PRICING YOUR HANDMADE GOODS
One Article About The Business of Art
by Mary Boyd
You are making beautiful things and you want to sell them. You have a dream of making a living selling your finery, but you are at a loss as to how to go about pricing your handcrafted works of art. You need some vital information about “the business of art”.
But First, The Hard to Swallow Truth - The Unfair Competition Factor
I have been making and selling handmade goods for very many years now, and have made every effort to be a profitable business person as well as an artisan. I have a strong interest in this subject of business mixed with art, and have read all the books and pamphlets on the subject -- of which there are many (there's money to be had writing how-to books) and among all the books, there are some very good ones. Unfortunately, none of these books give one particularly important simple warning. So, before I start, I will give you the warning - about your competition.
On my path as an artisan, I have found that other artisans who have a genuine understanding of business are very few and very far between, and that "we" are competing for sales with other “crafters” who have no concept of business. For every artisan trying to make a living at fine crafts, there are at least three dozen competent artisans that do not price their products as though their lives depend on their income. For instance, I have found that there are many art teachers out there who have use of their classroom equipment and materials to make really wonderful art pieces and sell them for a mere pittance of pin money. And I have seen many spouses of doctors and lawyers doing beautiful work for a little second income. And of course, I have been among an uncountable lot of amazingly talented retirees who supplement a fixed income with their finery. None of these artists, none of them have a clue as to what their products are really worth and seem happy to just recoup their material costs and make a little bit of extra money.
So, I want you to know that you can choose to be one of the “crafters” who go along their merry way, inadvertently undercutting their competition and never making a livable wage, or you can educate yourself and become a genuine artisan with respect for your competition and for yourself. You can learn how to price your goods fairly and for profit, like any other business person.
You Are a Business Person - In Fact, You Are a Miniature Factory
Just like the Widget Maker and Sons, Ltd. in your local industrial park, you run a business. You buy raw materials that you use to produce products. You sell your products. You take up building space, you use utilities, phone, Internet. You drive a vehicle for your business. You advertise. If you truly are in business to be successful, you are aware of all your expenses, and you keep track of your expenses by doing bookkeeping.
Time Studies to Establish and Maintain Your Labor Pay Rate
You are the producer of a product for sale. You are the precision laborer putting the screws or stitches exactly where they belong. To make a living, you may have to produce some of your products over and over, maybe by the dozens, hundreds, and over time, by the thousands. Like any line worker, you will become very efficient, finding ways to cut time, grouping productions steps, moving your product along the production line as quickly as possible without compromising quality. You will consider all the labor involved to produce your product, do time studies, and establish a pay rate. If you truly are in business, then do not establish a labor rate that is less than minimum wage. Hopefully, you can give yourself raises by becoming more efficient, and by making better products that merit higher prices.
Note that you must apply a labor rate to every bit of time that you invest in your business. See Time and Money - Figuring Your Overhead, below.
Note also that, after you add up all your time, you may find that you are not paying yourself even minimum wage. This is the point where you must decide that it is time to raise your prices, become more efficient, redesign or drop certain products, or swallow the loss for a while.
Time and Money - Cost of Goods or What It Takes to Make Your Products
Of course, you buy materials and you know their prices. But do you know what percentage goes to waste? Do you know how much you paid for shipping? Can you answer questions regarding yield: How many birdhouses or picture frames per board foot? How many beads in that necklace? How many hours in that crocheted purse, or how much yarn?
For me, with my leather worker apron on, making a pouch, (www.ohboydenterprises.com), I must ask, what does that genuine deerskin leather pouch cost? Well, let me see, leather is purchased by the square foot, despite the irregular shape of hides and their considerable unusable parts with scars and holes, so to my initial cost, I absolutely must tack on the percentage of waste, along with the shipping costs I paid. Then I have to figure the exact size of my pouch pattern and multiply by two since there are two sides to every pouch story. Then, I figure what percentage of the hide will be used making each pouch, and with that figure, I am able to calculate my leather cost per pouch. I will add in the cost of the drawstring, thread, and beads, along with their waste costs and shipping charges.
To determine labor costs, I must time myself, making four to six pouches of a new style, creating them in very practical, factory-like steps. To determine per pouch labor, I multiply my total time study production time by my pay rate, and divide by the number of pouches in the time study. For example, to determine labor costs on a pouch that takes 35 minutes to produce would be 35/60 times the hourly pay rate. If it takes you 3 hours and 25 minutes to complete a piece, then you would have to figure 205/60 times your hourly pay rate. It helps to keep the calculator and a notebook handy.
Labor and materials are not my only costs of manufacturing my goods. I must also add a small percentage for tools and equipment costs. Sewing machines and scissors wear out. Needles break or get lost in the haystack.
I maintain a file of my time studies, patterns, material lists, and calculations for quoting quick estimates to potential customers. (If customers are interested in a formal quote for custom work, then new research and time study are required.)
Your Own Labor must be calculated as "cost of goods" to help determine your prices. However, only your employee labor is a part of your cost of goods for tax purposes.
Time and Money - Figuring Your Overhead
Do the math. Add up all your costs. Consider your rent, wear and tear on your equipment, repairs, phone, Internet, and utilities expenditures, etc. Figure what percentage of each of these items pertain to the production costs of your business (discussed above) or to other aspects of your business. If you are like me, doing business out of your home, you may have to make some educated guesses on some items like phone and utilities, Whether certain costs for items that are both business and personal expenses can be considered expenses for tax purposes or not - another topic for discussion, they are costs of doing business.
One formula is to divide the total of your overhead items by the intended number of pieces to be produced, establishing a set overhead cost per piece - for example, a set $1.00 gets added to each and every product with no regard for other costs or price.
Another method is to create a percentage rate that is automatically added into the price structure of each piece. For example, with a 25% overhead rate, you add $.25 to every $1.00 of other costs.
Until you have a clear handle on your real costs of overhead, you might consider keeping your overhead cost or rate rather high at first, and reducing it as your sales increase. That way you are guessing on the safe side, and any lowering of figures in your overhead column can be switched to your profit column - see profit margin, below.
For comparison, here is a list of some of my monthly "other expenses" or overhead items that I have to consider when I establish my true costs of doing business and my prices. Note that your tools and production machinery costs are not considered overhead and should be included in your Cost of Goods, discussed above.
1. Rent, including utilities
Although I no longer rent studio space, I still consider this cost as overhead, since I am taking up equal or greater space at home.2. Internet Hosting and Connection
3. “Other” Time - Time Spent Working on Website, Correspondence, Handling Retail Orders,
Answering Phone, Doing Bookkeeping, Inventory Control, Ordering Raw Materials,Developing New Products, etc., Delivering and/or Shipping Wholesale OrdersNote that I apply at least the minimum wage formula to the 1-5 hours most days that I spenddoing non-production or office work for my business.4. Office Equipment - Computer, Printer, Fax, etc.
5. Office Expenses - Printer Ink, Paper, Anti-Virus Program, Subscriptions
6. Advertising
7. Education
Profit - Yes That’s What You Hope For Anyway - Figure It Into Your Price
Making wages, keeping material stocked, and paying bills is a good thing, but that is not profit. That is simply making ends meet, a fantastic goal and if you get to that point, you deserve a pat on the back. However, if you expect to improve or expand your business, then, like any other business, you must plan on profit. When you begin, figure your profit margin low, and as discussed above, your overhead margin high. That way, as you get a real handle on your overhead costs, you can switch any savings to the profit margin without adjusting your price. You are buying raw goods, hopefully at wholesale prices, creating an inventory and storing them, and then turning them into finished goods. So determine a profit on those raw materials, a return on investment. Also, expect to earn a 10% profit on labor, even if it is your own. Someday you may hire some help.
Add Your Cost of Goods, Overhead, and Profit and
You Have Determined Your Wholesale Price
That’s right, you have arrived at a wholesale price. It is not your retail price. Your retail price is what a shopkeeper must sell your product for in order to meet his/her expenses and make a profit. Retail is usually at least a 100% mark-up. If you wholesale at $1.00, the reseller must mark it up to at least $2.00. If you are selling your product through a middleman, an agent or distributor, then the retail price will have to be even higher to cover that expense.
Are You Selling Your Own Handmade Goods to the Public?
If you have delegated yourself to be the retailer of your own goods, you must, at the very least, double your wholesale price to determine your retail price and to pay yourself for all your costs of wearing your shopkeeper visor. Perhaps you will be taking your product to art/craft shows, and if you do, you will have expenses like entry fees, equipment costs for items like a tent, tables, and displays, transportation costs, and most importantly, a very large time investment in preparation, packing, loading, transporting, setting up, tearing down, and inventory control. You will have to account for some theft and some soiled and broken items. And don’t forget lunch. Quite frankly, it’s cheaper to sell wholesale or to consign your goods - another topic for discussion.
Don’t Forget to Have Some Fun
You wouldn't be considering going into a craft business if you were not envisioning the fun you would have. I think I have made it clear that one has to be disciplined about work and production, and that there are some mundane tasks that must be tended to, like bookkeeping. However, I will confirm your thoughts that there is much enjoyment in making your own goods, even if you have made seventeen or fifty of the same thing in one day. When I'm doing repetitive work like adding drawstrings to pouches, or when I'm handstitching or stringing beads, I love to listen to the birds, or other music, or the news. All the while I work, I enjoy the feel of the leather and the beads. I think about each customer who might also become one with my handmade item, wearing it lovingly, holding it in deep meditation, passing it to a friend. At the end of the day, even though I am usually very tired and sleepy, I line up all my day's work. I am usually very satisfied, amazed at how it all got done, and grateful to have had another day to have so much fun.
Don’t Get Discouraged
If your products don’t sell at your determined price, lower your wholesale prices to cover only the cost of raw materials, overhead, and labor, excluding the profit margin. As your efficiency grows, your wages will increase, and with experience in the market, you will find ways to cut costs without compromising quality. As your talent increases and the market for your products grows, you will be able to demand higher prices. After selling your goods for a while, if you find that you cannot produce a certain product for fair wages and a profit, then redesign it or else forget about that particular product and develop a new one that can make money. If you have a line of finely crafted products with profit potential, then they will sell, although you may have to be patient at first.
Keep a positive attitude, and remember the Oh!Boyd motto - anything is possible.
E-mail Your Questions
or Your Comments
to
mail@ohboydenterprises.com
My favorite topic, The Business of Art
Sharing information is essential in any profession. Perhaps, it is not very practical in some lines of work, since divulging trade secrets could be devastating in some capitalistic environments. In the world of art and crafts, however, basic information is vital to the continuation of the traditions.
Back in the olden days, skilled crafters were extremely important to society, so important that they were a class unto themselves. A good weaver, potter, or blacksmith could make a good living, and although not wealthy, was definitely not poor.
Today, although the craftsperson is still, for the most part, not known for wealth, it is definitely still possible to make a respectable living doing quality traditional and/or innovative craft work.
t SPECIAL HOW-TO LESSON t
Pricing Your Craft Work
for Profit
Written Just for Artisans and Crafters
Who Are Starting a Business of Art
SOMETIMES YOU JUST HAVE TO SPEAK UP AND SPREAD THE CRAFTSPERSONS' WORD
If people ask you to lower your price, politely and calmly ask how much they make per hour at their jobs and how many hours per day that they work. Ask them also if they have the skills to produce what you do. Then let them know how much time you have taken to hone your skills, exactly how many hours you put into your work every day and for what pay rate.
Let them know that you are a business person and what a bargain your goods are.
How to Price
Your Handmade Goods - Items
Keep Your Calculator Handy!
Prices of Items That You Resell and/or
Your Production Labor and Production Material, Tools, and Supplies = Cost of Goods
All Other Time and Expenses = Overhead
Business Cannot Grow Without Profit
Are You Retailing Your Goods at Wholesale Prices?
Welcome to the Business of Art!
Anything Is Possible!
Retailing Expenses Are Different From Manufacturing Expenses
This is rather a long article, so you might want to bookmark the page and come back to it in increments.
Cost of Goods Before Shipping
If you get a shipment of different items with different prices and want to know how much to add to each item for shipping costs, simply take the total cost of shipping for the entire purchase and divide that by the cost of your total purchase before the shipping charges were added in.
That calculation will give you a percentage rate for shipping. Simply multiply the individual prices of each of your different items by that shipping percentage rate and you will have your shipping cost for each item.
Total Shipping Charges
Shipping Percentage Rate
Calculating Shipping Costs for Individual Purchased Items
60 Minutes (That's 1 Hour)
To determine total labor costs to produce one piece, take the total minutes it took to make the item and divide those minutes by 60 minutes. Take that figure and multiply it by your fixed labor rate ($5.50 per hour, $10.00 per hour, etc.), and you will get your labor cost for the item.
Labor Per Hour Pay Rate Labor Cost Per Piece
Total Minutes to Complete Piece
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Contact
Oh!Boyd
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Respect your competition.
Respect yourself.
Be a true artisan - make quality products and
Make a Living.
This is rather a long article, so you might want to bookmark the page and come back to it in increments.
Forget the image, the romance and mystique of being zee stahving artiste. It's time to get down to the
business of art.
Free Advice
How to Price Handmade
Goods
Figuring
Per Piece Labor Cost
Forget the image, the romance and mystique of being zee stahving artiste. It's time to get down to the
business of art.
This is rather a long article, so you just might want to bookmark the page and come back to it in increments.
Respect your competition.
Respect yourself.
Be a true artisan - make quality products and
Make a Living.
Keep a positive attitude, and remember the Oh!Boyd motto - anything is possible.
LOOK MA, NO TRICKS!
No gimmicks, nothing - the information on this
"free information page" page really is free!
What a concept!
SLAVE WAGES?
Would you pay someone else a substandard wage?
Of course not!
So why would you pay yourself at a rate that your customers could not live on?
Links to Related
Start-Ups
Run for a week or two (or three depending on space available) then transferred to the Oh!Boyd Links page, here is a no charge way to announce your new site's or new product's existence.
All links listed must have something in common with Oh!Boyd (artist, artisan, etc.) or at least be of interest to us.
(Never hurts to ask!)
All Start-Up Links are run on suitably related Oh!Boyd Catalog pages and/or the page of your choice, then transferred to the appropriate section of the Oh!Boyd Links Page.
See more info about acceptable links on the Links page.
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Need Help?
Need some help outlining your sales terms?
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AND
Several Useful Articles
