Starting a small business can be a daunting task in itself, however I feel the biggest challenge is knowing how and what to price your work at.
Time and time again I see people under-pricing their work, and in turn under-pricing themselves.
Now I'm not an expert in the slightest, and I definitely still under-price my work, but after doing it for over a year I have found a way to price my work that, I feel confident is valuing my time whilst gaining a small profit.
My hope is that by sharing my tips it might help someone else who is struggling to do the same.
Firstly you have to decide if you do in fact want to create a small business from selling your work. This sounds odd, but basically if you are looking for a self funded hobby you would add up all your material costs, including selling fees, postage and packaging and ultimately you have your price. This sounds like I'm teaching to suck eggs, but so many people forget to charge for packaging supplies and let me tell you, these costs add up!
Now onto business!
The pricing formula I have found to be most effective (for me) is the following:
Cost of materials
+
Price per hour for your labour
+
Postage cost
+
Overheads
+
Profit
+
Selling fees
= Item price
Simple you think? Maybe not!
Firstly lets talk about hourly rates..
Working out the price per hour had me stumped for a while and seems to be a sore point with a lot of creatives who are new to the world of small business.
You could simply go for the national minimum wage, which currently for my age bracket is £8.21 (UK age 25+) but you have to remember that not everybody could do the craft/art that you do. Most of the time if someone is buying from a small business they will expect that person to earn a decent hourly rate. When you determine you own labour rate, use a wage that allows you to grow your business and accounts for the skill required to make your product.
My biggest tip is to remember it isn't just and hourly rate, it is an hour of your life!
Cost of materials...
This is pretty straight forward, whatever it costs to make the item is what you charge, this included the postage to get the materials to yourself.
From a macrame point of view I work out price per meter of cord and keep track of how many meters a piece uses. For example if a spool of 200 meters is £23 plus £3 post, it would be £26 ÷ 200 = 13p per meter.
Don't forget to add on the cost of other materials too, such as dowel/beads etc.
It's really important you get this right because if you don't cover costs you won't be able to sustain your business and eventually you'll have to stop creating.
Also remember if you make something with craft supplies you already have (say you knit a jumper with wool you've had stashed away for years) when you come to price the product, look into how much it would cost to buy the material NOW because you may get someone ask you re-create down the line.
Postage cost..
This is pretty self explanatory but Royal mail seem to have a price increase at the beginning of the year so make sure you do the same. I also recommend the you look into other shipping companies. I use Parcel 2 Go a lot to find the best service/price.
Overheads...
This cost is usually overlooked, these are the underestimated business expenses that can really add up. Things such as tools and equipment, utilities, business insurance, packaging, office supplies, etc.
A good way of working this cost out is usually 10-15% of the materials and labour cost.
If they are not accounted for in your prices, they can eat away at your profits and negatively impact your ability to grow your business.
Profit..
This is something you would have to decide yourself. I normally aim for a set % but I always check the market price and adjust accordingly.
Selling fees..
This is basically the fee that gets deducted when you sell an item. This could be PayPal, Etsy, Ebay, Amazon etc. A couple of tips I have are:
Always check and double check how much your selling platform charges you. A lot of them now take a percentage of the actual postage cost, so make sure you add that on.
I would recommend reviewing the selling platforms fees every 12 months (maybe do this at the same time as checking you postage prices) to make sure they haven't increased their fees (you should be notified by email, but sometimes these things get missed when your busy).
The next big question is..
Why am i still under pricing my work?
The normal pricing practice is usually the following:
Price per hour for your labour
+
Cost of materials
+
Overheads
= price, x2 for wholesale + postage cost
Then you would take the wholesale price x2 + postage (if applicable) for the retail price.
By doubling your item cost you would cover any fees you might incur.
The reason I don't do this and instead add the selling fees and profit is because I found that doubling the cost really over priced my items for the market. I sell on Etsy and it can be a tough because it's not just small businesses on Etsy, anyone can open a shop, even people who are just crafting as a hobby.
As well as running Mad About Macrame I'm also a full time mum to three children. Whilst I would love for this to be my full time business, I am very fortunate that my husband works really hard and his wage covers our bills so I don't have too.
By giving my self a decent hourly rate, and a small profit, in the future when I have more time it will be easier to grow my business without having to do a massive price increase.
Most importantly, when someone asked me how much something is, I don't hesitate anymore and I no longer say "it's £x, is that okay?" because I've done the math, and I know my worth!
Charlotte
x
Comments