My apologies that this post is a day late! I usually stay up really late on Thursday nights (or stay up late into Friday morning would be more like it) to put up my Friday post. I must admit that sleep won over this week. Life has been crazy lately. (Although, is life ever NOT crazy and busy? I guess not.)

Anyway! On to this week’s topic for the creative biz challenge, which I think is one of the stickiest:

Pricing. It is hard to figure out how much to charge, especially on handmade items. Pricing feels strange because it is a reflection of how valuable an item is that we have made – and that can feel uncomfortable. I know when I first opened, I felt embarrassed to charge anything more than just the cost of the materials. But it’s even harder for one person to tell another person what they should be charging for their handmade items. Only the artisan know just how much time and effort went into each piece, how much they are relying on the income of the business, as well as other factors. But in the end, you ARE running a business, so you need to get your prices in alignment, or your business won’t be able to stay afloat.

Before moving forward, here is an important question for you: is your shop a hobby or a business? I’ll tell you something I haven’t told you before – at this current time, my online sales and business are our family’s only source of income. It is a short term situation, but even so, it means that my prices HAVE to be profitable. If your shop is just a hobby, and you’re not actually trying to make money from it, you’re going to approach things very differently. I want to make it clear at this point – I’m not saying that money is the most important thing *at all*. If you want to just keep it laid back and only pay yourself back for the supplies you use, you have every right to do that. My advice in this post, though, is for those who are looking to run a more profitable business and have it as a source of income.

I will say this – in general, handmade businesses (such as many of the ones on Etsy) charge prices that are far too LOW. If you are trying to price in competition to the prices you see in stores, like at a department store, you are pricing too low. You (most likely) do not have employees, machines, or the ability to mass produce. Don’t try to price in competition with a company that has those things. They can afford to make a small amount of profit per sale, and rely on the fact that they are having a huge number of sales. Your strategy should not be the same as them. If you are a one of kind, uniquely crafted, artisan brand, then price accordingly!!

Here is one litmus test that I feel can help you gauge whether your prices are high enough: businesses expect that when they place a wholesale order, that they will be paying only 50% of retail price. Suppose a company contacted you with interest in placing a wholesale order. Look at the items in your shop – if you charged wholesale price (half off) for a large order from your shop, would you still be making a good profit? If not, your prices are too low.

Also, realize that people expect the value of the item to be reflected in the price. When I first opened my first shop selling jewelry, I had people flat out say they wouldn’t buy from me because my prices were so low they just assumed I had a low quality product. That may sound harsh, but it is good to know! I put a ton of work into each piece, handcrafting even the beads themselves, but the price did not reflect that. So people assumed that it wasn’t a quality product. Think about it – if you went in to a painter’s gallery, and there was a large original oil painting for sale for $5, what would be your thought? “What wrong with it? Is it actually an original? This can’t be what I thought at first – the price is too low.” If you have a quality product, reflect that in your price. Buyers who want to buy handmade items are looking for quality, not cheap disposable items. They expect to pay that price.

And if you have buyers who are wanting to only pay cheap prices, like you might find at a discount store, you need to find a new target market. You reach out to different target markets with different pricings. Let’s face it – very few of us are selling necessities. We are selling luxury items. Right now, I am on a tight budget. I can’t buy a lot of luxury items. Right now, I am probably not your target market. And that’s fine! I’m not entitled to your products. You should be pricing for who IS your target market – people with disposable income. People who can afford luxury items. I remember one of the Etsy admin making a good point – if you want to get a good idea of your target market, it is someone like you, but who has a lot more money. Price with that in mind.

You might be afraid of sales going down by raising your prices. Interesting tidbit: when I raised my prices, my sales have gone UP, not down. But even if your sales went down – is that always a bad thing? That may sound strange, but stop and think about it. Let’s say you have 5 sales this week at $10 each – that is $50. Now let’s say you raise your price to $20 next week, and your sales drop to 3 sales that week. That is $60. It is fewer sales, but higher profit. Plus, it is less work for you to make/list/ship 3 items than 5. I know it’s easy to gauge your shop by how many sales you have, but really that is not the test. I’d rather have fewer sales at higher prices so that I can actually keep up, than to have TONS of sales, but not making much profit and working myself to the bone.

Ok, but let’s get down to some brass tacks. On what should I base my price? Here is a formula that I’ve heard before, and while this is by no means the right formula for everyone, check this out just for kicks …

((hourly wage x hours spent) + cost of supplies) x 2 = wholesale price

wholesale price x 2 = retail price in your shop

And let me not this: your hourly wage should NOT be just minimum wage.

Now this is just a loose formula, not an exact science, and you very well may decide not to go with the final result. It isn’t the formula I personally use, but it is an interesting guideline. You may judge that it doesn’t work for you because maybe you work very slowly so the hours are inflated, or you may realize the market just won’t bear the final price. BUT I hope at the very least this will give you a little sticker shock in a good way: you should probably be charging more than you are right now. At the very least, even if it is not double like in the formula, I’d suggest that you make sure your wholesale price is more than covering just your expenses (paying yourself and your supplies cost are EXPENSES, not profit) so that you could do wholesale profitably. And then your retail price (the price you charge in your shop) should be double that.

Ok, now it is time for this week’s critique. Here is the question that Olya from OboCreations posted in the opening thread:

“the topic i suggest is a challenge of a turning a hobby to a business. how do i combine it with my daily job and compete with those who are doing full time?. They can devote 8-12 hours per day to Etsy shop vs me spending this doing other things. Seems a catch 22 – to quit my job i need my business to pick up – yet how to do that if all i have is the night? one of the aspect is setting priorities and here comes the question of what they are. As a small business especially as starter you face the need to address so many different aspects – set up online shop, make description, photos, SEO, dig into forums, promote, get social media, make packaging, find bloggers etc etc etc. So remembering i only have few hours before i collapse to sleep – where should i start?”

I think a huge part of the answer to her question is today’s topic: pricing!

Let’s take a look at her products:

Ok, first of all let’s point out some things Olya is doing well about…

Listings: She just opened her shop this summer, and she already has 100 products listed. This is absolutely amazing!!! One huge thing to have a great shop is having enough listings to be able to be found easily in the search and to have enough variety to offer visitors to your shop enough options for them to be able to browse through and choose from. So you are far ahead of the curve on this one, Olya, nice going! In fact, if I were you, I probably wouldn’t add more listings until I started to see how sales are going to do on your product. But the fact that you’ve been photographing and listing that many products is amazing – nice going!

Policies and Profile: You have them both filled out, which is great, and I especially appreciate your very clear policies and info on what to expect since you are shipping from Switzerland. Very, very helpful, especially since most buyers on Etsy are from other countries, so that is very smart to have all that information, well done.

Photos: Your photos are so crisp and clean and look absolutely catalog worthy! They look really professional and clear to see the item. Being able to fully and clearly see the item is of utmost importance in product photography, and you’re doing a great job of that. On the (possible) downside, that catalog look is something people already see a good bit, especially in jewelry, and can also come across as very sterile. Since jewelry is SUCH a saturated market on Etsy with SO many jewelry sellers, it can be hard to stand out. I used to sell jewelry, and it was hard, I know! The style of photography is one thing you can use to help differentiate yourself. Maybe in the future you might think about modeling some jewelry or play around with conveying your branding in your photos? But in asking where to start, you definitely don’t need to do anything like that first because overall your photos are very impressive. I especially like when you leave them not quite so whited out in the background, like the one below. Great work on photography!!

Descriptions: I really like that in this listing on the above bracelet you drive home the handmade nature of it in the description: “This cute Silver colored shiny brass metal bracelet is hand painted using my very special technique. I have used silver grey and red color and let them interact and mix with one another to form this lovely shade and magical pattern . On top the artwork is covered by a high gloss top quality jewelry resin. It protects end enhances the image making it look almost 3d.” Knowing that kind of info is SO important. There are a huge variety of jewelry sellers, so this unique and very handmade technique is very important to emphasize. I think it is important to make that clear in all your listings. On Etsy, it is perfectly acceptable to purchase an already made pendant and use it in the jewelry you make. But since you’re going a step further and painting the pendants yourself, you want to make sure people realize that! Also, watch out for capitalization. Starting sentences off with lower case letters, or using “i” instead of “I” in your description can make it feel less professional. It is one of those things that may seem little, but really can make a difference.

And now, an area to improve:

PRICES!!: Now, not being the artisan myself making the jewelry, I can’t tell you exactly where you should be pricing your items, but I DO think they are under priced. For instance, these earrings are $14:

I can go to the mall and easily find a regular pair of earrings for $14, and they are not hand painted originals from a jewelry designer in Switzerland. Your earrings are!! I think your earrings deserve a higher price tag. If I were to put your price into the formula backwards … Your retail is $14. That means your wholesale is $7. Which means $3.50 is what is there to cover paying you and your supplies. Not to mention Etsy and PayPal fees, which will add up to about another 50 cents. Basically, it doesn’t seem like you’re making much, if any, profit. So if you’re looking for advice on how to go from hobby to business, especially since your time is limited and valuable – make sure you charge for your time! Take a good look at your prices – if your shop suddenly sold out tomorrow, would you have enough money to repurchase all the supplies you would need AND pay yourself to do all the work to restock your shop – AND have also made profit? If not, then you need to start by figuring out a pricing structure that will be actually workable business-wise. If it wouldn’t be profitable for that to happen in one day, it is also not going to be profitable for that to happen over time. So once you’ve figured out what WOULD allow you to make a profit, then try out those prices in your shop for a while. Like we talked about before, make sure you drive home the value of the product in your descriptions, highlighting the handmade nature of the jewelry, and maybe tweak somethings in your shop to reflect a higher end price tag, like maybe a banner that is less cutesy, and work on marketing to your target market. But if you find the market won’t bear those prices, it might be time to look into tweaking your product, like we talked about in the first post of this series. Because if you’re trying to make the switch from hobby to business, you need to get paid for your work at a level that actually is profitable, not just covering your costs. Especially considering it doesn’t sound like you have a lot of extra time you can just pour into this!

Anyway, I hope that has been helpful, both for Olya, and for any of the rest of you who are running a creative biz. I know pricing can feel sticky and hard to figure out, but it needs to be figured out if you want to go from hobby to business.

I told you some of my early pricing woes and mistakes – do you find pricing easy?