Are You Undercharging for Your Products?
Are you undercharging for your products? In this post, we’ll explore key aspects of pricing for handmade businesses. Understanding the full cost of production is crucial for setting the right prices.
What to Consider as a Handmade Business To Determine Pricing
Most people don’t take into consideration all the parts to build their product. Are you factoring in your time, what about things like masking or 3M? Are you looking at all the pieces that go into your packaging?
Here’s an Example of Me Determining the Cost of a Tumbler Tag
Tumbler tags are all the rage, so let’s use that as an example to work through together.
- Acrylic: Consider the colors and quantity. Glitters and mirrors cost more than basic colors. Calculate the cost per piece from a sheet. For me, I do this by filling a sheet in my vector software with each color. I can then see how many I can get on one sheet. So if the sheet is $10, and I can get 10 pieces of the same design portion on that sheet then I am spending $1 per piece (do this for all pieces involved).
- Masking: Determine if additional masking is needed. I don’t normally have to mask my acrylic as it comes masked, but sometimes the speciality glitters come with clear film, so I determine how many sheets I can cover with my roll of masking to determine this cost breakdown per sheet and then per item (see acrylic formula above).
- Adhesive: Factor in the cost of 3M adhesive or other types. I do the same thing as with masking. If I need it on side of acrylic, and figure out how many pieces I can get out of a sheet of acrylic I follow the same formula for cost per piece.
- Packaging: Include the cost of backer cards, business cards, stickers, tissue paper, boxes, and any additional packaging materials.
- Hourly Wage: Set your minimum wage based on your state’s standards and estimate the time taken for production and packaging. Even if you aren’t sure how much time it takes, at least factor in 20 minutes of your time. This can cover typesetting and file prep, cutting and assembly as well as packaging. Get something for your time.
Let’s Price An Item Together
Example: A two-color tumbler tag with a person’s name, fitting a 40 oz tumbler. I’m using solid pastel acrylic for the top name, and a glitter for the bottom. These prices are just thrown out there for an example.
To best figure out if you’re undercharging for your products, use my formula of finding out how many of each design piece I can get on a sheet of acrylic, I break it down like this:
Items to Price Out:
- Top Acrylic Color: $0.07 each
- Bottom Acrylic Color: $0.53 each
- 3M Adhesive: $0.02 for top, $0.05 for bottom
- Box: $0.68
- Backer Card: $0.08
- Tissue Paper: $0.08
- Sticker: $0.12
- Business Card: $0.10
- Tape: $0.03
- Hourly Wage: $2.73 (for 20 minutes)
Base Cost: $5.04
Once you see your base cost, look into ways to minimize that. For instance, are your boxes too expensive? I had to switch to boxes because items going out in padded envelopes were breaking. Sure they are cheaper to buy, but not in the long run if I had to replace products.
If you knew it was costing you $5 to make a tumbler tag including all the other items involved, would you just charge $8 for it? You’d be surprised how often I see that price or lower! Stop undercharging for your products!
Considerations for Pricing
At minimum, charge 2X your base cost. Ideally, aim for 3X to ensure a good profit margin. Remember, people are willing to pay for quality.
So you could get $15 for a tumbler tag and be making a profit, and replenishing your costs!
Are you undercharging? Consider using a pricing spreadsheet to calculate your costs, profits, and margins accurately. Factor in discounts and shipping costs if needed. Value your work and don’t underprice just because competitors do. Charge what you’re worth!
This is an amazing Googles sheet I purchased last year of Etsy. I don’t have any affiliation with them, and it helps me see things better. I then can even plug in a discount amount to make sure I’m still profiting when running a sale. So if I’m only charging $8 for a product that costs me $5 and I run a 40% off sale, you can see where I’m going here. I can then determine if I want to raise my retail price to accomodate for sales and discounts.
With this sheet I can enter in all of my supplies on one tab, and then use the calculator to simply enter in the pieces I use for a product. I can see the profit margin, enter a discount. It’s really been heplful for me!
P.S. Success Story: I sell tumbler toppers on Etsy at $22 each, and so can you!