2.1 Pricing

Overview Let's all go ahead and let out a collective sigh for pricing. If you're like me, you still can’t believe you get paid to knit in your pajamas all day, binge watching your favorite show, and raiding the pantry between projects. But that doesn't make your time any less valuable than if you were sitting behind a desk punching numbers. Do you know how much you earn per hour? Per product? Are you making as much money as you should be? Could be? Are you downplaying your work because you enjoy it so much? Are you scared to ask for what you're worth? Your time is incredibly valuable (pajamas or not), but it is up to you alone to assign value to it. The Problem with Market Rates While it is helpful to be cognizant of market rates, it's important to remember that no one mirrors your exact set of circumstances (speed, expenses, goals, etc.). For this reason, I do not advise using the pricing structure of others to determine your own. Below are a few example scenarios that may be influencing another seller's prices. Let's call her Zoe. Zoe's income may come from her full-time job, and this is just a hobby to have her yarn expenses covered. Zoe may be supplementing her shop with a side job that she doesn’t share. So while you infer that she is living off her shop, that may not be the case. Zoe may have an incredible supplier deal setup where she is able to source her materials at an extremely low rate, thus giving her a larger profit margin. Zoe is otherwise wealthy, and she simply isn’t concerned about earning money via her shop. Zoe may live in a city with an incredibly different cost of living (whether that's lower or higher). Zoe hasn’t done her homework, and is only making $6 an hour for her work (and maybe doesn't even know it). Lower vs. Higher Prices Be careful of the assumption that lowering your price will automatically result in more sales, or beat out your competitor offering a similar product. While Etsy makers can often be more frugal in nature, Etsy buyers are often willing to pay more to own something handmade. (Pardon my overgeneralizations here.) I was making everything to order my first year in business, and quickly became overwhelmed. I decided to raise my prices to slow down orders, but the opposite happened. Note that the point is not to take advantage of an Etsy shopper's willingness to pay more to support a local artist, but to properly value your time and trust that you will continue to be supported. Wholesale It can be quite flattering to think that a brick and mortar store wants to carry your product. Such a huge opportunity, right? Eh. I've said yes enough times to know that I truly never want to say yes again. In my experience, the margin just isn't there. Let's say you sell a product on your shop for $25, and it costs you $5 in supplies. It takes you an hour to make, so you're earning $20 an hour when you sell directly to your customer. A wholesale buyer will expect to pay around 50%, or $12.50. Your supply cost will come out of this $12.50, leaving you with $7.50. To recap: Selling B to C (Business to Consumer): $20/hour Selling B to B (Business to Business): $7.50/hour With individually handmade products, the wholesale model can be ruthless. This model works much better for a small business like Chalkfulloflove. After she designs a mug, she sends it off to be printed. Whether she has 3 or 300 mugs printed, it's the same amount of time and effort on her part, and thus a low margin is still a considerable gain for her. (Take a moment to imagine how much more difficult it is to make 300 scarves versus 3? Oomph). I do however make the following two exceptions: A household name requests to purchase your product. Sometimes these opportunities can fall under the concept of 'Brand Elevation' and the newfound credibility is worth the smaller margin. (Examples might be West Elm, Anthropology, etc.). It's the end of busy season and you have extra inventory that you're nervous will sit around until the following year. A great way to set yourself up for success here, is to defer all wholesale inquiries that arrive in Q3, and tell them you will be in touch late Q4 if stock is still available. Asset: If you choose to pursue a wholesale opportunity, here is a Line Sheet Template to help you communicate your process + pricing. Application It's time to objectively define your pricing, make a profit, and move your business to the next level. Take the guess work out and get back to what you love. This Target Price Calculator will do all the heavy lifting for you. download now