September 9, 2010

Pricing - get your equations right and stick to them

I've said this a million times in Etsy's forums, and I can't say it enough. It's a huge pet peeve of mine.

Don't let anyone (including yourself) convince you to change your prices. Do the math. How much were the supplies? How much will it cost you in fees and packaging? How long did it take you to make? How much do you expect to make per hour? Calculate it all out... and multiply it by at least 1.5 (most people multiply by 2) to get your consumer price. The price before multiplying is your wholesale price.
Note: GracieJewellery was nice enough to correct me, and I wanted to post it up here for those who don't read the comments. What I thought was the wholesale price is just what it cost you to make it. After multiplying by 2, it's your wholesale, and by multiplying it again you'll find your consumer price.
Now, list that price and don't change it... don't even look at the similar listings. People undercut themselves all the time because they don't know how to price or they're not really trying to make money or form a business. You need to make a profit to be successful. Without a profit, you have no money to put back into the business and you're not really helping your personal life either. Plus, if you make your prices lower than everyone else, it may make your item appear to be "cheap" and people will wonder if it's worth even that little bit of money.

I've always said that if I design something well enough, people will pay what I believe it's worth, and today I finally have proof. I have a digital collage sheet in my store for $8.36, and I've had so many shoppers tell me that I should lower my price because most similar listings are in the $2-$3 range (and they wanted my sheet but didn't want to pay that much). I politely responded that I would not lower my prices, no matter what anyone else charged. None of those potential customers bought it, but today someone did. I can't wait to see what they make.

It's not so bad with a digital product. I understand why people price them so low - if you assume you're going to sell 10 of them, you can calculate in the fact that though it may have taken you an hour to make that file it will take you no time to send it to 10 people - which will lower the price. In fact, I did that with my listing (it actually took me about 8 hours to make, and I do pay myself more than $1/hour). However, you still need to profit.

Here's a better example: infant hats. The cheapest one I can find on Etsy right now is $1. Now... how's that being calculated? Lets assume that they put packaging costs into the shipping (though I don't think they did), so that's accounted for. Now let's subtract 23.5 cents (for etsy fees) and a few more cents for the paypal fees (I don't actually remember what their fees are). Now that hat is earning the seller around $0.74 if it sells. I may not know much about knitting, but I know a lot of people who knit, and I know that hat would take the fastest of them half an hour to make at least.

Now, if you were at a "real job", would you work for $1.48/hour? I know I wouldn't. If I worked 20 hour days, that's $26.60/day, if I worked 5 days a week that's $148/week... and that makes for $595.00/month... and that's half of my current rent, never mind bills and food, or the fact that I'm a full time student and actually only work 4-8 hours a day (not counting checking e-mail on class breaks).

So, a summary:
-If a customer likes your product enough, they'll pay what it's worth.
-If you lower your prices too much to try and sell, you may end up looking "cheap" and people will question the quality of your work.
-If you do not price your items properly, your business will never grow and you'll never be able to quit your day job (and survive).

15 comments:

  1. love it! so very true, and I will keep this in mind. You said it all and then some, very well put. Thank you!

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  2. Glad I could help! Thanks for reading!

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  3. Great advice. Things have been super slow for me the past few weeks and I was toying around with lowering my prices earlier today. You've talked me out of it! Thanks for sharing.

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  4. I'm having trouble understanding your pricing system. For example if I make a pair of earrings:
    $2.00 Materials
    $5.00 time 15 minutes if I pay myself $20.00 an hour
    $2.00 packaging, listing, paypal
    this equals $9.00 x 1.5 = $13.50
    so if $13.50 is my retail price then I made $4.50 and if my wholesale price is before I multiplied it how much did I really make? Nothing plus it cost me $9.00
    $9.00 is your cost price to make, $13.50 is your wholesale price $20.25 is your retail price

    $13.50 should be your wholesale, double it for your retail

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  5. Thanks for the info! I really struggle with pricing especially since I do a drawing and then sell it as prints and cards which cost almost nothing to make.

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  6. Kelsey - always glad to help!

    Gracie - Personally, I'm happy with my hourly wage. But I simply wanted to encourage people to find a pricing system that worked for them, instead of just pulling numbers out of their heads. Thanks for that, though, I might edit the post somewhere down the road to include feedback I've gotten (not everyone reads comments, unfortunately). I would love for people to gain insights into other people's equations to help them figure out their own.

    Melissa - Most of what I make costs me literally nothing to make. It's stuff other people were throwing out that I rescued from the junk yard. But I do expect to get paid for my time, and you should too. Glad I could help!

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  7. I'm glad you posted this, because I preach the same idea ALL THE TIME! I think the more we advocate for paying ourselves fairly, maybe the more it will catch on.

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  8. Thanks^^ You're absolutely right that the more we advocate it, the more it will catch on. Unfortunately, not everyone is such a loud mouth! Lol

    I'm thinking of creating a badge of some sort that people can use, but I haven't figured out how to word it yet.

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  9. Awesome post I could not agree with you more... soooo many people out there devalue their hardwork.... time is money, and our country is not at all a cheap place to live.. the average apartment in souther california is 1300 bucks and then add to that student loans, bills, food gas...... if we want our passion of crafts to be a job we have to set standards and keep them, we work hard and provide beautiful products, and if someone values your work its worth it for the uniqueness and quality!

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  10. Exacly.

    I'm curious... is that "the average 1 bedroom apartment" or "the average apartment" (including 2 bedroom, 3 bedroom, ect)? I'm Canadian, and I was paying $450 for a room (in college) with a shared kitchen and then $850 for a two bedroom apartment when I moved in with my boyfriend (now husband). That was in Sudbury, and those prices were at the lower end of the spectrum... and the first was all inclusive and we had to pay hydro on the second... but the highest priced 2 bedroom I remember seeing was like $1000 without utilities. I don't know what the apartments rent for around here... but $1300 is insane!

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  11. Lauren I think you missed my point. "wholesale" price is what you charge a store who would be selling your product. When you calculate all your expenses and time - that total is your cost price- what it cost you to make it. Your consumer or retail price should be at least double what it cost you to make.

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  12. No, I got your point, and I'm still debating changing my prices. But as I said, my pricing scheme works for me right now. It will likely need to be changed in the future, but right now what I'm getting out of my business is what I would expect to get out of any part time job I would be working as the full time student I am. I will edit that in the post when I'm done this reply, though (I was actually in class the last few times I replied here).

    I just wanted people to realize that they're not doing themselves any favors by pricing like this:
    "Well, most people seem to price around $5, and I would probably pay no more than $10 for this, so I'll put it at $8." and then getting nothing from something they spent 2 hours working on.

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  13. I meant "but right now by selling at wholesale" though I still thank you for pointing that out to me. You explained wholesale vs. consumer pricing to me differently than people have in the past, and your way makes more sense.

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  14. I have priced my small art dolls at the high end of similarly sized cloth dolls on Etsy, as a newcomer to the OOAK art doll world. Over time my prices have increased slightly. This seems to be what the market will bear, although it is certainly not covering my time in any real way.

    Every now and then I get people looking at them at craft fairs, and gasping and exclaiming that I am underpricing them. However these complimentary folks aren't always reaching for their wallets.

    Then the next person comes along and remarks that they are expensive for "just a doll".

    The real competition is not other doll makers or textile artists on Etsy; it's industrial manufacturers with factories in low cost third world countries, who are increasingly appropriating hand crafted aesthetics into their commercial products.

    I think part of it is the audience. On Etsy, I am pricing my dolls for the people who are shopping at Etsy. Now some of my dolls are going into an art gallery for the first time. Hopefully a whole new audience of affluent folk will see them and choose to pay the higher price. (I have removed them from my Etsy store for the duration, so as not to be undercutting the gallery, which seems to be the ethical thing to do.) I am taking the advice of the curator as to pricing - she knows this audience better than I do.

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  15. Wow! Good luck with the gallery!

    I think that your situation is one that a lot of us run into. Obviously we can't price like the industrial factories, so we just have to hope that people will appreciate the fact that our products are handmade and OOAK (or at least don't come from sweat shops).

    Undercutting is unfortunate, but it's a part of selling on Etsy (or anywhere else online, for that matter). Some people view it as "just a hobby" and don't care what they make, and others don't know how to price something and will likely find out that they're just not making enough - and then they'll either leave or re-evaluate their pricing. I generally just ignore them - calculate my prices and if people like what I have to offer, they'll pay.

    Maybe it's different with cloth dolls, but I've found that if you have something unique to offer people will pay the extra money.

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