How to Set Prices for Handmade Goods
workshopmag.com
workshopmag.com
But - I quilt (not to sell). Quilting is expensive in terms of both supplies (typically 100% cotton fabric, thread, batting, machine, etc.) and especially time.
It's difficult to convince people that the relatively simple (looking) quilt made by a skilled quilter, which 'only' took 20-30 hours to make is worth $500-$1000+.
Couple of interesting articles here:-
- https://sewingreport.com/2016/02/quiltonomics-the-real-cost-...
Because of the knit fabric most are made from, each shirt has to be a) cut (the graphic you want to use) and then b) that cut piece needs to be stabilized, which typically means using something called 'fusible web' - a material which adheres to the shirting via ironing. Otherwise, you wouldn't be able to sew the pieces together very well.
So in some ways they're simpler, but they can require more initial prep.
But the economics of it is interesting to reflect on. We were both poor college students, with no real family support, working 30-40hr weeks at coffee shops in order to pay rent and buy food, pulling $8/hr plus tips.
The cost of yarn was a half an hour's worth of work, and the hours it took her to knit it were done while relaxing and watching shows. So labor was considered a write-off, in terms of labor. To her, the gift only cost was the yarn. Time and opportunity at work for more hours were scarce, so it wasn't like we could just work more instead.
Quantifying the value of the scarf didn't really change in my mind. To me, the fact that she spent all that time on it meant it was special and invaluable to me. Especially since it wouldn't make economic sense for her to try starting a business selling them.
Many sellers of handmade items will have the same problem.
https://www.reddit.com/r/toptalent/comments/tfiwqd/this_guy_...
(See Bunyaad rugs )
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Also quilt sale prices on EBTH are interesting… I’m not educated enough to really understand that market.
The same is true when I see local auctions. (Chance?)
I write fairly well and fairly quickly but my ghostwriting price for an article/blog has a definite floor. I might come down a bit if the work is interesting and the client is being professional/easy to work with but I won't come down that much.
So ~$1500-$2000 for a blog post is pretty much my floor but if I bring some brand to it, it's substantially higher.
For example, for my shaker trays I describe the process of picking out the wood, cutting the bands, boiling the wood, bending it around a hand made form, hammering in copper tacks over an anvil, hand finishing, and then applying multiple coats of hand made shellac. For larger furniture or slab work the story of the actual tree can really add to the value as well. People want a story.
To lower the cost you can create router templates, jigs, or even CNC projects to lower the hours spent and reduce the overall cost, but these need to be balanced with the selling of bespoke goods.
- A small e-book or online course for software engineers to learn woodworking. Working title "Burnout to Burn Box: How to quit tech and start woodworking"
- I'd also like to create a software/hardwood shop where workers can choose to do either software engineering or woodworking any given day, but that will take more than a garage shop. You'd only need experience in one discipline to get started. Working title "Bits to Bits Studio". I'd also like to have a small coffee shop in the front to display finished goods.
- I'd also like to start a community woodshop on Lopez Island to help islanders learn skills and start their own company.
In the first instance, in a first world country, to cover the high cost of living and to also take retirement and other such things into account, I’d estimate $50/hr is the floor. Where I live a plumber will earn $80-120hr so even then it’s on the low side if you are a skilled maker who has had to develop skills over years.
In the compelling differentiation department, I think it comes down to storytelling and materials + workmanship. This trifecta has to be woven into a credible narrative to sell your product.
After all that, you need to market it… and we’ll that’s something else entirely…
That's $100K/yr, well above the median.
My pricing strategy is to start with your needs. $50/hr might be reasonable, but it varies by person and life circumstances.
Figure out how much time it takes to produce the second (or later) work product. Do some hand wavy math over the amortization of research, design, and first product over the quantity you could produce in a few months, if that was your only product. This will be a larger factor in new work than in iterations on previous work.
You now have a selling price, which the market may or may not bear. This can be tested, and you can use the results to inform your decision on whether to continue production. Most of this can be estimated early in the design phase.
My premise is that starting from anywhere else (COGS, market price) and working backwards to compute valuation of your time is .. well .. backwards.
Accepting a temporary, or introductory, devaluation is reasonable.
Just know what your targets are, so you know when things are not working.
But my larger point is that $50/hr is more than many people need. And not enough for others. This is important to decide before you start depending on the income.
If you lack the skills to produce, you should not start selling products. All of the learning process is a prerequisite and it is not reasonable to price it in.
The median is gross personal income. It doesn't include insurance plans, unemployment insurance, taxes, or any other costs of doing business beyond materials. I haven't done the self-employed thing like others on HN, so I'll leave it to them to say if $100k/year is enough to earn the equivalent of a median salary. But anyone who aims to rake in that median is in for a rude surprise.
Edit: I'm not saying you'll be paying all those costs yourself. You don't have to budget for HR training on not stealing from your own supply cabinet. My point is that companies pay a lot more per employee than just salary.
Of course, but the person who is paid $50/hr is also paid $100k/yr for a 2000 hour work year.
This might make sense for the service industry. It doesn't sound right, but I don't know the math there.
But it is not the same for producers. If you can do productive work (i.e. resulting in a product) at a full-time equivalent level, the math is straightforward.
Of course like all self-employment you need to "bill" for the administrative work as well. And you need to make sure there is a market for your time/production.
A production house billing out their employees time is very different from a handmade crafts producer pricing their work.
The first has many more variables to consider, but the process is well-established in many industries.
The second is actually very difficult, all the more so because small-scale individual makers often don't think like small business owners!
> That's $100K/yr, well above the median.
That's under the assumption that you're fully booked. The reason plumbers, mechanics, etc. charge so much is because they're not fully booked. They are experts who are available for you to book; you're paying for their availability. If your car breaks down, you want to book an appointment tomorrow if possible, not six months from now.
If you're going to stay in your profession, you have to charge for downtime. It's far better to have 6 mechanics who are available for $90/hr than to have one mechanic that charges $50/hr, but is booked 2000 hours a year - in the latter case, you end up on a long waiting list. If enough overflow business is available that another mechanic puts out a shingle, and now they're both booked for 1250 hours a year, then they're going to have to charge $90 to stay in the profession. That's going to be the equilibrium. And especially when individual jobs are only a handful of hours, people are going to be a little less price sensitive: $500 is not as different from $900 as, let's say, $50K and $90K.
If independently bookable bespoke craftspeople aren't sitting idle a good portion of the time, demand is not being met.
> My pricing strategy is to start with your needs.
tl;dr: I agree. But your availability is also an input. You have to charge for downtime.
These businesses are generally booked enough that they decline a lot of potential customers. The reason they charge so much is because the nature of their business means they have orders of magnitude more capital and compliance costs than office work.
However, not all handmade producers are working on spec, or by commission -- i.e. they do not match the reactive manufacturing model you describe above.
Many of them produce at full capacity and find markets for their products. They manufacture proactively and sell constantly (Etsy, craft fairs, etc). There will be some overproduction, which has to be priced in too.
Sometimes you have to hire people to handle fluctuating demand. You have to train them on your production methods. This is overhead too, but of course your production capacity goes up.
I have a friend who sells consistently over the year, but demand more than triples in the holiday season. She can't always predict which products will drive the demand "this year", so she can't always manufacture proactively. She hires friends to help her get orders out the door in Nov/Dec.
Maybe my lack of clarity is because there are many different kinds of handmade products. Someone selling custom cherry dining tables for $10K+ has different concerns than someone selling small sewn gifts for under $50.
In startups it’s popular to use accrual accounting methods and, if you’ve ever had an opportunity to look at a startup’s books, it can get complicated. Several years ago, I worked on an enterprise product that had a bunch of variables and a long sales cycle. Without good accounting practices it would’ve been easy for us to screw up pricing and take a loss.
Maybe it’s just me, but it seems like the variables that go into a creative process are nearly as complex but the scale is smaller and documentation slimmer.
This may be true but a 'creator' only needs to make enough money to pay him/her self and to buy materials. Once this has been achieved then it's simply a case of increasing the selling price to whatever the market will bear.
Honestly, I think I’m just a bad time estimator. It’s definitely something I miss from working together with people — I know I’m a bad time estimator and I can ask for help. Maybe this is just a “learning to work solo” thing.
Also learn to add some padding when you can if you're doing a job for someone. I really learned this when I was a consultant. Way better to underpromise and then come in early than the other way around.
As an alternative to a separate card, you can use a service like privacy.com to create one or more "virtual" cards.
The research budget covers the 'organic creative process' but isn't tied into the manufacturing costs. Once I've got the basic idea down, then I can start to purchase items to build X amount of something, and it's much easier to specify costs of a known item.
Do you try to budget time for research when you start? E.g. “I want to try to get to my first prototype within 80 hours.”
I think when I went into this I didn’t think it would be very hard. I have experience pricing and selling software and experience pricing and selling my time as a consultant. What I’m finding in reality is that, although aspects of my experience apply, overall it’s a new kind of thing for me.
My first product, I rather arbitrarily priced it at 4x my cost of materials. Then I began keeping records.
I use PayPal for everything. It comes with a Visa card. At the end of the year, I download the entire year's transactions as a CSV and work out my numbers in a spreadsheet. I keep procrastinating on doing it in Python. Money in, minus money out, is my profit. Next, I have a decent estimate of my hours.
I've tried to price my goods, so I can pay myself somewhere between $50 and $100/hour. I try to make very sure that I'm not robbing my family by spending time on a "business" that's not actually a business.
Of course this is on me as a designer and maker - it's a labor of love - but it keeps my work from becoming a serious business that I might try to go out and count on for income.
One of the trade offs I find myself making is when I'm doing something new. There's a certain amount of inefficiency, and sometimes you end up having to pay yourself less hourly to hit a more-or-less established price point for something.
Sometimes that's worth accepting for the sake of doing something new or developing a new set of skills, but you don't want to do too much of that either!
If you don't have a job and can't get one, your time is worth $0.
If you get a job a MacDonalds you time is worth about $10 an hour.
If you make products, your time is worth what you can sell the product for divided by the amount of time you worked on the product.
There is no upper or lower limit. Some people make $1M a year, some make $0.
Update. The real question is, "Should I keep making furniture given how well it sells, or should I go get a job at MacDonalds?".
There is far more than money to consider in that question.
Back to pricing though: I shoot for an hourly rate when I quote things knowing full well that sometimes I won't hit it if I run into unanticipated learning opportunities. Sometimes I price myself out of work/the customer doesn't have a realistic expectation for what a thing should cost. It is what it is.
Hilariously, I have a friend in the trade who's married to a pricing analyst. He has as much trouble pricing his work as anybody else I know.
Figure out what the market is willing to pay and then decide if you can get your production costs far enough below that to justify the enterprise. Yes, being handmade by locals adds to what people will pay, but only so much.
You have to test your market with different products and different price points.
If you make three widgets, offer them for $1x, $5x, and $10x.
If you sell all three you know you are still too cheap. Make your next batch even more expensive until you find a price that people are not willing to pay.
If your products don't sell, you need to either lower all your prices, or improve your marketing.
Is there a Chartered institute of small business coaches?
If someone asks me about my competency I will refer them to this thread.