Wednesday, May 8, 2013

A Pricing Experiment



I just recently raised my prices.  Kind of a lot actually.  It was scary, and I really want to change things back, but I've committed myself to this experiment, and I'm going to see it through.

What am I talking about?  Well, not too long ago, I started to put some serious effort in pulling together wholesale info for my jewelry business.  Knowing that, typically, wholesale prices are about half of retail, I decided to go through my shop and see if, at my current price point, I could make money doing wholesale.  The answer?  NO, there was no way.  Not even if I set a minimum order, outsourced some components to cut down on labor costs, and found less expensive materials. Well, shoot.

It shouldn't have been much of a shock really.  People have been telling me from day 1 that my prices were too low, that I could and should charge more.  Customers.  Customers were telling me for three hundred sixty five days that they WOULD pay more for my work, and I just left my prices right where they were.  Why?  Because I was basing my prices on other prices on Etsy rather than taking the time to do the math.

Well, that's not entirely true.  I did the math early on, using the formula below, but the numbers that formula was spitting out were just insane and scary and WAYY to high.  Only...they weren't.  Even writing that right now feels weird to me, but that doesn't make it any less true.  The formula I was using is passed around and repeated on a regular basis because it's a good model.  It works for a lot of people.  It's a good way to find a starting point.

The formula that everyone kept telling me to use was this (there are about a thousand variations on this formula, but they're all basically the same):


In reality, because I was so concerned with having a competitive price on Etsy, the formula I was using was more like this:


This is madness.  Madness.  Seriously, how did I ever think this was a good idea?  By not at least paying myself for my time, and adding in some kind of profit, I was actually losing money on every item.  Yes, there was money coming in, but it was barely covering my costs.

Anyway, I've decided that how other people price their work on Etsy is no longer a factor in how I'll be pricing my work.  At least not much of one.  This may sound crazy in theory, but the reality is that people grossly under price their work on Etsy, and trying to compete with that, trying to be the lowest price, well, that only serves to devalue our brands and our products.  Not to mention that it just reinforces the bargain mentality.  And our work, our art, it shouldn't be a bargain.

Now, please don't misunderstand me here.  There is nothing wrong with basing your prices on other Etsy price points, provided Etsy (or other similar market place) is the only place you want to sell your work.  If you're content with selling on Etsy, then by all means, follow your bliss.  But if you have dreams beyond just Etsy (like wholesale, galleries, art markets, maybe a b&m shop...) your pricing has to reflect that.  I'll repeat that, because it's important.  If you have dreams beyond just Etsy, your prices need to reflect that.

Businesses need money to grow.  If you're not taking that into account, if you're not pricing for profit, if you're not making money on every piece that you sell, your business doesn't have room to grow. 

So...the experiment.  Take a look at your shop and find the five most popular items.  If you don't sell multiples, pick your 5 favorite items.  Now do the math for each.  Use real numbers...
  • What's the cost of the materials you used?  What other expenses were involved?  (Expenses)
    • For example, I use a special task light when I'm working that gets something like 1,000 hours to a bulb (not really, but for math purposes, we'll pretend).  The bulb cost me $40, so it costs about $0.04 cents an hour to use that bulb.  Four cents really doesn't seem like much, but let's say I work 10,000 hours, and have to buy 10 bulbs--that's $400.  Sure it might be spread out over 2-3 years, but it's still four hundred bucks.  If you're not building that cost into your business, it's money you're losing.
  • How long did it take you to make it? (Labor 1)
    • Seriously, don't skimp here.  Did it take you 6 hours?  11?  35? 
    • If it took you X number of hours, is it because it was a new technique you were just learning?  Were you working slowly because you were distracted?  How accurate is the time?  Are you starting and stopping?  The answer to these questions is important when determining the next figure.
  • What hourly wage do you deserve? (Labor 2)
    • Don't be cheap here guys--pay yourself a real world wage.  Are you just starting out or do you have 5 years experience?  You should be paying yourself more than minimum wage here.
  •  Don't forget about profit.  Labor costs and profit are not the same thing!  Figuring this out is tricky, because it's hard to know what you should be making for profit.  
    • Remember, this is the money that helps you grow, that you can invest back into your business, that you can put into savings.  How much money do you want to make?  Be honest with yourself.  And be fair to yourself.  What is the item worth to you?  (If you're really struggling here, use $5 as your profit number.  It won't really give you as accurate of a picture, but at least it's something.)
Okay, now let's plug these numbers into the formula.


 That's your wholesale price.

Now for the scary part.

Double it.  Take your wholesale price and multiply it by 2.  That is your retail price.  How close is it to your actual price?  If it's really close (say +/- $5), then good for you, you're pricing fairly well.  If it's way higher than you current prices, then I really encourage you to participate in this experiment.

Those 5 items you picked out (the 5 most popular, or your favorite 5)?  Raise their prices to the price from the formula.  If you're anything like me, your heart just skipped a beat, and your first instinct was to dismiss this idea out of hand.  Don't.  Give it a try.  You deserve to get paid for your work.  You deserve to make money from what you're doing.  You work hard, you create awesome things.  Own that.  Be proud of it.  Don't feel guilty for telling yourself you deserve it.  Don't feel guilty for making money.

And for goodness sake, DO NOT go compare your new prices with anything else on Etsy (or Artfire, or E-bay, etc.)  There is nothing wrong with any of these places, but something like 89% of sellers in these markets are under pricing their work.  If you try to match their prices, you'll just be perpetuating the cycle. 

I know that new price you just came up with is scary and expensive and uncomfortable.  Do it anyway.  You can always lower your price back down at the end of the experiment.  The end of the experiment, by the way, should be no less than 3 weeks from when you raise your prices up.  Longer is better, it will give you a more accurate picture of how this new price point works for you.  At the end of the experiment, if the new, higher price isn't working for you, you can lower your prices, but don't just drop them back down to what they were.  Experiment a little bit, and find that sweet spot.

Remember not to judge the success of this experiment on the number of sales you have at the higher price point.  Instead, base your judgement on how much profit you made.  If you made a larger profit, then your experiment was likely successful. 

Feel free to leave a comment.  What scares you most about raising your prices?  Do you talk about prices with other artists/crafters?  Do you make a profit at your current prices?  I'd love it if people came back in a few weeks and shared their progress!

Also, feel free to stop by this Etsy thread and join in the conversation: A Pricing Experiment

For more reading and other great information, be sure to check out the links below!
The Art of Pricing for Profit
Etsy Success Pricing for Profit Workshop
Everything ever written/shared by Megan Auman (seriously, this lady has some seriously great info to share)
The Etsy Seller Handbook

Don't forget to check out Part Two, found here:
A Pricing Experiment Part 2

25 comments:

  1. Interesting! I have a hard time pricing labour as my hours aren't really set. Each photo is different time spent editing and shooting

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    1. I think figuring out pricing for a service rather than a product has it's own unique challenges. Maybe, if you track your time really closely, you can work out a general figure...an average, for certain tasks.

      For example...what's your average set up time for small product photography? For large? For using X, Y, or Z props? How long, on average, does it take you to edit a series of 5 photos? 10? Basically break your time out into all the variables for each type of (stunning) photography, and work from there.

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  2. Can't decide if you are more talented as a writer or an artist....this was not only an eye-opener but also logical. Bravo!

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    1. Aw, thank you! I hope you found it helpful :)

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    2. I completely agree with audreysmom! whoa! I don't want to even begin to figure all that out...but maybe I can do it for one or two items....thinking a lot about this lately. thank you so much!

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  3. Brilliant article. The truth is that most etsy artists are so new at this and so excited to sell, that they undervalue their brand and make it almost impossible for them to ever make a living at what they love. If you want to brand yourself as a "skilled artisan" rather than a "crafter", you must price accordingly.

    One note to add to your " never compare your prices to other people on etsy" idea...I have learned that if you can find a bunch of other work like yours on etsy to compare prices, you are probably not being unique enough. That was a rough realization for me early on and changed my entire direction.

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    1. Excellent article! I have been struggling with this, trying to decide whether or not to raise my prices on my most popular items. I think I am going to go for it after reading this! Thanks!

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    2. You're welcome Maggie! I hope you'll come back and share how it goes :)

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    3. Elizabeth--that's such a good point about price comparison--it totally fits in with an upcoming article I'm working on! How timely :)

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  4. Wow, this is such an amazing blog

    I must admit when I started my business last year I was just like you and acted like a newbie would on Etsy, having no idea about labour, profit etc and seriously underpriced and compared to other etsy sellers especially the low pricers.

    The lesson started setting in when I would sell something in one of the shops I am lucky to stock in, once upon a time I was selling my Hand Sculpted Flower Rings for just £2.99 ahhhhhhh, the shop would take 50% commission so I would be left with just £1.50 for my hard labour, I must admit its taken me a while to slowly increase my prices as also had shock when worked out the Etsy Pricing Formula.

    What really put my mind in motion was when I did my books for taxman and yes I had sales but losses/expenses were tripple so I made a loss. I want to succeed in my business, so will take your advice on board and experiment with my prices

    Well done on such a fantastic and honest blog :-)

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    1. That's what really clicked it for me too, Tasha, when I realized it would actually cost me money to run my business, rather than having my business make money for me.

      It was really confusing for me when I first started out, because you know, I poured through the forums and teams looking for pricing info, and a lot of people suggested looking at other shops who were selling, and seeing what their prices looked like. It seemed like such a good idea, to base my prices and model my business after other "successful" sellers, but that's not the best way to help your business grow. And in the long run, it's actually detrimental to the handmade community at large, because people start competing on price rather than on the perceived value of the handmade experience, which in turn teaches buyers to undervalue our work.

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  5. You're right about one thing.....SCARY!!! But true. I've had several ppl tell me to raise my prices but i cant get past my minimal materials cost. I have been raising my prices slowly but I'm prob more at wholesale prices right now. I'll keep working on it :)

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    1. Andrea, your work is so awesome, and incredibly unique. I know it's scary. It's so scary I'm working hard not to go change all my prices back lol. But you can do it. Raising them slowly makes sense, like dipping your toe in the water, but I say dive right in! I read somewhere the other day that selling is our experiment, and that the only way we're going to learn what works (and what doesn't) is by doing. I hope you'll give the experiment a try :)

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  6. Thank you, Thank you, Thank you!!! I have noticed the low prices and have commented to a couple of people about their low prices. I do use a formula like the one you posted and have been thinking about lowering my prices. I may, after this experiment, but not by much. I have had other "experienced wire artists" look at my show and tell me my prices are fine and I have looked at their's and they are comparable. Some of my pieces have a lot of work and a lot of material.

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  7. Great post! I've seen the formula, and use this same basic one, minus doubling it for retail. I just don't feel like I can justify that price with the items I sell. I don't think anyone would buy a crochet mug cozy for $50 or a crochet hot pad for $36. *sigh*
    When I first started my shop I was pricing my items very low, I've since come up with a formula I use on every item and I'm happy with it for now.
    Maybe someday I'll raise my prices according to this formula..or slowly raise them slightly from where they are now..
    Thanks for sharing your fantastic blog!

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    1. You might be surprised at what you could sell them for. Try doing a Google search, type in: "crochet mug cozy -etsy" without the quotation marks. (The -etsy will filter your results to exclude Etsy shops.)

      Sift through the results that come up in a regular search, or flip over to Google Shopping. You're right, there are not a lot of people selling crochet mug cozies for $50...but there are some, and they've been doing it for awhile. It could be an untapped market, and if you set your brand up to convey that kind of value, the make your buyer believe that they're buying something really special, you can get away with that kind of pricing.

      Maybe you try $50, and sales drop off. The doesn't necessarily mean the price is too high. There are a ton of other variables--if you raise you price point that much, your brand needs to reflect that price point (ie your photos need to be top notch, your item descriptions need to be catchy and well written, your packaging needs to be more than just a plastic baggie and some tissue paper...the list goes on).

      In retail, it is waaaay easier to come down in price than it is to go up, so don't be afraid to really go for it.

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  8. I always wondered if my prices are too high. With my flowers I make from pencil shavings, it takes a LOT of time to make those. Thanks, I needed to hear this!

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    1. You're so welcome! Keep up the awesome work, your flowers are so unique!

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  9. Pricing is something so many of us, myself included, have issues with. I'm glad you raised your prices, because you have fabulous pieces that are completely worth it!

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  10. This was an amazingly timely read for me. Many thanks for sharing your talent!

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  11. Excellent advice...I usually shortchange myself on the cost of labor because I have the added headache of dealing with exchange rates and the stronger Euro to Dollar value doesn't help sales in the competetive US market!!! :-(

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  12. I'd like to share that I had gone through the higher prices experiment for the past 2 months. My prices were not extremely low, but they were bot too high either, especially that I use high quality materials in my designs. Guess what? My sales had doubled since then and I also picked up a wholesale account overseas. It seems like shoppers will look at the price and will walk away if it's too low thinking that the quality is matching the price. So don't be afraid to raise your prices; it will be scary for a while but it's worth it! Just to share something along the lines of low prices, the other day I saw an Etsy member advertising a sale for a one-of-a-kind jade necklace. Although the design was not too complicated to put together, the necklace was not too bad to look at. Not only that the necklace was originally listed for $14.99 but it was also reduced to $12.49! How in the world would you even cover the costs of your materials with such prices? This is such a great blog, thank you for posting it!

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  13. Thanks for sharing your experiment! I've been fairly happy with my prices, but some of my "fine art" friends have been encouraging me to go a little higher. Having just been accepted to a "truly juried" art fair, I'm going to take this opportunity to raise my prices. Currently my most expensive item is usually about $75. It will be $95 at the art fair, for example. This art fair will have paintings, jewelry, and more in the multi-hundred dollar price range, so my new, higher prices may actually appear cheap in comparison! Assuming my items still sell at the higher prices, I'll stick with the new prices for Etsy and wherever else I sell.

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