Putting a price on the things we make can be very difficult. We often sell ourselves short and end up losing money (or not making what we should) on our work. We forget that quality and originality can be more valuable to the right customer than a cheaper, mass-produced version of the same thing. Pricing your work is both science and art – finding the perfect balance of cost, value, and demand.
In this article, we cover two approaches to pricing – the cost approach and the value approach – and look at some easy ways to get started.
The cost approach
The cost approach builds your price from the ground up, based on, as the name suggests, your costs. Essentially, your expenses and time, plus mark up.
This approach to pricing ensures that you know the minimum amount you need to charge for your product to make sure that all of your costs are covered. This gives you a frame of reference for making decisions around things such as your hourly rate and wholesale pricing.
The hourly rate that you pay yourself should be, at a minimum, the living wage of $23.65 per hour. If you had to pay someone else to do what you are doing, how much would you have to pay them? That amount should be the very lowest amount you consider paying yourself – if you want or need it to be higher, you can make that decision and factor it in. Remember that the better you get at your work, the faster you will be – your hourly rate should take this into account. You don’t want to be paid less because you finished faster!
– design and making
– photography and copywriting
– listing on Felt
|Overheads (eg. rent, power, tools, etc.)
– listing fees
– sales commission
– merchant fees
|Costs sub total
|Total retail price*
*If you are GST registered, remember that your total retail price also needs to include GST.
When looking at these costs it’s easy to see the value of doing tasks in batches. For instance, taking photographs of products a batch at a time is more time- (and therefore cost-) efficient, and is likely to give you a more consistent result as well.
TIP: Good photos are the single most important factor when selling online. No amount of work on your pricing will get around sub-standard photos. Read more about that here »
Once you’ve worked out your pricing based on your costs, you can take the further step of looking at it from a value perspective.
The value approach
An alternative way to think about pricing your items is through the eyes of your customer: what is your product worth to them?
This approach is about considering the value of your product independently of what it cost to make, and it focuses more on the quality and originality of your work. The value approach provides a way of differentiating your product from similar items that might be mass-produced or of lesser quality.
You still need to work out the true cost of your items using the cost approach, but you can then start to explore how much above that cost your work is valued by customers. The materials you use and the time you spend on it don’t account for the less tangible qualities that go into your product – your creativity and originality, your intellectual property, and your skill.
For example, when someone buys a dining table, they’re not just buying something to sit around for dinner. They’re buying the setting for family dinners, special memories, and an indefinable quality that makes their house feel like home. The table they’ve chosen says something about who they are and their values. The value is not just in the functionality of the table, but its style, story, and how it makes the customer feel.
This way of thinking about pricing is more about storytelling, branding, and marketing than it is about the cost of making something. Authenticity is very important here – it’s not about saying that your product is better than it is, but identifying and communicating its true value.
If your product is high quality, handcrafted, unique, original, or limited edition, these qualities should be reflected in its price, and this in turn influences your customers’ perception of its value. Present it beautifully and give excellent service, and all of these factors together create an experience for the customer that supports your price and delivers value.
Demand for an item will give you an idea of its value too – if you can’t keep up with orders, that’s a fair indication that you may be undervaluing your work.
It takes confidence to ask higher prices, and you may worry about putting customers off. That’s certainly possible, but it’s also worth noting that you can sometimes end up better off by selling fewer items at a higher price.
Key questions to ask yourself when taking the value approach:
- What are my unique selling points? For instance, these could be the design of your product or brand, the use of unique materials or techniques, your background story, or limited availability of your product.
- What are my customer’s other choices in the wider marketplace? What alternatives to my product exist, and where are they?
- What is the general price range for this type of product?
- Within this range, where does my product fit and why?
Choosing your approach
The approach you take will depend on the type of product you make, the price range of that product in the wider market, how you position yourself in the market, and what you’re trying to achieve. The fundamental thing when working on your pricing is to have a clear and comprehensive understanding of your costs, so we recommend starting there.
You may start out with slightly lower prices to get established. If demand for your work is high, you might increase your prices to keep your workload manageable. It’s also worth reviewing your pricing every now and then, as costs can change, and so can demand.
You might find, having used the cost-based approach and the value-based approach, that your product is without question too expensive. It may not be a viable thing to sell and make money from. This is important to know! You may be able to tweak your design, materials, or processes to bring your costs down and/or add to the value of the product, or it might be a case of going back to the drawing board.
The more likely scenario in our experience is that creative people often undervalue their work, which makes it hard to make money, and can also undermine the wider creative community. The exercises above are a great first step to understanding your pricing, valuing your work, and reaping the rewards of getting that balance just right.
If you’ve got a question, or a tip for other sellers, drop us a line or comment below!