Know the Formula
Here�s my favorite formula:
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
I picked this up from the amazing Megan Auman. What I love about this formula is that your profit is properly accounted for!
Now let�s go through every part of this formula and break it down.
Make sure to cover all your material fees. Often forgotten: the little things like the cost of thread, and the bigger things like the cost of packaging. If you�re going to �guesstimate,� err on the higher side!
If someone wanted to hire you and they offered you $7 an hour, what would you think of that deal? Be a good boss to yourself and do a bit of research. How much does a seamstress make in San Francisco? Find out! (Also remember, you�re probably more than a seamstress � you are the designer, the marketing department, the accountant, the janitor, and the administrative assistant, too.)
Bubble wrap, that ebook purchased at 3 a.m., studio rent, bus passes required to make it to the studio every day, a new scale for your shipping station. How the heck can you fit all these things into the price of a single item?
Here�s a way to do that:
Jot down every expense you can think of � for example, include your Etsy fees, office supplies, rent or utilities.
Next, come up with the number of items you�d like to sell a month. Divide that number into the total expenses.
Tip: Start doing two things to help you come up with an even more exact price:
Track your expenses carefully so you can come back to this as you learn more about selling! I suggest trying out Outright � a free online accounting tool.
Start figuring out the big investments. How many items can you get out of that sewing machine? How long will that postage printer last before it needs to be replaced?
Think hard: where do you want this business to go? Do you want to quit your day job? Do you want to pay off a student loan? Accounting for profit now will help you get there. This number really depends on what you are selling, and will make up for someone like a printmaker, whose material costs are low, labor hours might be low, but should be paid for their unique talent and point of view! I leave this up to you. I�m trusting you here � don�t disappoint me with a low ball number!
Bringing It All Together
All right, this gets us to our wholesale price. Some of you might wonder if you can use the wholesale price in your Etsy shop. Wouldn�t this be a a great way to offer your work at an affordable price? No, no, no. Here�s why I�m going to beg you to double your wholesale price and sell your work at a true retail price:
Selling your work at a wholesale rate undervalues those who price their work at the proper retail price. When the majority of sellers in a category price their work thoughtfully, the entire category benefits.
Customers will wonder, �Why?� Why is your work so much lower than everyone else? Is it because it�s not handmade? Is it because you�re using cheaper materials? Your price tells a story: make that story a good one!
You�re putting yourself at a disadvantage. Let�s say a big catalog reaches out to you and says, �We�d like to buy 100 of these items! Please let us know what your wholesale prices are.� This is a big opportunity; an opportunity you can�t afford to take.
Did you just come up with a price that you are sure the market won�t respond to? Here�s the trick: if the item is priced too high for the market, it�s not the price you need to alter, it�s the design or the way you produce your work. Get creative and see how you can adjust the item to reduce your costs. Can you buy your materials discounted in bulk? Can you produce the work in multiples, reducing the labor? Don�t take the easy way out by slashing your prices.
Remember, the right prices will allow you to reach your small business goals.
Extra credit assignments!
1. Watch our Online Lab on the Basics of Pricing:
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