The Business of Craft: Pricing, Part I

on Oct 2, 2008 in The Business of Craft | 30 comments

First off: THANK YOU for all the birthday wishes. So many lovely, sweet & kind words. I’m still smiling 🙂

Pricing was by FAR the most mentioned topic related to starting a craft business. I think I’ve said this before but I want to make this very clear as I write these posts: I am definitely not an expert. My approach is Do, Revise, Repeat.

The first thing I Do when I get the next big idea is calculate out how much it costs to create the product I want to sell.

Here is the actual spreadsheet I used to determine the cost of producing the pencil rolls I sold last December in my Etsy shop. (As a side note, I have one spreadsheet file and I create a new worksheet within the file every time I work the numbers on a new product. It’s very handy to have historical tracking, both of products that I sold and ones I only thought about selling.

Number of Items Made:   3                             

                                                                     

Materials:                        Inches       Price         Total

                                                    Per Yard

                                                                     

Exterior Fabric                10           20.00            5.56

Interior Strips                  19             9.50            5.01

Flannel Batting                10             5.00           1.39

Pocket Exterior                 5             9.00           1.25

Pocket Lining                    5             5.00           0.69

                                                                     

Total Fabric Cost                                             13.90

                                                                     

Colored Pencils                               2.84            8.52

                                                                     

Total Raw Materials                                          22.42

                                                                     

Overhead – Approximate                                     3.00

                                                                     

Materials Plus Overhead                                   25.42

Materials Per Item                            8.47         

                                                                     

Hours to make                                 3        

Hourly Rate                                     20.00       

Labor Cost                                                      60.00

                                                                     

Materials Plus Labor                                        85.42

                                                                     

Cost Per Item                                                  28.47

Points to note:

– These numbers are based on making 3 pencil rolls at a time. For example, the total fabric cost of $13.90 refers to the cost to make 3 rolls. I backed into this quantity based on the most efficient way to cut the materials. The pencil rolls measure 10″ x 13″. Using the exterior fabric as an example: I can lay out 3 of these (39″) on a standard 42″ wide piece of fabric. I need a cut of fabric 10″ wide (.2778 yards).

– Overhead is $1.00 per pencil roll. This is an estimate of thread cost, wear & tear on the sewing machine, the light bulbs in my sewing room. You get the idea. Very difficult to pin point but it makes sense to start with an estimate and refine it over time.

– Including actual colored pencils with the rolls was a marketing decision. I was able to source good quality Crayola pencils at a reasonable price. I thought the customer would appreciate receiving an item that was ready to give as a gift. Removing the pencils from the equation would lower my cost. Would I still sell the rolls? Probably. My thinking related to the longer term satisfaction I wanted the customer to experience when purchasing my product.

– I put in an hourly rate of $20 for my time spent making the pencil rolls. A working number for my calculations. Maybe it’s too high (compared to a minimum wage job) and maybe it’s too low (it does not capture design time or the sourcing of materials). I’ve read a fair amount on this topic. After doing a number of these spreadsheets $20 per hour usually gets me to a reasonable selling price.

– The final cost to produce each roll is $28.47. Logically I think I should not sell a pencil roll below this price.

In an effort to not make these posts too long and windy I’m going to stop here for today. Next week I’ll share how I ended up selling my pencil rolls for $34 each.

I’m happy to answer any follow-up questions in the comments.
***

The image is the makings of an August Fields Carousel Quilt.