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The best pricing guide for handmade and digital products

Use our pricing guide to price up your handmade or digital products so that they are consistent, fair and reasonable using a pricing formula to work out the price.
Use our pricing guide to price up your handmade or digital products so that they are consistent, fair and reasonable using a pricing formula to work out the price. If you do a search for a pricing guide you will find many pricing formulas to try and help you work out what is the best price for your product. But when we are talking about handmade or digital goods, it is all too easy to undervalue both your product and your time. #handmadebusiness #craftbusiness #creativebusiness #bloomsolopreneur

If you do a quick google search for a pricing guide, you will find many pricing formulas to try and help you work out what is the best price for your product. But when we are talking about handmade or digital goods, it is all too easy to undervalue both your product and your time. 

When you first publish your product, it is always a concern whether you have the pricing right. Is it too high so people will be put off? Or is it too low and people will think it’s cheap and nasty? 

What if your competitors’ products are more expensive or cheaper, how will that reflect on your products? 

Finding the right pricing strategy is also a challenge and finding that sweet spot is an ongoing challenge.

Two things you must remember when setting your pricing is that:

  1. you can always change them and 
  2. you are not basing them on what you would pay. Let’s face it, you are biased because you know how much it costs to make them and have the skills. You are basing it on someone who doesn’t have either the skills, the materials or the time to make it. And all these factors provide value to your customer that is more than just cost.

Let me walk you through my pricing guide. It will result in a formula that will mean you can set your prices consistently and know they are justified and reasonable.

1. Work out your material costs.

The first thing you need to do is work out what your material costs are. 

In this pricing guide, I will be working through the formula using an example of making a quilt. First, you need to work out exactly how much material, wadding, etc. you use. Think of all the items you use to make the item and have a cost per item associated with it.

If you bought the material in bulk and only use part of it for the product, then work out the proportion of cost you used. For example, if you bought a 5 metre roll of fabric for £10 (including shipping). The cost per metre = (Total price / unit of measure) = £10 / 5 = £2.

You only need 1.5 metres per quilt, which means the cost of the fabric per quilt = (quantity used x price per unit of measure) = 1.5 x£2 = £3.

Do this with everything that goes in to make the item. 

Remember, different sized products will use different amounts of material so their cost will be different. You can’t do it once and apply it to all your products.

The sum of all the costs is the Material Cost.

Let’s say for this example, your material cost for each quilt is £20.

2. Work Out your overhead costs.

Material costs are not the only costs associated with making your product. For instance, to make your quilt you will have a sewing machine, needles, you will use electricity, you might even rent a studio. 

You need all these items to produce your quilt, but they don’t disappear once the quilt is finished. They are used across all your quilts.

These costs are your overhead costs. They are slightly tricker to account for, but account for them you must as if you don’t you will be out of pocket by the end of the year.

To include them in your product pricing, you need to be a bit of a fortune-teller. 

Firstly you need to guess the number of products you think you will sell over the coming year. Base this on your previous year’s sales or if you are just starting out choose something that seems realistic. It’s essential to be realistic because the higher the number you guess, the smaller the overhead rate. And if you don’t reach that number, you won’t cover your costs.

For example, if your total overhead costs are £350 per year. You also expect to sell 5 quilts a month, then the overhead cost will be split over all 60 quilts (5 x 12 months). So £350 / 60 = £5.83.

What this means is you have to add £5.83 onto the cost of every quilt.

So the cost of a quilt is now :

Price = Material Cost + Overhead Cost 

For this example it’s £20 + £5.83 = £25.83.

3. Work out how long it takes you

This is where it shows how much you value your time.

It is easy to work out how long it takes to make your product. Remember to include the time it takes for you to take photos, process them and create the listing on Etsy. You should also include the time you will spend on marketing the product.

In this example, let’s say it takes you 8 hours to make each quilt.

The tricky part is how much do you think you should be charging for your time.

If you want to make a living from your Etsy shop, you need to value your time. So what would a ‘professional’ get paid for doing the same job? Plus, if you are a solopreneur, you are also the person who is running the business, so you have to have skills in doing everything. How much would someone of that calibre be worth paying? If you do have help, what do you pay them? Do you deserve to get paid more or less than them?

There is no right or wrong answer to how much you value your time. Just make sure you value it enough to pay yourself at least the minimum wage.

In this example, we are going to say that the cost per hour is £15.

So the labour cost is (time x rate) 8 x £15 = £120

Having a labour cost is essential to allow for outsourcing in the future. If you don’t include a price for labour, you would need to alter all your prices if you ever got help. 

Interestingly, if you were paying someone else to make the quilt, would you pay them the same rate that you have decided on for paying yourself? If you feel you should pay them more then you are obviously undervaluing yourself!

The cost of a quilt is now :

Price = Material Cost + Overhead Cost +Labour Cost

For this example it’s £20 + £5.83 + £120 = £145.83.

4. What about other costs.

Before we go any further, remember there are costs attributed to selling a product online. 

Let’s say you are selling on Etsy. The costs of selling are detailed here. 

In summary, on Etsy, you pay $0.20 (approx £0.15) listing price plus 5% of the total payment collected, including the shipping price charged to the customer. There is also a 5% Shipping/Delivery fee on the cost of postage, if you charge this separately.  You’ll also pay an additional 4% plus a $0.25 (approx £0.20) fee for processing the payment.

Other marketplaces might have different costs, so you need to make sure that you have accounted for these fees in your pricing.

Assuming you having shipping costs of £5, let’s say for this example the fees on Etsy would be (I’m going to ignore the VAT that gets added on as this differs by country) : 

  • Listing Fee – £0.15
  • Transaction fee = £145.83 x 0.05 = £7.29
  • Shipping fee = £5 x 0.05 = £0.25
  • Payment processing fees = (£145.83+£5) x 0.04 + £0.20 = £6.23
  • Total Fees = £13.92

This doesn’t account for advertising fees. 

If you intend to advertise the product, then you need to make sure you add these costs in as well.

Make sure you add this into the overall cost. Obviously, the fees change as the price changes, so it’s a bit of a guesstimate that you are including.

The cost of a quilt is now :

Baseline Price = Material Cost + Overhead Cost + Labour Cost + Fees

For this example it’s £20 + £5.83 + £120 + £13.92 = £159.75.

At this point, we have the breakeven figure. 

This means that if you sell a product at this price you have paid yourself a wage and you shouldn’t lose money. But charging this price does not give you any wiggle room to offer discounts, bonuses, etc.. So you need to add in some profit to the equation.

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Hi there lovely

I’m Nicola, lover of all things colourful and a garden obsessed planning addict!

My main goal is to help overwhelmed creative solopreneurs gain confidence, business skills and a whole heap of motivation so that they can set forth on their creative adventures with all of the tools they need to build a profitable online business.

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