biz ladies: how to price your work

rosie_the_riveter1
today’s biz ladies post comes to us from lauren venell of biz miss. last month, lauren contributed a post on how to accept credit cards at your business, and this week she shares with us some helpful tips on how to properly charge for your services and goods and get that money flowing!

in an ever-changing economic climate, it can be tricky to price your products and services to sell. lauren offers some simple and effective options to price right!  Thanks lauren for your insights!-stephanie

CLICK HERE for the full post after the jump!

Pricing your work is one of the trickiest parts of running any creative business.  With something as subjective as art and design, you are placing a concrete value on very nebulous qualities, like talent, taste, and experience.  Just like your work, pricing is an art rather than an exact science, but I’ve put together some guidelines you can use to make a process a little easier.

There are two main approaches to pricing your work: a bottom-up approach and a top-down approach.

The Bottom-Up Approach

The bottom up approach creates a pricing formula based on the time, skill, and materials you put into a piece.  It is usually the best approach for freelancers or other creative service providers.  It looks like this:

Price  = Freelance rate x Hours + Materials

Step 1: Calculate your freelance rate

Visit Freelance Switch to calculate what you need to charge in order to live comfortably based on your business and living expenses.  This is your break-even rate.  Use this rate to charge for the hours you spend on non-skilled work like hole-punching or putting prints into plastic sleeves.

Next, add some profit to that rate to cover your “intangible assets”—that is, your creative ideas and skilled artisanship.  One good estimate is to add $3,000 of annual profit for each year of experience or education you have in your field.  This new rate is your ideal rate.  Use this to charge for the hours you spend on skilled work like sketching designs, brainstorming with clients or intricate beadwork.

Step 2: Calculate your materials cost

Add up the cost of all the materials you need for your project.  This includes transportation/shipping or the time it took you to get those materials (at your break-even hourly rate).  Many Biz Ladies find it easier just to add a mark-up of around 10% to cover these costs.  If a material is particularly difficult or expensive to obtain, you may want to mark it up higher.

You don’t need to include the cost of overhead (i.e. utilities, rent, office supplies) since this has already been figured in to your hourly rate.

The Top-Down Approach

The top-down approach creates a pricing formula based on the current market value of products or services similar to the ones you offer.  You start with a competitive retail price and then work backwards to try to bring your material and labor costs in line.  The top-town approach is usually the best approach for people selling products.  It looks like this:

(Price – Expenses) / Hours = Hourly Wage

Step 1: Do some market research

In order to figure out a competitive retail price, you need to know what other people are charging for their goods.  Do your research by visiting stores, fairs and web sites that sell products similar to yours. Make sure you extend your search beyond huge online marketplaces like Etsy and eBay, where items are often bargain-priced.

Pay special attention to products that share materials, style, process, or target customers with yours.  For example, earrings made from a single plastic bead will not cost the same as earrings made from 24K gold cast in the shape of a spiderweb.

If you’re having trouble finding pricing information on your own, do a bit of crowdsourcing.  You can ask participants in certain forums on Etsy or Craftster what they would pay for your products.   Limit your crowdsourcing to forums that specifically encourage this type of feedback.  Good etiquette recommends that you avoid asking for advice from competing sellers or from posting links to your products in blog comments.  Don’t forget to continue the karma cycle by offering your feedback to others in turn.

Step 2: Do the math

Now that you have a good idea of what your retail price should be you need to decide whether or not you can afford to wholesale.  Usually, a product’s wholesale price is about half of its retail price, so if intricately cast gold earrings are selling for $300 these days, their wholesale price would be $150.

Now, let’s say it costs $25 in gold (including shipping) to make your spiderweb earrings, and each pair takes you three hours to make.  Using the formula above, you can make $41.67 an hour for each pair of earrings you sell wholesale.

($150 – $25) /3 = $41.67

Pretty good, right?  But wait a minute, earrings don’t just sell themselves (no matter how talented you are).  You spend your time on all kinds of things in order to run your business, so let’s take a monthly view instead.

For simplicity’s sake, let’s say you only make 24K gold spiderweb earrings.  You work full-time on your business (about 180 hours a month) and you are able to spend half of that time actually making your products.  The rest of the time you are doing things like bookkeeping, shipping orders, and answering correspondence.  Let’s also say that the overhead for your business costs around $1,000 a month.

In 90 hours, you can make 30 pairs of earrings.  Assuming you sell all of them wholesale, you make $4,500 a month.  Let’s take that number and figure out your actual pay:

($4,500 – $25 x 30 – $1,000) / 180 = $15.28/hour

If you can live comfortably on that wage, you’re all set.  Otherwise, you’ll need to make some adjustments.  For example, you can buy larger quantities of materials to get better deals, or you can try to make your jewelry-making process more efficient.

If none of these adjustments gets you to a comfortable hourly wage, you might want to sell that particular product only at retail.  Many designers who make high-priced items but still want to reach a wider audience will create a second product line that is specifically designed for wholesaling–for example, a line of less expensive earrings where the spiderweb design is stamped into a square of gold-plated metal.

Pricing as Marketing

Marketing encompasses more than just advertising.  It’s comprised of everything that influences the way people see your business, and that includes your prices.  For example, while it may seem counter-intuitive, raising your prices can sometimes boost sales by making your work seem more desirable.

At a Biz Lady meet-up in San Francisco years ago, I participated in a group session led by Meg Mateo Ilasco, author of the excellent business book for crafters, Craft, Inc. She described how she had decided to ramp down her wedding invitation business by doubling her prices. Instead of causing fewer people to hire her, however, it more than doubled her number of clients.  The higher prices made her look like a more sought-after designer, which became a self-fulfilling prophecy.

Of course, raising your prices doesn’t always cause a stampede.  The trick to maximizing your sales is to bring your prices in line with the rest of your marketing, including the taste and craftsmanship of the work itself.  Whether you make stylish home furnishings or adorable character art, your prices should not surprise your target audience, and should look right at home on your packaging, on your web site, and in the stores and galleries that sell your work.

Pricing Etiquette

Yes, Virginia, there is a polite way to price.  Here are a couple of common pricing faux pas to avoid:

  1. Changing your prices too often: yes, you should absolutely market-test your prices, but don’t just throw numbers out randomly to see what sticks.  Focus on testing one or two products at a time, and try to do it at a live event like a craft show, where you can gauge customers’ reactions directly.  Changing your published prices too often (like the ones on your web site) will make repeat retail customers think they are overpaying, and will make your wholesale customers struggle to keep their prices current.
  2. Pricing just to maintain your hobby: I think it’s lovely that you make so many beautiful things that you’ve run out of people to give them to.  I also think it’s great that you sell your extras in order to support your hobby.  It’s selfish, however, to sell a fair-isle sweater you knitted for just the price of the yarn.  Your customers might be thrilled, but underpricing devalues creative work and makes it harder for creative professionals to make a living.

Sadly, there is no magic formula for pricing, but with some research, careful thought, and a little finesse, you can find the sweet spot that makes your business the most successful it can be.  If you have any other pricing tips or questions, please feel free to share them in the comments below.

  1. Samantha says:

    This is the exact article I needed. I’m trying so hard to not be the “priced to maintain my hobby”. I need to have to confidence that others really enjoy my art as much as I enjoy creating it! Aloha, Sam

  2. Heather says:

    Excellent post. Thanks so much for your insight.

  3. heather says:

    Thanks you, great advice – I particularly love the final paragraph. My favourite ever comment at a craft show: “HOW much? But it’s only handmade” LOL (but not really funny of course…)

  4. Beth Wade says:

    Thanks for this insight! I just opened a vintage shop and am struggling with this as well…

  5. huiyitan says:

    very useful article, thank u for sharing. This reminds me that I know an jewelry designer maker at school. She priced her work in a very simple way:

    retail price= materials cost x 4
    wholesale price = materials cost x 2

  6. Janie says:

    Thank you so much for writing this article it has helped me form a better idea how to price my items.

  7. thanks for this, I really need these formulas!

  8. Pam says:

    The value of something is what someone is willing to pay for it. That value differs for different people. That is why, as a professional business women, I set policies for pricing that allow me to charge fair-market prices. When I get the difficult (sometimes unstable) customer who “cries” about my pricing, I don’t take it personally. I tell her my company’s policy (write it down!). When I have a “charity” ask for “freebies”, I have my own guidelines already set for that,too (I do several). There needs to be balance and some guidelines. Some women under-price items based on emotions because they want everyone to love them and their product. I’ve done it myself, and I’m the only one who suffered the consequence: lower self-esteem (doubt about my ability).

  9. Spidr says:

    These formulas made it all so clear and easy to flex the system so it works.I’m just really getting started in all this and feeling my way around.

    S.

  10. Thanks for the pricing etiquette. It is very frustrating to me to see someone selling a product similar to mine and know that they are only charging for materials and not time, etc. It does devalue the work and also devalues the whole handcraft/artisan industry. Many of us are women who have fought for years for equal pay and I have a feeling that most of the work that is not being priced at a fair market rate, are women who have been told that their work and time is not valuable.

  11. Cataliya says:

    Very much appreciate for all you said. I totally agreed with you. You know I notice myself pour my heart and genuine sincere value time for my value items in my shop, I honored every piece of them,some of them I made them myself.So, I really want to share this God’s gift to others who appreciated them. And I know there are wise people out there some where that see how value my items are. I take very serious about my items.I will not waste my time and energy do some thing, nor sell some thing like you can get them from dollar tree.(unfortunately, there are a lot at this site)I would not take its even they give me for free , let alone buy it. What I try to say is I really agreed with you about , since we take time and energy,we should get the really value items to deserve the customers ‘s time and worth their money. Thanks for the space for let me give my comment. I am very honest and sincere.

  12. Of all the different “stuff” a person has to learn to effectively run a business, I think pricing is the most difficult. Thank you very much of all the tips and formulas. To quote a previous post…”gotta be true to yourself”.

  13. Great article! Pricing is the thing I have the most trouble with! I’ll be bookmarking this for future help!

  14. Debi Russell says:

    Thanks for the info. Having trouble pricing, but have increased prices. Haven’t seen any differene yet. I learned years ago, cost x 3, is a good formula. My glass is sold $/per square feet.

  15. Moni says:

    Thank you for this article. It truly helps to have a guide when approaching pricing. After a year of business we are actually increasing our prices because we sold ourselves short, trying to compete with others. My advise, don’t! Choose a price that reflects your time and craft. It’s not about beating the competition. It’s about glorifying your talents and feeling satisfied with a “hands” day of work.

  16. Michelle says:

    Good pricing is a lot of work — and I have learned from some mistakes — sometimes I have sold something and been glad about the sale, but had a twinge of regret at the amount of money I received — an indication that perhaps next time the price should be higher.

    The most difficult part of selling original art is the “intangible assets” mentioned in the article. As a fine artist the years of education and failed/unsellable paintings and the experience derived from making and teaching — all of which work together to create something unique and, well, a little pricey by some standards. I have heard of one artist who, when asked how long it took him to make a painting, always replied: “Twenty-five years” — the implication that the labor cost is cumulative, not simply the time spent making that one thing.

    I have sacrificed a great deal to do what I do and need to make money to continue doing so, so my prices need to be at a certain level (and maybe should be higher!!).

  17. TJ Stevens says:

    Your tips on pricing are very good, I have always been reluctant to lower my prices when I know just how many hours go into the making of a particular handcrafted silver jewelry item. However over the years I have learned that having my handmade jewelry be seen in the right market is much more important than what price I want for it. Ultimately it is the market which sets the price and you must be in the right one if you want to move your items at the highest “market” price.

    Thanks

  18. Joana says:

    This is an excellent article! I also really appreciated the link to Freelance Switch. I’ve been pricing my work in the past in accordance with the 1st method (bottom up approach). However, determining what my “hourly rate” should be has been difficult. I’ve usually ended up fudging that rate because I end up spending much more time on my pieces than I forecast (hence I’m actually earning a lower hourly rate). With the Freelance Switch Calculator, I discovered what is more truly my hourly rate. This is not only an incentive to be honest with myself about pricing, but to also keep exploring more ways to make my jewelry production more streamlined.

  19. Pam says:

    Great, great and greater points !!!
    Your remarks about the time spent in promoting and communication also lend value we have to appreciate in wholesale pricing, where there is LESS time spent on the intangibles.

    I’d like to add some “LVE” (leaned via experience) … pricing has to make sense. The fact that I really LOVE one of my designs does not increase its value – and – when something is priced higher, there should be an easy to explain rationale , e.g.: more costly material, multiple layers of materials. After studying my most popular items and how they sell, I’ve been able to apply a consistancy to my pricing.

    Another issue that i offer here only as my own perspective
    is “sales”. I will not EVER have a sale on continally sold merchandise. I think it is very unfair to customers who shop with me regularly for them to see something they bought at full price one day reduced. I will list a NEW item at a lower price to test its popularity, remove it from inventory for a while if I intend to raise the price, and then restock it at the new price. This also gives me the opportunity to be found by customers who shop within certain price ranges.I hope my 2 cents will be useful for someone . GREAT article and great comments. Thank you!

  20. Willow says:

    Wow, everyone has hit on my pricing problems… I think I like what huiyitan had to say. retail price = material price x 4. It is truely a struggle sometimes though because even the smallest thing can take a large amount of time to produce. Very informative. Thank You.

  21. satsumabug says:

    I commented above, but I’m really enjoying reading about other people’s experiences here in the comments too. I especially appreciated Pam’s (3/3), Michelle’s (3/4), and another Pam’s (3/4) thoughts!

  22. clare says:

    Thanks for a very constructive and thought provoking post, brilliant replies too! I’ve got 15yrs experience and in pounds worked out my annual salary wow I sell myself short. in the main I work to a bottom line hourly rate that I’m prepared to work for include materials and think about if it’s a one off piece what would it cost to recreate it again from scratch, time etc. Except the things that are not worth my time to make and don’t create them but keep on creating.

    I love what I do and can’t put a price on the freedom I get and that I never feel like not going to work in the morning! The people I meet and the friends I make, Priceless!
    best wishes clare x

  23. Vicky Watt says:

    This article is really useful – especially the pricing etiquette. My partner and I run a boutique music & entertainment partnership. Services range from voice overs to musicanship/performance, bespoke private dining to making greetings cards and so on…. in every case, we are hit with the same issues – fair pricing and creative self respect versus being undercut by someone willing to do it cheaper. It’s an ongoing balancing act! Looking forward to reading more in the Biz Ladies series.
    Best wishes,
    Vicky (Scotland)

  24. Vicky Watt says:

    his article is really useful – especially the pricing etiquette. My partner and I run a boutique media & entertainment partnership. Services range from voice overs to musicanship/performance, bespoke private dining to making greetings cards and so on…. in every case, we are hit with the same issues – fair pricing and creative self respect versus being undercut by someone willing to do it cheaper. It’s an ongoing balancing act! Looking forward to reading more in the Biz Ladies series.
    Best wishes,
    Vicky, Acoustic Wave (Scotland)

  25. This is excellent! It can be so complicated to figure out prices of my work and there can be pressure from outside! I always feel like people who design seem to understand my prices but somethings regular customers just scoff like Im being ridiculous to expect my price. It is very hard to take sometimes and it makes me want to crack to just sell at least something…Im still trying to find that balance and I hope I get there soon!

  26. Dolores Pargana says:

    I really loved your article. It is a great help, but I make jewelry pieces with small beads that take many hours to finish. How do I price an item that has low cost material but it is labor intensive? Would appreciate some help. Thanks.

  27. I am still struggling to get the right prices for my product, I have to do a general revised and increase them as I am not making enough money and getting pay very little per hour, so much appreciated your advice!!

  28. Mary says:

    I’ve only sold 1 item since December on Etsy. I am one of those persons who’s played with the prices. Pricing and marketing are my most difficult business chores. My quality is excellent but my photos need work… I appreciate your comments.

  29. Mary says:

    another thought is that I use recycled items. Some I get for free and some are at a reduced price. I preshrink everything made of cloth so less shrinkage for the customer, but it seems the customer doesn’t care … Also using recycled items take more time!

  30. yo momma says:

    I have a etsy shop mainly to test things and a full commerice SEO optimized site and I can assure you, I do all of my business on my non etsy site, soo many women selling for way too less of a price. Absurd, I could never make a living or even sell at cost on etsy! just my experience. I net after costs on my ecommerce site #4500 a month, on etsy I am -$40 a month! LOL!

  31. Sela says:

    Absolutely agreed on the devaluing of professional artists. So often do I browse art sites such as dA where little kiddies offer their “talents” for rock bottom prices to offset their money-sucking pocky habit, and people just have it set in their heads that because of this, professionals too need to have competitive prices that can compare to a hobbyist.

    I am trying to get into a career in artisan jewelry — I have my first ever class starting this month — these are great tips, should I ever reach the point where I can open a shop!

  32. Fantastic advice on what is always a sticky subject!

    I have found though that the main problem with being a part of big sites like Etsy is the hobbyist, as you mention above, that sells their work simply to pay for their materials.
    For this reason, I’ve found myself having to create pieces specifically for Etsy, so that I can at least try and be competitive on price. Then use my direct site for my higher priced items.
    I’m just in the middle of trying to reorganize my shops for this very reason.

    This site, even though I’ve only stumbled upon it today, is already being a huge help and giving me ideas on how to survive, especially with being in jewellery which is so swamped on Etsy.

    Thank you for taking the time to write such fantastic and helpful articles!

  33. You need to create a formula ladies. In order to know how much to charge clients.

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