2016 update! How to find the perfect price for your product.
It’s been two years since I wrote this post, and I know you’re looking for more information than this. Do you feel like these cookie cutter formulas don’t do justice to your unique business? I agree. Lela Barker is here to shed some light on this for you, and she says:
Pricing strategies are far too nuanced and complex to be successfully served by simple calculations. Multiply by this. Add this. Blah blah blah. That approach doesn’t work and, more often than not, it leaves money on the table. Unless you’re selling non-branded commodity products, then pricing by straight formula is naïve and dangerous. Do you need to know your costs? Absolutely. Do they form the alpha and omega of pricing? Absolutely not.
Price with confidence, boost your bank account, and build your brand! Lela Barker has graciously offered to share her extremely thorough pricing guide with you for free. I can’t overstate how hugely helpful this guide is. It’s 38 pages long and is infused with Lela’s no-nonsense, actionable advice. You will really understand the reasons behind the strategy and be able to make your own confident decision about how to price in a way that will help you move your business forward.
Here are some wholesale product pricing formulas
While different people have different pricing formulas they use, one thing is pretty solid across the board when it comes to wholesale pricing for handmade products:
Price for profit at the wholesale rate
You need to price for profit, and you need to price at the wholesale rate, because ideally that’s how you’ll be selling most of your products.
Don’t come up with your retail price, then cut it in half for wholesale – that’s very likely to make wholesale prices unsustainably low.
This means that when planning your pricing, you first need to come up with a wholesale price that pays you for your time, labor, materials, overhead, employees, etc. This price should have profit built into it so that you are able to not only stay afloat, but grow your business.
Once you’ve set your wholesale price, double that price to create your retail price (“suggested retail price” to your wholesale customers). When selling the product yourself on an ecommerce site, use that retail price yourself.
What to include in your pricing formula
My advice to new creative entrepreneurs has always been to structure your pricing so that – at wholesale you are doing back-flips over your prices every time you sell even ONE of them. Then, double that price to arrive at your true retail price.
When pricing, Marlo suggested we consider:
- Labor: Labor is not negotiable. Build labor into your price, so you can easily hire someone in the future.
- Cost of goods and materials used to create your product, including tools.
- Overhead: your rent, utilities, supplies, phone, etc.
- Profit: the margin needed to reinvest in your business. Without profit, you can’t grow, hire, or even take a break from your business.
For labor, consider what you would feel comfortable paying an employee per hour, and work out how many of your products you can make in an hour to figure out labor costs per product.
Even if you don’t plan to sell wholesale, Marlo believes that you should still follow this pricing strategy, as it keeps pricing fair within your industry.
She also had the great advice that if there is something you don’t yet have for your business, but you plan to have it in the future, such as a studio space, factor the future studio rental cost into your overhead so you can make that money, and so you will still be making profit once you’re paying for the studio.
Example pricing formulas
Marlo scoured the web for some pricing formulas for handmade goods, and also gave us her personal formula. You can see that these are similar, but use different methods to arrive at reasonable prices.
1) Pricing formula from Danielle on the Etsy blog (read article):
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
2) Pricing formula from Andreea at Launch Grow Joy (read article):
(Labor + Materials) x 2 = Wholesale x 2 = Retail
3) Pricing formula from Mei at the Pragmatic Designer (read article):
Materials + Labor = Item Cost x 2.2 = Wholesale x 2.2 = Retail
4) Pricing formula from Marlo at Creative Arts Consulting (read article)
(Materials x 3) + Labor = Wholesale x 2 = Retail
If you have any questions for us or advice to share, I’d love to hear from you in the comments here!
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We have more posts about selling wholesale here.