Let me say first off, this is not a complete formula, simply some thoughts I’m jotting down for discussion.
Here are some factors that have come to mind when considering the formulation of a price:
Cost of making the product How much did you spend on materials? How much did your shop “charge you” to make it?
Time making the product How much time did you spend picking out the lumber? If you designed it, how much time went into that? How much labor time did it take to make it?
Cost of Marketing How much does it cost you to sell it? Are you doing it through Etsy, eBay, print ad, a craft show, etc?
Uniqueness of product If you’re the only one making this product, consider that a reason to increase your price – if it’s a good seller. If you’ve got a hot item, you can charge a premium, but if you have a unique item no one is interested in, you can’t.
What is an acceptable profit to you? This is usually expressed as a percentage. If a piece cost $50 in material, and another $10 in marketing, you spend 3 hours making it, and it sells for $150, is $90 (or $30 an hour) a profit level of 250% acceptable? Myself, I like to use the per hour dollar amount, since I can compare it to a real world job.
Can it be sold? An off-shoot of the above acceptable profit thought above is, the salability of the product. Sure, you can make a 250% profit ($30 per hour), but what does it matter if no one buys it?
Wholesale or Retail? Will you be selling to wholesalers, strictly retailing it, or a mix? Wholesalers generally pay you half what they want to sell it for; is that enough profit for you? If you are the only one selling it, yes, you’ll profit more, but sell less in number. If you do both retailing and wholesaling, you can’t undercut the wholesaler’s store price on your website.
Cost doesn’t necessarily dictate price Create your price not necessarily on cost, but on perception of value. Let’s use an example to illustrate. Perhaps you make a shadow box for the display of the American flag and medals, as seen here:
You usually charge materials x 3. There is not a lot of materials in this kind of piece, and really not a lot of time. Maybe what, $25 in materials? So, $75 is what you’d normally charge. Sounds like a great markup right?
Well, think again. The shadow box in the picture is mass produced, sold at Linen N’Things for $120. You came up a little short at $75, didn’t you? You should be pricing that at at least $150. Why? Because it’s handmade by a craftsman, is real cherry, not “finely crafted wood with an elegant cherry finish” as they describe theirs (cheap wood made to look like cherry, which it never does). The point is, something like this, which is an emotional purchase, can command a high price, because many people want the best, and they perceive you, a craftsman, as producing the best product. Get paid for it.
Well, there are some thoughts…I hope they benefit you.
-- Have a blessed day!