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?