Monday, March 22, 2010

Pricing Your Work

Have you ever priced your work according to a pricing formula?I haven't really until lately.There are a lot of pricing equations out there,including not having one!

Here's one from the book "How to Open and Operate a Home-Bases Craft Business"
"Pricing Equation

Here's the simple pricing equation: Materials+Overhead+Labor+Profit=Price

It's easy to arrive at a price for any item,providing you have kept good records.Let's assume you're making a product that takes two hours to per unit and that labors cost are $10 an hour.We'll further assume that your material costs and any directly related services amount to $8.50 per unit.With that small amount of information,and using the second variation of the one-third formula for calculating overhead,make the following list and calculations to determine the price to charge for each unit:

*Labor = $10/hour
*Time per unit = 2 hours = $20.00
*Material per unit = $8.50
*Overhead = $20 x 33.3% = $6.66
*Cost of manufacture = $35.16
*Profit= $35.16 x 100% = $70.32
*Price per unit = $72.32(wholesale)

If you're selling this product wholesale for $70,the retailer will mark up 100 percent and charge his customers $139.95.This equation works as well for a $10 item as for a $1,000 item."

I believe this is the way most stores price their items,though one of my friend's store was 25% consignment,but I'm not sure what their mark-up was for the rest.I think it was the same.

Here's my price for a pair of regular Branch earrings made with colored wire and seed beads using this formula~

*Labor= $20/hour
*Time per unit= 45 minutes= $15
*Material per unit= $1.50
*Overhead= $15 x 33.3% =$4.99
*Cost of manufacture= $21.29
*Profit= $21.29 x 100% =$42.98
*Price per unit= $42.98(wholesale)

Final retail price =$85.96!!
They're on etsy for $30 per pair of earrings.I don't even think I could charge $42.98,the "wholesale" price for them.

My mom had told me "Materials x 2 + Labor x 2" to get your retail price.Let's try
that equation:

*Materials = $1.50 x 2 = $3.00
*Labor = $15
*Wholesale = $18
Retail = $36

A little better.Closer to what I'm selling them for,anyways.It look like some folks could use that equation.

I'm working on trying to figure out my own way to price so that I will make enough while my customers can still buy and I can at least put them in a store with a 35% mark-up,or at retail price.

$20 an hour is what I need to make,but some items I only pay myself $8 an hour because it took 8 hours to make,and maybe I used more expensive materials in it.I usually try to balance more expensive materials with a simpler design,so that my labor cost is down.So if my labor cost is down,my material cost will be up,and visa-versa.

This whole thing about pricing started up(again),when I was trying to figure out what my prices would be for Branch earrings with 14kt gold-filled or sterling silver wire and earwires with freshwater seed pearls would be.I currently charge $33 for the craft wire and pearl Branch earrings.

So what do you use to price your work?Any tips,ideas,thoughts?


Jennifer Vance said...

All excerpts from the book are used for reference and is Copyright 1994 by Kenn Oberrecht.

Anita said...

I sure wish there was a tried and true formula for pricing our handmade jewelry, and I am holding back on selling just because of the pricing dilemma.

I know what it costs in materials. I have a pretty good idea of what the overhead might be. But the real question isn't of worth really, is it? No! It all boils down to what they will pay for it.

I don't want to over-price it and have customers turn their nose up at me. If they pass me up in the beginning, I'll likely never gain them back. I don't want to be "that lady who is WAY over-priced", even after adjustments... And, likewise, I don't want to undersell myself either.

So, this problem has kept me from selling at all. Sure, I have friends that say "I'll give you $10 for that" and "$20 for those", but that's it.

I had an idea a while back about opening a blog, posting items, then having people suggest a price they would be willing to pay IF they were a customer.

One way or another, I must begin to sell! I've invested WAY too much thus far for it to be a hobby. Also, I'm starting Jewelry design school soon.

Thank you for your article. It is a topic that needs discussion!

Anita said...

Saw this, it's pretty interesting!

Anita's Wired World

Jennifer Vance said...

Neat,thanks for sharing.I did a test amount for the branch earrings,and it came out almost the same as the book's formula,only $4.00 off at $81.00,but that was with if I had items in stores or crafts where I rented(which i plan on doing,so my overhead was higher.I also entered a higher amount for gross income,what I'll need to be making in the future.But I'm going to play around with this,and see how it goes.(I don't think people are going to pay $80.00 for those Branch earrings)

Jennifer Vance said...

It seems like you get the same price,using either the jewelry pricing calculator or Kenn's formula.

Jennifer Vance said...

For me,I'm going to use the formula from the book,just without doubling it again for retail.So my wholesale will be my retail,and I won't be getting profit.But I figure my labor costs ARE my profit.So that will work for now.So,Anita,let me know how you do with your pricing,and someday I want to do a blog feature with you!

Jennifer Vance said...

Note:A friend of mine told me her Norton anti-virus told her that the software has a info-stealing bug,so download at your own risk!Like I said,if you use the formula from the book,it comes out about the same,anyways.