Starting a Craft Business – Pricing the Product

Homepreneurs recently discussed creating a home business from Arts and Crafts.  We believe this market is growing, cost-effective, and a business option for many.  Arts and Crafts can be done part-time, full-time, by the employed, retired or semi-retired.  In part one, we examined crafting as a business option, part two focused on marketing, and part three covered several sales channels.

Part 4 of our crafting series covers general guidelines about craft pricing.  Please note that each market and product pricing model is different based on location, competition, and uniqueness.

Before setting prices, ask the following question: How much is my customer willing to pay?

The first step in the process is to research crafts similar to yours using online resources – eBay, Etsy, Facebook – local craft shows, and even retailers.  You’ll want to focus on local shows of course; most people will buy on impulse at craft shows.  Your research will help set reasonable prices and view the competition.

After getting a general idea of what the market will support, look at your own costs and determine if you can make a profit with your product.  Use the common formula below to calculate production costs:

Cost of Materials (metal, wood, yarn, paper, paint, etc.)

+

Cost of Labor (normally an hourly rate)

+

Indirect Costs (craft show booth fee, website pricing, etc.)

=

The breakeven price (you won’t make or lose money, only cover your costs)

If you want to make a profit, you will need to add $$ to the breakeven price.

An example of the above formula:

COM: $100 ($10 each x 10 parts) = $100 total cost of materials

+

Labor: $5/hour x 5 hours = $25 total labor

+

Indirect costs: $25 show booth, $8 gas

= $158 total cost for producing and showing this product

You’ll need to sell these 10 products at $15.80 each just to cover your cost.

In some situations, charging an hourly rate will set your pricing too high.  In these cases you might use the following simple formula:

Double the cost of materials

This works for very simple products like afghans, sweaters, wood products, and others.  Use your market research as a guide to be competitive.

How do you make money?

The big secret is buying your materials in bulk, on sale, or producing in mass quantity (think assembly line).  Find a preferred supplier that will give you preferred discounts for frequent purchases.  Use the regular sales price as a benchmark for cost of materials (COM).  The comparison below shows the difference in costing:

Using regular material pricing:

COM:  $10 (materials) x 10 parts produced = $100 total cost.  Double price formula: $200 or $20 for each part sold.

With discount material pricing:

COM: $8 (20% discount) x 10 parts produced = $80 total cost.  You’ll still charge $200 or $20 per part, yielding an additional profit of $40.

Each model assumes a profit built into the doubling formula. The extra $40 is a bonus.

Both costing approaches are used, depending on location and circumstances.  The above are very basic formulas and should be researched and tested.

By Dion D Shaw

Dion D Shaw is the founder and owner of Homepreneurs

Homepreneurs.  New Day.  New Opportunity.

 

Disclaimer

Homepreneurs does not endorse nor have any relationships with any of the services listed.  Homepreneurs receives no compensation or consideration for its suggestions.  Homepreneurs strongly urges all interested parties to conduct research and accepts no responsibility for any losses incurred.

© Homepreneurs 2010 – 2013

4 thoughts on “Starting a Craft Business – Pricing the Product

  1. Hey There. I found your blog using msn. This is a very well written article. I’ll be sure to bookmark it and return to read more of your useful information. Thanks for the post. I’ll definitely return.

  2. Great article, Dion, thanks. I haven’t read much on the web about pricing.

    First, it should be emphasized to first focus on what your customer is willing to pay. Remember that your time, spent making products, is money, and you are entitled to charge for it. Therefore, you should charge as much as your customer is willing to pay. (And before you do anything, make sure your customer will be willing to pay at least your cost plus a healthy profit margin.)

    Furthermore, buying in bulk requires a careful balancing act. Don’t buy so much that you might get stuck holding unsaleable raw materials later on. If you invest in a huge stock of red yarn in order to get a 10% discount, you’ll be in big trouble if you discover that your customers prefer blue. Especially in the starting stages, set your business up to be flexible. Then, as you grow, focus on reducing costs.

    Thanks, Dion.

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