4 considerations for pricing product
As a maker, your work is your passion. And you are keenly aware of exactly how much work goes into turning that passion into sales. It's a fundamental question facing every business owner at some point: "How much is my work worth?"
The challenge is to choose a price point high enough to reflect the time, labor and materials that go in to each of your products, while still being low enough to attract customers. You're aiming for a sweet spot that can be difficult to pinpoint. Here are some things to consider when developing your pricing strategy.
It's a basic principle of economics: Demand drives price. So to price correctly, you need determine where the greatest demand for your product is and what the going rate is. Then ask if you can create additional demand and make enough product to meet it.
Gauging existing demand can be done with a little online research – check sites such as Etsy and Pinterest, but also consider Google Trends, which can show who is searching for your product, or similar products, over a range of times, geographies and other criteria. Fellow makers and local stores can also offer insight as to what is selling and what isn't.
You're always in a better position to create more demand (and have better selling success) if you satisfy a want, not simply address a need. To do this, focus on what makes you different, whether it's creative packaging, a new spin on an existing product or a creative item with a functional purpose.
Figure out how you bring something new to the table, then use that to not only grab attention but also to appeal as a useful and worthwhile purchase -- or at the least, a fun and interesting buy.
Money earned versus time spent
Pricing products comes down to getting fair compensation for your time and resources. You already know you're going to sell at a price high enough to recoup what you spend on raw materials. Anything above that is earnings for your time.
So, consider whether the sales potential of your product is worth the time and resources it takes to produce it. Is your profit too low to justify the labor and materials you put in? Could your price point negatively impact sales? In some cases, the numbers might not add up, no matter what you do.
"Some things are just never going to be profitable, when you consider the time and materials you put into them," says crafter Sherri Osborn. "Some projects, like quilts, are going to be very time consuming and materials intensive, and you're either going to have to price them very high or work really efficiently, to make them worth the effort."
Cost of sourced materials
How and where you purchase raw materials can also impact the price point. If you source at a lower price, you can sell your product at a lower price and still turn a profit. But there is a potential downside to raw materials bargains.
"Always be wary if you find, for example, a certain color of yarn at a really low price," says Ellen Cagnassola, CEO of Sweet Soaps. "That's a red flag that the product is possibly going to be discontinued, and the supplier is just looking to move the remaining inventory as soon as possible. You could find yourself unable to source that yarn in six months."
Scarcity of raw materials isn’t the only potential sourcing issue. If your product succeeds, things can trend the other way, and you may find your once-reliable supplier can no longer keep up with your customer orders. To prevent supply issues, talk with potential suppliers to ask about:
- Present and future availability
- Stability of prices
- Ability to scale with your business
- Responsiveness - if you need to produce an order quickly, can they keep up with your pace?
A living wage
One additional factor to consider when pricing is you. Often, when business owners err in pricing, it's by pricing too low.
"Take into consideration the living wage in your area," Cagnassola says. "Then consider how much you would expect to make per hour, how many items you can make in an hour and the amount of money you'll need to cover taxes, bills, living expenses and raw materials." Take the time to:
- Learn what other makers in your area consider an acceptable living wage.
- Check labor statistics online, which should give you a broad view of wages in your area.
- Make a personal budget and update it as your living needs change.
Key tips and takeaways
Ask yourself these questions to help determine the best fair price for your product.
- What about your product brings something new to the marketplace and creates demand?
- How much time do you spend making it?
- How much time do you spend on materials?
- Is your work priced high enough to earn a wage that supports your lifestyle?