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Old 08-19-2011, 03:34 AM   #1
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Question Price formula

Okay...so I'm reading all kinds of articles on Etsy, and it says the formula for calculating a good price is:

Cost Price (Labor + Materials Cost) x 2 = Your Wholesale Price

Wholesale Price x 2 = Retail Price

According to that formula, I'm way undercutting myself, but there is no way I could charge that much for my stuff if I were to pay myself minimum wage ($7.50), the wholesale price would still be higher than my current prices! I've only gotten a couple sales so far as it is, and if my prices were higher, I doubt I'd get any. How much do you "pay yourself" for labour, and does anyone not follow this formula? How do you gauge your prices?

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Old 08-19-2011, 07:51 AM   #2
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Re: Price formula

I have heard similar formulations. I've heard that your retail price should be four times your costs. I pay myself may below minimum wage (which here, is $8.25/hr). I agree, I don't see myself being able to charge that much.

However, I am in the process of redesigning my business to profit. I think now that I've had more sales and have been networking with other WAHMs to get my product and name out there, I am going to re-evaluate my prices and my products and see where I can make changes that wont be so outrageous that people wont buy but also wont be undercutting myself a huge amount.
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Old 08-19-2011, 02:25 PM   #3
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I'm not sure where you'd find it, but I have a degree in fashion design and In sewing (garments) price is calculated per seam type, etc. Zippers cost so much, pockets cost so much, etc. And somehow that cost is calculated based on an even bigger time vs. task scale...so min wage may be too much or too little based on what you are doing
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Old 08-19-2011, 02:39 PM   #4
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Re: Price formula

I wish I could charge that much. I barely cover supplies with my products. I think you really have to price according to comparable items sold by others. My soaps would be $7-10 each if I used that pricing strategy and there is no way I would ever sale anything.
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Old 08-19-2011, 07:45 PM   #5
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Re: Price formula

Yeah - Mine are priced similarly to other people's products in my product "area".
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Old 08-19-2011, 11:14 PM   #6
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Re: Price formula

I think checking market prices for your products is a great way to get a feel for what you should be charging, but also don't undersell yourself too much.

I think that you would be surprised at what people will actually pay if you are offering them something they just have to have. Something cool/cute/trendy/useful with really good craftsmanship and great customer service. Not that you don't already have those things, but what you think people will pay, and what they will actually pay are two completely different things. And there will be people who think your prices are way too expensive no matter what, whether it's $2 or $200. You will only end up worse off if you undersell and overwork yourself. Personally I have had more repeat, loyal customers who buy for their family members and refer to their friends who make larger purchases since I raised prices than when I was getting bargain hunters who are not loyal, rarely send in feedback and rarely refer new customer to you, and on the plus side, I'm making more money, which pays me for my time and has allowed my store to grow even more. Sure a lot of people complain about some of my prices, but I can't please everyone and make a living doing this, kwim?
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Old 08-26-2011, 01:43 PM   #7
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Re: Price formula

Quote:
Originally Posted by Virginia90 View Post
Okay...so I'm reading all kinds of articles on Etsy, and it says the formula for calculating a good price is:

Cost Price (Labor + Materials Cost) x 2 = Your Wholesale Price

Wholesale Price x 2 = Retail Price

According to that formula, I'm way undercutting myself, but there is no way I could charge that much for my stuff if I were to pay myself minimum wage ($7.50), the wholesale price would still be higher than my current prices! I've only gotten a couple sales so far as it is, and if my prices were higher, I doubt I'd get any. How much do you "pay yourself" for labour, and does anyone not follow this formula? How do you gauge your prices?
Unfortunately, most business owners want you to sell them your products way below that wholesale price. That's partly why I never wanted to go wholesale when I was making things for sale.

I think it really depends on the products you sell. Diapers, for example, do not bring in a big profit (unless you're able to find very cheap fabric and later get the diapers made overseas). There are exceptions to this though
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Old 08-26-2011, 01:49 PM   #8
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Re: Price formula

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Originally Posted by novemberlily View Post
I think checking market prices for your products is a great way to get a feel for what you should be charging, but also don't undersell yourself too much.

I think that you would be surprised at what people will actually pay if you are offering them something they just have to have. Something cool/cute/trendy/useful with really good craftsmanship and great customer service. Not that you don't already have those things, but what you think people will pay, and what they will actually pay are two completely different things. And there will be people who think your prices are way too expensive no matter what, whether it's $2 or $200. You will only end up worse off if you undersell and overwork yourself. Personally I have had more repeat, loyal customers who buy for their family members and refer to their friends who make larger purchases since I raised prices than when I was getting bargain hunters who are not loyal, rarely send in feedback and rarely refer new customer to you, and on the plus side, I'm making more money, which pays me for my time and has allowed my store to grow even more. Sure a lot of people complain about some of my prices, but I can't please everyone and make a living doing this, kwim?
I completely agree.
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Old 08-30-2011, 09:45 AM   #9
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Red face Re: Price formula

Quote:
Originally Posted by novemberlily View Post
I think checking market prices for your products is a great way to get a feel for what you should be charging, but also don't undersell yourself too much.

I think that you would be surprised at what people will actually pay if you are offering them something they just have to have. Something cool/cute/trendy/useful with really good craftsmanship and great customer service. Not that you don't already have those things, but what you think people will pay, and what they will actually pay are two completely different things. And there will be people who think your prices are way too expensive no matter what, whether it's $2 or $200. You will only end up worse off if you undersell and overwork yourself. Personally I have had more repeat, loyal customers who buy for their family members and refer to their friends who make larger purchases since I raised prices than when I was getting bargain hunters who are not loyal, rarely send in feedback and rarely refer new customer to you, and on the plus side, I'm making more money, which pays me for my time and has allowed my store to grow even more. Sure a lot of people complain about some of my prices, but I can't please everyone and make a living doing this, kwim?
Definitely! This question comes up a lot in the photographers forums I'm a part of. It's actually a strange thing to conceptualize, but if you charge less, it not only undercuts you, but the whole market. Driving down the cost of ---. Also, consider how you look at prices. For example, I paid $20 for a rubber giraffe teether(you know Sophie, I'm sure) because it is a "nice" baby teether. Yes I believe in it's quality, but I probably wouldn't have if they were charging $6. KWIM? If you charge more, your product appears to have a higher value and possible more people will buy it. Weird, huh? And even if you only sell a few--like now--you're going to be making quite a bit more.

I say give it a try.
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Old 09-06-2011, 09:14 PM   #10
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Re: Price formula

Part of being in business is also determining whether there is market demand for your product at the price you need to charge to make it profitable for you.

So... using that as a guideline you should calculate your price points as you come up with ideas for new products and evaluate whether the market will pay what you need to charge, not create a product and then try to price it based on what it is "worth". If you can't get what you need to make a profit, find a new product line to sell.

Very hard advice to follow when so many WAHMs make things at least in part because they love to make them, not just as a money making business.

FWIW, when I was first calculating out prices for my jewelry line (developed first as a wholesale product, which helped me price properly from the start) my calculation was materials + $50/hour labor + overhead of about 20% minimum = wholesale. Wholesale x 2 = my retail (some of my retailers marked up more than 100% and they got it, no problem). When I tell people I calculated my labor rate at $50 they nearly go crazy but for production work that is what my time is worth (since that $$ also had to cover promotional time, doing my taxes, and all of the other things that it took to keep my business running). No way could I ever charge that for making diapers, but for jewelry it works fine since there are some fast to produce items with high profit margins (earrings for example take about a minute to make, cost less than $1 in materials, and retail for $15 easily).

I see a lot of vastly underpriced work on ETSY. I agree with previous posters that it is better to charge a premium and make slightly fewer sales. Perception is 9/10ths of value and most shoppers will pay a bit more for something if they really want it--price is rarely the motivating factor with non-commodity items (which certainly includes just about anything handmade).
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