Since I started say it in September, it's been a steep learning curve. And as I learn about different aspects of running a business I like to share them, just in case it will be of use to you too. Something I've been thinking quite a bit about recently is pricing. I'm trying to make money so I want my prices to be high enough to bring in a profit, but if I price items too high they won't sell. I'm sure everyone who tries to sell their handmade items struggles with this at some point.
I've done a fair bit of reading and digesting what others have to say. There's quite a lot of helpful information out there when you start to look. There's an interesting blog post and discussion on The Crafty Network about pricing your crafts that's well worth a read.
It seems that there are three main ways that people work out what price to charge for an item:
1. Research how much similar items sell for and price it within that range
2. Decide how much you would be prepared to pay for your item
3. Work out the cost of the materials used, plus an hourly 'wage' for your efforts
The problem with options 1 and 2 is that often the price that seems reasonable doesn't take into account the cost of the materials or the amount of time that the product has taken to make. Many artists/crafters/designer-makers tend to end up under-pricing their work this way. It's not too much of a problem if you're not aiming to make much of a profit or bring in an income, but it's not a business mindset.
When option 3 is used, the calculated sale price for the item can end up so high that you just laugh at it. This is particularly the case for crafts that take a long time. If you made a crochet blanket and the wool cost you £15 and it took you 5 hours to make (I have no idea if this is realistic, I don't crochet this is just an example!) you might calculate the final price to be £15 + 5 x £6.08 (the current minimum wage) = £45.40. But then you think to yourself £45.40! No-one's going to pay that for a little blanket!
The common element to all three options for pricing your items is that they begin with the finished product. You've made a lovely bag/card/cushion/bowl and now you'd like to sell it. I want to suggest that this is possibly a backwards way of doing it, particularly if you are trying to run a business and make a profit. Perhaps you should start with what you think is a reasonable price for your idea for what you would like to make. Then think about how much you could afford to spend on materials, and, pricing your time, how many minutes you can afford to spend making it. Nine times out of ten you'll probably work out that you can't make the item quickly enough, or you can't buy the materials cheap enough, to be able to make a profit. This is why I advise thinking about your pricing before you get out your sewing machine/craft knife/knitting needles.
For example, I make cards. I think they are lovely cards but realistically no-one is going to pay £5.99 for them. So I choose to price the majority of my cards at £2.20. It costs me approximately 62p to sell each card online. So I have £1.58 left to play with. My time costs me 51p for every five minutes I spend making (at the minimum wage), so if the card took 15 minutes that would be all of the money spent. I need to allow a little for materials. So, realistically, if I can't make the card in under 10 minutes and using resources that cost less than 56p, it's not worth making unless I am prepared to charge more for the finished product. And that's not taking into account any time I spend advertising the product, packaging it and taking it to the post office - you may also want to factor this in.
Think about the costs first, not last. If you want to run a business that makes money, design products that you know are going to bring in a profit (of course, there's also the small matter about actually finding people to buy them...!). Think about the margins before you start splashing out on those amazing buttons/fabrics/stamps. Buy them for yourself because you like them, but don't buy them with your business hat on unless you've worked out that you can afford them. I have lots of card designs that I make because I like making cards. They take me way longer than 10 minutes, and use lovely materials that aren't cost effective. These are the cards that I keep for myself to give to friends and family - they might be nice, but they won't bring in a profit so they're not headed for my shop.