The price of your product
The price of your product will define your business, yet one of the most difficult things as a product Designer-Maker is to price our work! We want to find a price that pays us fairly, while competing with the cheap, mass produced, factory made products that surround us. Unfortunately, there is a large proportion of customers that are yet to realise that if a product is cheap, it usually means someone (or something) is being shafted. There is a restless interplay about how our business can be competitive but also survive. I’ve written this blog to share with you the pricing strategy I use and how it’s become my mantra for other parts of Priormade and Prior Shop. This is just based on my own experience and certainly isn't the only way to price your work! Just to say that at the start ☺️
Handmade products are made with more care, consideration, time and higher quality materials. Nowadays many customers appreciate this comes at a cost, but with us scrambling around with different pricing strategies (or no strategies at all) and all using different production methods and techniques, our prices wildly vary.
Every designer/maker’s pricing strategy is their own individual choice and should never be queried or judged - because unless you’re making it yourself, you don’t know how long that item has taken to make, the cost of the materials used or their individual overheads.
The point of this blog is to help those that feel lost with their pricing strategy and also for those who feel bitter when shops take a commission. If you find yourself feeling annoyed that shops are taking a ‘cut’ then you’ve got your prices wrong and you’re not paying yourself for your own selling time!
Covered in this blog:
- 40/40/20 split
- Making and manufacturing
- Profit and fixed overheads
- Selling costs
- Admin costs
- Product teaser
- Retail shops and what they do for you.
The Importance of Correct Pricing
Your pricing needs to sustain your business and allow it to grow. If you price your products at a loss, over time your business (and you) will crumble and fall. On the flip side, whilst we all want to be paid a fabulous wage, we also have to think about our customers’ expectations and how our work is priced against other products and brands that are similar. It’s about finding that balance.
Your working week, month & year.
Patricia from the Design Trust once told me at her ‘How To Create A More Profitable Business’ workshop in 2018 that your time should be a 40:40:20 split. The moment Patricia said this everything changed. It’s one of those moments that I can recall the lighting in the room, what I was wearing and almost every random detail. It was a eureka moment! Up until this point I had really struggled to work out how to price my work and didn’t feel confident when talking to customers about it. I felt nervous to disclose the price because I wasn’t 100% sure if it was ‘correct’. I was nervous because I hadn’t worked it out and had guessed what it should be.
Patricia explained it like this: your time should be divided into equal amounts of making and selling, with a little bit of admin. I thought... this isn't just about my time management; this actually reflects what my products should cost.
The 40:40:20 split
I remember Patricia saying that selling is just as important as making your work. If you spend all your time making, then how will you earn any money if you’re not selling it? And when you are selling it, who is paying for your time? This needs to be factored into the price.
If we were looking at a working week that would be 2 days making, 2 days selling, 1 day admin. If this was a month, it would be 12 days making, 12 days selling and 6 days admin (and so on). When your business grows and you take on staff, then you can also think of it like this, 1 full-time person making, 1 full-time person selling and 1 part-time person for the admin.
In other companies, would you expect the receptionist, graphic designer, website developer, marketing manager, sales assistant, administrator, cleaner etc to work for free? This time needs to be calculated and factored into your pricing.
40% = Cost of Product
Now this part of your retail price should cover every aspect of making your product. How I work out my 40% is adding together the base cost of manufacturing (time and expenses), a small profit which helps my business grow and a proportion of my fixed overheads.
Cost of Manufacturing
First of all you need to get your base materials as absolutely low as possible without changing your ethics. Usually this means buying in bulk (perhaps pairing with another business?), minimising waste and being more efficient. If you don’t lower your material costs, your retail price will be much higher, which could outprice a lot of your customers.
Next, you will need to work out your time. I pay myself £10 an hour to make my work. Again, this is individual to you. I know my products will only work within a certain price bracket and I am happy with this amount per hour. The main trick here is to make in batch, and be as efficient as possible, so you can make the most of each hour. I set a timer for when I start making each stage and work it out via a spreadsheet.
Profit and Proportion of Overheads
So, I’ve made a batch of 50 vessels. I’ve timed each stage and worked out the materials and components for each part (including the packaging and business card). Now I work out 20% and add it to the spreadsheet. This 20% contributes to my fixed overheads (lighting, energy, machine elements, wifi, insurance, damaged products, new tools, waste management, accountant, website fees, memberships, to cover sick days, and all other business-related things).
You can also work this out your proportion of field overheads by adding up all of your overheads per year and dividing it by 365 to get your ‘fixed overheads day cost’. Next you work out how many things you can make in one day and divide the ‘fixed overheads day cost’ with how many products you made that day.
Confused!?..... For me, my fixed overheads will change depending on what product I’m working on and I find it difficult to work out. So, I include 20% which covers all of the above and a little bit of profit. We all need a bit of profit to grow, otherwise we wouldn’t have the money to develop new ideas and spend time on unpaid research and development.
40% = Cost of Selling and Marketing.
You need to factor in your time selling your work. Whether it’s at markets, trade shows and events, or hours on Instagram, Facebook, Pinterest and Google. The costs associated with your time and expenses building your website, being interviewed, photographing your work and everything else you do to get your products out there! There is a shopping funnel of customers on different stages of their buying journey, and apparently customers need to see your work seven times before they actually purchase! Selling and marketing is so important! If you are not factoring this time into your prices, you need to - because who is paying you for it?
20% = Cost of Admin
As with all businesses, we are surrounded by paperwork, email chains and to do lists. Admin. Ugh. The word that makes every creative soul squirm. Unfortunately, it’s completely unavoidable and we need to manage our finances, write/chase invoices, answer emails and enquiries, research and order materials, develop ideas and all the other annoying and overwhelming tasks of running a business. This is still in your work day so your product price needs to cover this too.
Here is my example:
- I’ve timed myself, I’ve worked efficiently and ordered in bulk. I’ve got my material expenses worked out per unit and my base cost of manufacturing my product is £4.
- I then add 20% for my fixed overheads and a bit of profit = 80p.
- My cost of product is now £4.80p
- I then multiply this amount by 2.5 as this gives me my retail price.
£4.80 Product cost (40%) / £4.80 Selling cost (40%) / £2.40 Admin (20%) = £12 (100%)
Changing Your Prices
Something else I’ve learned over the 10 years of creating my products is choosing a retail price isn’t permanent. It’s not a decision you have to make once and never again. Prices of material fluctuates and naturally your expenses will rise. As long as you work on the above formula then any changes you have to make will be minimal.
I’m not sure it’s the correct name, but something to also consider is the product teaser. This is a product that might be made at a loss BUT it is that hook that gets people into your brand. Many companies have these types of products. For me it’s my Mini Geo Vessel. I barely break even when I sell these but they are great little gifts and - almost always - those customers return. Some products you might have a higher profit margin on, while others you don’t.
Selling your work Wholesale/ Sale Or Return via a retail shop
When a shop sells your work, they are taking all the ‘selling cost’ off your hands and even most of the admin. They are doing all of the marketing and promoting, they are managing all of the sales and customer conversations. They are gift wrapping and shipping your work for you, they are paying staff to use social media, write your product descriptions and blogs to advertise your work. They have huge overheads, staff costs and insurance, and are open come rain or shine. They have busy periods and quiet periods but all the while, they are showcasing and selling your work for you. Most of the time customers will find you online after seeing your work in a shop. Also, larger shops are likely paying 20% VAT from every sale and are unable to claim this back from the non-VAT registered Artists/Makers they support. For example if a shop takes 50%, they might only be taking 30% for their overheads because they are not inflating the prices for the customer and are instead absorbing the VAT themselves.
For years I thought shop owners were just plain greedy. I always felt bitter that they were taking such a huge cut of ‘my hard work’. It wasn’t until I started selling in larger shops and attending trade shows I realised what mark-up price shops expect. Over the years I've attended many workshops and then, when opening my own shop PRIOR, I realised how much time and money (literally blood sweat and tears) goes into keeping indie shops open. I am so grateful to every single independent shop that has stocked my work, now, in the past and in the future.
So, price your work properly! Pay yourself to sell your work so you are not bitter when shop owners sell your work for you. Allow your business to GROW!
I’ve taken this mantra into my pricing strategy and also in my appreciation for shop owners 🧡