I started my very first Etsy shop selling jewellery back in 2011. When it came to pricing there was very little method to the madness. I just totted up how much it actually cost me to make the piece and then added on a few pounds.
Friends of mine were a bit more methodical and priced the items somewhere in the low price range of similar products they found. These two methods of pricing ended with us all vastly under pricing our wares and making very little money vs the numbers of sales that were coming in.
Especially when we factored in the actual time it took us to wrap and post everything.
Now, I know when I first started I heard many people say ‘Don’t compete on price.’
I rolled my eyes, muttered something like, ‘well it’s alright for them, they are successful already’.
I imagine many of you are saying the same. Or, perhaps pointing out that Bob down the street also sells jewellery and he’s already waaaay cheaper than you are, so you can’t raise your prices. In fact, maybe you should lower them….
I know this sounds bizarre in a post about pricing BUT stop thinking about pricing.
I had a lot of sales jobs when I was a student, and every single one trained me that, when trying to make a sale, price was the LAST thing you mentioned.
You sold your product on the product benefit alone.
What I am trying to say, is that you need to change your mindset. Price is not the only battlefront you can compete on. And let’s face it. The vast majority of the time, especially if you are a one woman show, you will never win the price war.
Amazon and wholesale goods from China already called dibs on price. You’ve got to choose something else.
OK, so now that rousing, slightly depressing pep talk is out the way…
The generally used equation for pricing is as follows:
Hourly Overhead + Cost of Production + Profit x 4 = Retail
Each of these are made of quite a few different elements so let us go back to basics for the moment.
Let’s look at the fundamentals first. You need to work out how much to price your items so they are the perfect balance between high enough to make a living and low enough that people can actually afford to buy them.
You know how much it costs to make your product. What you don’t know (yet) is how much people are willing to pay for your product.
Grab you most fabulous geek glasses, we’re about to do some research.
Track down similar items on Etsy. I would also recommend having a gander at eBay but do keep in mind that due to the nature of eBay the average market price has been hammered down.
Also remember to search for your keywords. For example, if you sell pearl necklaces (we’re living the dream here for a moment) you will, of course, search pearl necklaces. But if you sell pearls specifically from Tahitit, you might also research other jewellery that use materials from the same place. Tahitan pearl bracelets for example.
Now, as we’ve discussed, you are going to find items similar to yours for prices you cannot match. Instead, work out a price range and aim for the middle to higher end of your item’s price range.
Remember always to keep in mind your base costs. That includes the wages you pay yourself, the time you spend packing and hauling all your goodies down to the post office.
WORK OUT ALL YOUR COSTS
OK, so we are speaking about base price so we should probably cover in a little more detail exactly what you should be considering when working out your costs.
First you will need to consider how much time you are actually going to be working. Now, when I first started I timed how long it took me to make each piece, this is good to keep in mind but try to also think further into future.
For example, work out how much time you are going to spend on your business a month. That includes marketing, finance, making, mailing…everything.
If you are full time then you are probably looking at the same number of hours as the average 9-5 working week.
So, big things first, you need to factor in the big investments for your business. For example, have you just splashed out for a nice shiny new camera? Add it in my friend. Rent for a studio, payments for classes for business improvement, all your shipping bags, boxes and stamps….
It sounds a lot when you think about right? Basically, before you even think about how much it costs you to make each piece, think how much it costs a month just for the business to exist. These are your overhead expenses. Your hourly overhead is these expenses over the year, divided by the hours that you are working. We’ll go into more detail in a moment.
Do you source the raw materials yourself? Or do you buy them in? Bit of both? Remember to include the cost of shipping all your goodies to you from your supplier. (& keep all the receipts, all over them, your accountant will thank you later)
This can be a little bit tricky. How much do you want to pay yourself? Seems like a silly question, doesn’t it? Well, I’d like to earn £250 an hour, might at the outset be a little steep.
Again, start at your base cost of living. How much do you need at the end of the month to clothe and feed yourself etc comfortably?
If you work full time and hoping to transition to full time Etsy, maybe base your wage on something that compares to your current wage. Of course this might not work in practise. For example, if you have thirty years experience in HR then your wage will be higher than a first year maker of jewellery, so try and keep experience in mind as well. Of course if you’ve been secretly churning out amaze jewellery in your spare time for 30 years, reward yourself for your experience as well!
Cost of Production
So now you have worked out what you are charging an hour you can work out your productions costs. This is simply your materials + your hourly wage x hours accrued in production.
OK, so that’s quite a few things you’ve got to keep in mind. Let’s bring it back to the real world a mo and look at some examples.
The Physical Things
So fundamentally you’ve got the cost of the items themselves. So, keeping with jewellery, the cost of Element Beads, the cost of jump rings, the cost of the wire, cost of the earring hooks…etc
So that is your actual raw materials. Now what do you ‘use’ to make your items? So for me it would be, cost of flat nose pliers, round nose pliers…all the pliers basically!
Right, now, your product is made. What do you do now? Photograph your item? So, did you get a new camera? Note it down. Hire a photographer, maybe? Down it goes.
Excellent, now it’s time to wrap everything up so that’s your tape, boxes envelopes, bubble wrap etc. Try and work out how many packages each item does. For example if you’re using wrapping paper, how many items does a roll do?
Don’t forget extras that go in the bag, like thank you notes or business cards!
Put Your Back Into It
OK some things to consider when totting up your labour. Of course you’ve got your actual ‘making time’, but have you considered your ‘shopping’ time? What about the hours you spend scrolling through obscure websites looking for the best deal on your materials? If you are photographing your items, how long does that take per item?
Not forgetting your post office trips!
Now, how much time do you spend on Etsy? When you add it all up it is quite a sizeable chunk, you might be surprised. Especially when you considering the time it takes you to write and spell check all your listings, or research your keywords.
Money Going Out
So we mentioned this with the camera and your rent earlier on. How much do you spend on your business that doesn’t come under materials or labour? Paypal & Etsy fees are the first things that come to mind. Make sure to tot up your expenses and keep them in mind.
Money Coming In
OK, so I think have well and truly covered expenses. Let’s talk profit.
Now I know that once you’ve worked out all that the price is mounting up. I’m sure most of you are thinking, well it’s already costing me a fair bit so I can’t mark-up much…
STOP….no low price thinking remember!
I worked in a high end jewellery store at one point (I got about a bit I know) and we worked out the price by looking up what it cost for us to buy it from our supplier and just slapped on 30%. And not on the whole item either. A necklace would be 30% on the pendent and then 30% on the chain. I was shocked, it took the price up from something quite reasonable to something eye watering.
…In any case, remember that you need to be doing more than covering your base costs. You need to be making a profit as well!
Don’t skip this section! I know when you are just starting our wholesale seems a strange and curious animal, made only for big chain stores. However, it is well worth considering.
Wholesale, as I’m sure you know if one of the reasons huge chains can keep their prices so low, buying bulk at a discounted price. The basic formula for working out a wholesale price is to add your hourly overhead plus your production cost plus profit and then double it.
The Price Equation
OK, so even if you are not looking to go down the wholesale route, the price is still important. This is because to work out what your retail price can use the wholesale price.
So….work out your whole sale price….OK, done? Great.
Now, to work out your retail price you take your wholesale price and times by 2. Or, take your hourly overhead + production cost + profit and times it by four like so….
Hourly Overhead + Cost of Production + Profit x 4 = Retail
Neat right? So we have covered everything that you will need to include when working out your overhead and your productions. These are tangible numbers you can punch into your calculator.
The profit aspect of the ratio is really the only uncertain one. Consider how much you think your business should be making a year and also think about the price ranges your research has yielded. Between these two figure you should arrive in the rough ballpark of the correct price.
As a business owner your research will never truly end, my marketing tutor always used to tell me to keep a constant watch on the competition. See what they are doing, and do it better.
And remember, better does not mean cheaper!
I’m sorry for the mammoth post but I hope you all found this helpful! Please feel free to leave a link to your Etsy shop in the comments; I’d love to come check them out!
As always if you have any questions, just drop me a line, always happy to help!