After posting my two articles about Pricing Your Products, I received an interesting email from a reader.
(If you missed the article, check them out here:
Here is what she wrote:
I am in the process of re-working my prices, and have received the opposite advice: start with how much money you want to make; figure out what you can produce, and price accordingly. In my case this is going to push prices up, which is going to make finding the right pair of eyeballs – the person who both wants what I make, and has the means to purchase it – more difficult. Finding those stores which reach the right consumers is part of the job.
— Lori, Fine Mess Pottery
In Lori’s post, Pots by the Pound, she, indeed, works backwards from the formula I suggest — looking first at what she wants to make per year (an hour), and pricing labor and cost from there.
A very interesting perspective that may work very well for a lifestyle business, but it may not work as well for a business where you want to grow or make a GOOD living. And, by the way, I read both her posts, so it looks like she is really serious about figuring out the best way to price your products.
One thing she did not consider when using this formula is perceived or market value of a product. (See my post reference above). My simple formula works really well for a production operation that does not use the creative talents that she has with her artwork.
Cost of Good X 2 = Wholesale Cost … Wholesale cost X 2-2.5 = Retail Cost
Another way to look at pricing is to figure out how much it would cost to have someone actually make your pieces for your business, such as hiring a employee. Now, figuring out pricing using this model would allow an artisan to expand their offerings without working 75 hours a week to make Lori’s required 2BM + UFE + S (for others who are reading this, please refer to her post)
Another item to take into consideration is selling and marketing handcrafted products. If you are selling wholesale, who is getting paid to sell to the store buyers and how are you figuring that into your equation? Even if YOU, the producer, are doing the selling, I recommend a 15-25% added to the wholesale cost to accurately reflect these costs.
Once you arrive at your wholesale/retail pricing, I recommend scouting the marketplace to see where your pieces fit in with other similar products in retail outlets where you wish to sell your line. If your prices are lower, you can think about raising them. But if they are higher, you might want to take a look at how you can raise the perceived value through packaging, displays, handtags (or artisan signature), etc.
Unfortunately, there are no precise answers or firm formulas to figure out pricing. I firmly believing that figuring your costs is the first thing to do — then go on to determining your labor cost — and check your value in the marketplace.