Submitted by: Amanda Bosiak, Former Member Services Coordinator
This is Part Two of our "Tips on Pricing Your Craft" series. This week looks at Pricing for Profit.
Realistically, how do you place a dollar figure on your work? And how do you make it a profitable figure? Many craft people use a Material Cost + Profit equation that all too often falls way short of the mark. How do you know how much “profit” is enough? And how much of that is really profit? Remember that you have costs related to selling your work that cut into that profit. If you sell your own work at markets, those expenses (booth fees, travel and meals, accommodations and time lost from your studio) all eat into your profit by 30% - 50%. If you sell your work by wholesale or commission, you also lose up to 50% off the retail price.
Well, there is a tried and true method known as “Cost Plus Pricing”. Here is the basic formula:
MATERIALS + WAGE + OVERHEAD = COST
COST X 2 = RETAIL PRICE
Here is a brief breakdown of that formula:
MATERIALS: This is pretty self-explanatory – the cost of materials for each piece.
WAGE: This is the really important part! If you aren't paying yourself a wage, you should really start now! Be reasonable and fair with yourself – start at minimum wage and add to it based on your experience, education etc. You can also think of the wage part of the equation as the minimum profit you will make on each sale – so if you are uncomfortable with working out a wage for yourself, put the minimum profit amount in its place. Now, whether you sell the work yourself, through wholesale or commission, you KNOW that you will profit at least that much!
OVERHEAD: This is the pro-rated amount of your annual utility bills (for studio and office space), packaging and office supplies, equipment and professional fees, etc. Even if you work out of a corner of your basement, living room or garage, you still have overhead.
COST: Now you see the real cost of your work, beyond the cost of materials!
X2 = RETAIL: Now you see what the retail value of your work really is!
After you apply the Cost Plus formula to your work, you will probably still have to do some adjustment for your customer base, competitive advantage, and tiered pricing levels. Adjustments can be made to round figures up or down to more “attractive” price points (amounts ending in 0, 5 or 9 for example: round an item that is $27.86 up to $30 or down to $25) or to allow for consistency in pricing between different sizes of similar products.
In addition, you may find that some products will require the application of “Added Value” strategies. Branding and packaging are two ways to do this. Also, offering “limited edition” work and including support material with your work such as a biography on yourself, and care instructions for your product, all add to the perceived value of your work.
MAKING CHANGES GRADUALLY
If after all this you find that you have in fact been vastly under pricing your work, you will be in a position where you need to decide on a strategy for gradually increasing your prices. Should you find that you have been selling your work for half of what you need to in order to make a profit, it can be difficult to suddenly double all of your prices. It will be a shock to your customers, and a hard thing for you to confidently stand behind.
There are two times of the year when price increases are the easiest to apply, and these tend to fall during craft market and retail sales lulls; that is September (after summer sales, before Christmas sales) and January/February (after Christmas sales, before spring sales). So rather than doubling your prices at one time, try going up roughly 20% in the fall, and another 20% or so in the new year, or the next fall. New customers won’t know the difference, and your regular customers will take it in stride when you apply larger increases slowly over a set period of time.
A FINAL NOTE ON PRICING
Pricing your craft work – for profit and sales – is an ongoing process. Evaluating your prices every year or two should be a part of your business practice. There are a few other things to keep in mind:
Your costs will change (usually becoming higher) and so will your access to the materials you use for your work.
Your customer base will change – regular customer will age and experience income changes over time. New customers will require new products, and lower priced items to introduce them to your work.
The economy is in constant flux, with customers having varying amounts of disposable income from year to year. Even over the course of the year, as noted above, there are ebbs and flows in the annual spending cycle of the typical consumer.
Sometimes, it isn't the price of your work that keeps people from buying it. It could be that you are selling in the wrong markets (craft markets and/or stores/galleries with the wrong customer base). OR, the harder thing to admit to (on your ego and artistic soul), is it could be the product itself is not attractive to consumers, either in style or functionality. Consider your market and your product as you work towards successful sales, and good luck!