Today I want discuss how to price items. This was something I struggled with when I began and would just set a price I thought was good. But there is much more that goes into pricing items, you are not a garage sale, so let’s dive into pricing items.
Bookkeeping Background: I also want to say I'm not an accountant, but I did work as a bookkeeper for a successful construction company for 10+ years, as well as doing some bookkeeping work in the past for our dance studio. I have also been selling items for over 15 years on Etsy (since 2007), craft fairs and on my website. So I'm no expert and these are just my ideas and how I price my items.
What to consider when pricing items?
A big reason you want to sell items, is to make money. It is your side job, a hobby to make a little extra cash, or something you want to turn into a full blown business. It is important to make sure you are making a profit and not losing money.
Here is an example off of a basic design item. This is not my exact pricing, but thought it was easier numbers for an example.
EXAMPLE 1: DIGITAL CUT FILE
In this example we don't have "materials" rather labor and overhead costs.
Design Costs: $0.60 (Based on qty of 25)
Admin Costs: $0.20 (Based on qty of 25)
My Costs: $0.80
Overhead (20%): $0.16 (see notes below on overhead, how to calculate and ideas of what is included.)
Sub Total: $0.96
Next we want to determine the profit. Your typical profit margin is 30% - 75%. Many retailers you shop at have an at least 45% - 60% mark-up on product. Meaning they double the cost they paid (if they paid $5 for an item, they will charge the consumer $10.)
Mark-up (50%): $0.96
Sub Total (Cost + profit): $1.92
Etsy Listing $0.20
Transaction Fee (5%): $0.09 ($1.92 * 5%)
Processing Fee (3% + $0.25): $0.31 ($1.92 * 3%) + $0.25
Total Etsy Fees: $0.60
TOTAL COST OF ITEM: $2.52 (I'd probably round to $2.50)
What is overhead?
Overhead is the day to day costs. Including accounting fees, advertising, insurance, interest, legal fees, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.
How to calculate overhead? You will need to know how much of your costs each month go towards your day to day business vs sales costs. For example, if you have $1000 in monthly sales and your overhead costs total $200... calculate as follows: ($200 / ($1000)) x 100 = 20% overhead.
EXAMPLE 2: MUG SOLD ON A WEBSITE
Let's go through another example. This time a physical item and sold from a website you use (this could be wix.com, squarespace.com, shopify.com, bigcommerce.com or something similar. This will vary website to website depending on which platform you use, the plan you have purchased and what you use for shipping. So please use this as an example to help you calculate prices and profit.
12 oz White Mug: $3.50
Vinyl: $0.10 (based off a 3"x3" design)
Labor ($20 / hour) * 15 Min: $5.00
Material & Labor Costs: $8.40
Overhead (30%): $2.52
Profit (50%)= $5.46
Processing Fees (2.9% + $0.30): $0.77
TOTAL COST OF ITEM: $17.15
I would price around $17.00
These are just examples. You really should take the time to come up with your own formula. Excel spreadsheets or Google Sheets are great resources to make a template and plug in numbers to have you price your items. Only YOU know what your overhead includes and how much profit you want to make.
And even though I follow my own pricing from my formula, I DO check out the competitors to make sure I'm not pricing my items too low or too high. Too high and you may lose business. Too low your customers may think your items are not as nicely made. But saying this, don't copy someone else's price. You will want to know the costs that go into making your product and how much profit you are making. If you don't know this, you could be making $0.20 or $10.00. Everyone finds materials at a different price and price their time at a different rate.
If you have any questions, please feel free to leave a comment or reach out to me.