First off: THANK YOU for all the birthday wishes. So many lovely, sweet & kind words. I’m still smiling 
Pricing was by FAR the most mentioned topic related to starting a craft business. I think I’ve said this before but I want to make this very clear as I write these posts: I am definitely not an expert. My approach is Do, Revise, Repeat.
The first thing I Do when I get the next big idea is calculate out how much it costs to create the product I want to sell.
Here is the actual spreadsheet I used to determine the cost of producing the pencil rolls I sold last December in my Etsy shop. (As a side note, I have one spreadsheet file and I create a new worksheet within the file every time I work the numbers on a new product. It’s very handy to have historical tracking, both of products that I sold and ones I only thought about selling.
Number of Items Made: 3
Materials: Inches Price Total
Per Yard
Exterior Fabric 10 20.00 5.56
Interior Strips 19 9.50 5.01
Flannel Batting 10 5.00 1.39
Pocket Exterior 5 9.00 1.25
Pocket Lining 5 5.00 0.69
Total Fabric Cost 13.90
Colored Pencils 2.84 8.52
Total Raw Materials 22.42
Overhead – Approximate 3.00
Materials Plus Overhead 25.42
Materials Per Item 8.47
Hours to make 3
Hourly Rate 20.00
Labor Cost 60.00
Materials Plus Labor 85.42
Cost Per Item 28.47
Points to note:
- These numbers are based on making 3 pencil rolls at a time. For example, the total fabric cost of $13.90 refers to the cost to make 3 rolls. I backed into this quantity based on the most efficient way to cut the materials. The pencil rolls measure 10″ x 13″. Using the exterior fabric as an example: I can lay out 3 of these (39″) on a standard 42″ wide piece of fabric. I need a cut of fabric 10″ wide (.2778 yards).
- Overhead is $1.00 per pencil roll. This is an estimate of thread cost, wear & tear on the sewing machine, the light bulbs in my sewing room. You get the idea. Very difficult to pin point but it makes sense to start with an estimate and refine it over time.
- Including actual colored pencils with the rolls was a marketing decision. I was able to source good quality Crayola pencils at a reasonable price. I thought the customer would appreciate receiving an item that was ready to give as a gift. Removing the pencils from the equation would lower my cost. Would I still sell the rolls? Probably. My thinking related to the longer term satisfaction I wanted the customer to experience when purchasing my product.
- I put in an hourly rate of $20 for my time spent making the pencil rolls. A working number for my calculations. Maybe it’s too high (compared to a minimum wage job) and maybe it’s too low (it does not capture design time or the sourcing of materials). I’ve read a fair amount on this topic. After doing a number of these spreadsheets $20 per hour usually gets me to a reasonable selling price.
- The final cost to produce each roll is $28.47. Logically I think I should not sell a pencil roll below this price.
In an effort to not make these posts too long and windy I’m going to stop here for today. Next week I’ll share how I ended up selling my pencil rolls for $34 each.
I’m happy to answer any follow-up questions in the comments.
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The image is the makings of an August Fields Carousel Quilt.
Kathy Mack
Carrie + Diana
Thanks for sharing this. I think that too many buyers don’t really consider what it takes to make something unique, and too many creators sell their time and creative energy short in trying to match a big box, mass produced item price point. It’s not easy to find the right balance between a price that moves product and respect for one’s work, but break downs like yours help a lot.
Kathy,
Thanks for your article. I take it your fabric prices are retail, not wholesale. I guess if you want to sell something, it should be an
item that can be made relatively quickly. Not like a purse that takes
3 days to make like the one I made recently as I gift. It was very informative to read an article like this.
Irene: I use retail cost of fabric because that’s what I’ve always had to pay. These spreadsheets are very useful because it’s easy to plug in different numbers and see what would happen if you purchased fabric at wholesale.
I’ve dropped ideas after doing the spreadsheet because it became painfully clear that the value of my time to create the product didn’t match up with what I thought I could sell the product for.
Thank you so much for taking the time to help us figure out how to start our own craft businesses! Pricing was a bit of a challenge for me, I guess I was always uncomfortable at naming the price per hour of actual labor. I’m excited to learn all you have to share!
fascinating. really as i think i am going to do the etsy thing {at long last}. i’ll be following this closely.
Kathy,
I think it’s great that you’ve outlined how someone might figure out pricing. I too think that crafters often don’t price their items so that they really get a fair return on their time investment.
Frankly, I think many buyers want handmade items for Target prices.
Thanks. As I am close to getting my business open, I am spending quite a bit of time thinking about this – what is a reasonable price to make some money (and $20 per hour truly is not a lot, especially when you consider that there are no benefits such as health ins. or such as in a regular job!) vs. what I think people will reasonably pay.
Oh Kathy! This is incredibly helpful. I love how you have broken everything down. Gives you so much to think about and consider when making an item. Thanks a bunch!!
Thanks so much for such an informative article. My long term objective is to start to sell some of the things I make, and this is fabulous. It is one of the most fundamental elements of having a cottage industry – but it is difficult to work out a price for everything. Thanks
Thank you for sharing your pricing with us! I always find it interesting how people price their work. The tip about roughly pricing your item before going deep into development is really great.
I was wondering if you had any experience with wholesale vs. retail. I often have a hard time setting a fair price when selling with other shops. I have a bag right now that I’m more than willing to sell at $55 at a craft show or online, but to sell in a shop I upped my price to $74. Of course my bags didn’t sell as well as I would have liked. I wonder if building in that extra 40 or 50% is too much for a lot of sewn goods and I should stick to selling my things myself.
Thanks for sharing this bit of precious information.
Lili: Wholesale is another topic I’d like to delve into. The pencil rolls are a good example because I’ve thought about trying to produce enough to sell wholesale. They’d be REALLY expensive if doubled. I’m not convinced they’d sell which is why that project continues to sit on the shelf.
I must say that I have never seen such a break down of the figures before, but I like that you show us the method behind your sale. I admit, I am one of those people who would have probably thought that the pencil roll was on the expensive side (even though I love the fabric you have on display there!) but seeing all that goes into it, I can appreciate more where you are coming from. Thanks for the enlightenment!
This was a great way to figure out how to price items.
I do think, however, one main determining factor when setting your price is to see what other sellers are pricing for their comparable items. If you are trying to generate a large volume in sales, you don’t want to sell something $10 higher than everyone else selling basically the same thing. You might think your item is worth more because of your time, but a customer is going to comparison shop and wonder why your item is priced so high.
I think the happy medium is to find a price comparable to others, then figure out how to make your item as cost effectively as possible to ensure the most profit in that price point.
I so appreciate you sharing this with us. It is wonderful to see how others run their businesses, especially with pricing, since it can be so difficult.
Thank you so much for this info. I am always at a loss when it comes to pricing items that I have made. I am looking forward to the next posts on this subject.
Great post, Kathy! I was wondering how you define overhead?
Great post, Kathy!
. And also make some calculation before actually working on something /even if I am not sure how long it will take to make it/. I does lead to canceling ideas from time to time, but safes time. I was concerned of the price growing due to retail materials used, but in most cases this is exactly what my competitors use so it does not really matter.
I use a similar sheet the same way
Kathy, that was awesome and informative! Thank you so much… and I totally agree with Malka – I think too many people these days want handmade items for Target prices. It’s definitely frustrating and discouraging, but I think there are still people out there who are willing to pay it. Can’t wait for the rest of your info!
Oh and I meant to ask – the spreadsheet – did you set that up in Excel or is it a specific program you use? (I’m TERRIBLE at making spread sheets. lol)
Great info! Thanks for being so open and sharing what you have learned
I really appreciate your kindness to share this with us. I was kind of doing the same thing and it just reaffirms that I’m headed in the right direction with how I will do my pricing. Thanks a bunch!
This is really fantastic information. I’ll be linking to this.
Hi-
This post was very informative .
I have been selling at craft shows for a few years and have opened an etsy shop this past May and realise I have never really been confident enough to give myself a decent hourly rate . I will try out your spreadsheet example on future projects . Thanks,
Andrea
Although not as detailed, a fast in-my-head-as-I’m-shopping formula I’ve used is 1/3′s. I use a lot of vintage material so sometimes it’s helpful to make quick decisions. 1/3 materials and overhead + 1/3 labor + 1/3 profit. That basically means if I can’t spend more than 1/3 of the final price that I think I can sell it for on materials. That formula has helped me from making impulsive splurges on things that are gorgeous, but are impractical because I wouldn’t see a realistic return on them.
It’s also sort of a creative challenge on-the-fly to come up with a different product that I could realistically price at a point that would make buying that item worthwhile. I’ve had a few epiphany’s just standing and staring for a few minutes in front of a vendor at the flea market (lol!) with that formula in mind.
Thank you so much for this you really broke it down and i was wondering if you could please post part II of the pricing?
Second Post here:
http://pinkchalkstudio.com/blog/2008/10/06/the-business-of-craft-pricing-cost-of-materials/
Thanks for posting the second part as well. I’m a crafter (among others) at Etsy and eCrater and I never know how to price my jewelry right. I either feel it’s too low, or that I rip off my clients. It’s difficult to find the right balance where you have a win-win situation.
I read the spreadsheet with great interest and thanks for sharing. However, as a sewist for 45 years, I know that almost nothing sells for what you have in it. For instance, I can spend days making a bag and the most I will get for it will be about $30 if I’m lucky. Or I can spend 1 day embroidering a design on pre-made aprons (bought on sale for about $3.50) and sell it for $15 easy. The result is, I can make about $20 for 3 days of work or I can make about $33 for one day of work. Problem is that the apron project is very boring and I love making bags!
The thought of making anything for wholesale doesn’t work for me. I would want to hang up my sewing machine forever if I had to make pencil cases or anything else all day, every day.
Thanks for sharing.
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