The challenging task of fairly pricing handmade and unique products.
We often get asked about how we come up with our prices.
Do we have a strategic plan or do we just make them up and hope for the best?
A few weeks ago Ben Francis, founder of sportswear company Gymshark, admitted that when he started he didn't have a strict pricing strategy.
"It was literally a case of what would we want to pay for something."
"There was no considered approach. We were like, 'we would pay £20.'"
It obviously worked for him but I suspect that over time that it has evolved slightly.
The full article is available on the BBC website
So does this strategy work for everyone? Is it what we do at Katie Gowers Design?
The short answer is no.
It is certainly something we take in to account when pricing our items but it isn't the first thing we think about.
Here are the top eight things we consider when pricing a new product:
1. Cost of materials
We need to cover the cost of the materials that we use in a piece.
We calculate how much it costs to buy the material (for example beads, satin, silver) per gram or length (as appropriate).
We then calculate how many grams/ cm of each material we use to make our design and find the total cost.
The more expensive the materials we use the more expensive the end result is.
So far, so obvious! Right?
This isn't the end of the story though.
2. How much time did it take to make?
We factor the time an item takes to make in to our pricing.
Obviously we can't work for free, we have bills to pay just like everyone else.
If we don't pay ourselves then we don't have a sustainable business model and won't be in business in a couple of months.
We strongly believe that the more complex or delicate a design (and the more time it takes) the higher it's value.
When we make prototypes we consider whether the amount of time taken to make an item results in something that is recognisably more valuable.
Some designs never make it to our stores because they take a long time but don't result in something exciting enough to be worth extra.
3. Fees and commissions
We pay commissions and fees for every sale that we make in our online stores.
How these are calculated vary from site to site but they can be up to (and sometimes exceeding) 10 - 15 % of the price of the item!
This therefore makes up a not insignificant amount of the prices listed.
If we exhibit at markets there are also costs involved in having a stand, card processing systems etc.
4. Costs of tools and consumables
Tools can be expensive.
We consider how often we need to replace our tools and make sure we spread the cost over the items we sell.
This includes consumables such as solder, flux, moulds, saw blades etc.
5. Other business costs
There are so many other costs associated with running a business!
These include but are not limited to insurance, costs of running a website, costs for tools to support graphic design and marketing, advertising fees, taxes etc.
These are vital to the success of our company and so need to be included in our pricing plan.
6. Costs of postage and packaging
We need to make sure our items get to the buyer safely!
This means packaging it up carefully and paying for postage services that give it the best chance of arriving safely.
7. Competitors pricing
This isn't something that we are obsessive about but we do keep an eye on the market.
Where we are using high value materials we try to make sure this is clear in the listings.
We have to be true to ourselves and not undermine the value of our items.
8. How much would I pay for an item like this?
This is the method Ben Francis mentions in his interview.
For us - this is our final sanity check. Once we have plugged all the numbers in and come up with a final price.
Would we actually pay that much for the item?
Some designs never get past the prototype stage because however much we try we can't get the price down low enough to be competitive.
So how come some people barely charge anything?
You will find some sellers on popular handmade sites charging very little for their makes.
Some hobbyists simply cover some or all of the costs of their materials. They make some beautiful pieces and have no interest in running a business.
That's fine (who are we to judge or criticise).
I learnt my skills from making items in my spare time.
Something to bear in mind though is that it can mean that the price doesn't truly match the value of the item being sold.
You aren't paying for their time or skills.
So, do we just make our prices up?
The bottom line is no, we think about our pricing very carefully.
Like everyone else we have bills to pay and a family to support so we have to make sure that we are pricing our items fairly and in a sustainable way.
We also don't want to rip off our customers so we carefully balance this with ensuring our prices aren't unreasonably inflated and look for ways to keep costs down (like buying materials and packaging in bulk).
We regularly review our prices to ensure we are taking in to account changes in materials costs, fees etc.
If you want to find out more about pricing your own products we found this book invaluable when we were starting out:
Does this seem fair?
Does this article match your expectations? Did anything surprise you? Do you sell your own handmade products and have a different strategy? We would love to hear your thoughts.
Let us know in the comments.
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