.
Materials you use multiple times and other things you pay for in your business can count as expenses. Your laptop and studio space are considered expenses. For bigger items, you should calculate the monthly price of them by thinking of how many months the expense will last and dividing it in to the total cost of the item. For example, if a $1200 laptop lasts for 12 months, the monthly cost is $100.
Think about online expenses. Did you purchase web hosting or a domain? Do you pay for any Etsy related applications or services or computer software? This counts as an expense.
As you can see, the cost of expenses can add up. Every time you think of an expense, jot it down.
So how do you figure out your "expenses" cost in the pricing formula? Add up all the expenses you thought of. How many items do you think you will sell in a month? Divide that number in to the total expenses costs. If you don't like the price you came up with, try altering what expenses you think you should include in your cost and play with the number of items you think you will sell in a month.
Labor
How do you find a fair labor to give yourself? Start by looking at the minimum wage in your state. If you don't want your price to be too expensive, start with the minimum wage.
However, you should take in to consideration what is actually a fair price to pay yourself. Research what artists are paid per hour. Think about the skills you do. Do they require a lot of work? Is your talent unique? Do you do a skill not a lot of other people know how to do? Take all these things in to consideration.
To find your labor cost per item, time yourself or estimate how long it takes to make each item. For example, it may take you to 1 1/2 hours to make an item. Don't count drying or waiting times in to your timing.
Now just multiple the hourly wage you gave yourself by the number of hours you worked. If you pay yourself $10/hour and it takes you 1 1/2 hours to make an item, your labor cost would be $15.
Profit
Last, but not least is profit. Profit is how much you want to make per item. You can make this whatever you feel the item is worth. You want your hard work to pay off. You may tweak the profit depending on what your final price is.
Wholesale Price
Add up everything in the formula sofar. This is your wholesale price. Where do you use your wholesale price? If you sell items in bulk or wholesale (such as to shops that want to sell your item), you should use this price. List your wholesale price on your line sheet if you have one. If you don't sell items in bulk or wholesale, your can just keep the price in mind if you have to use it later.
Retail Price
Retail is twice your wholesale price. Retail is the price most customers will see. Use your retail price for your Etsy items. If you have a discount or sale on an item, just calculate the percentage off for the retail price. You can list your retail price as MSRP or manufacturer's suggested retail price, or list price, on your line sheet.
I like using this formula to calculate my prices for each type of item I sell. Try plugging in the formula again for a different type of product. You may find using an exact formula works for your item or you may prefer to use the formula as a guide and come up with your own price. Other things you should consider are market trends and competition for similar items. You don't want a price that is completely different from other similar products being sold. Do what works for you and your business.
Want more tips on how to run an Etsy shop? Check out my new eBook, Needle and Thread. This eBook is all about running a creative handmade business on Etsy including pricing tips and how to grow your business.
What pricing tips do you have? Let me know in the comments.
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