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Thoughts on Paying Yourself by the Day

This video showed up on my facebook feed last week, and I shared it on the TDS Facebook page, and I haven’t been able to get it out of my mind since.

How have I never heard this before? Do you know how long I’ve been doing this? Maybe if I’d gone to art school?

I love how simple he makes pricing work for sale. It’s got me rethinking the prices I’d been playing with for the upcoming Tiny Dino Soapworks. Especially since I’ve already been working on how I would batch my oils for soaps and body butters, etc. to save time spent measuring oil for each new product.

Let’s play with some theoretical numbers for a moment, shall we?

If I wanted to figure out how much to charge for a bar of soap, the first thing I do is figure my cost of materials. Say a 10-bar batch costs $15 to make, including packaging. That means cost of materials on each bar is $1.50. If I were paying myself by the day, and could theoretically make 30, 10-bar batches of soap in a 10 hour day, that means I could make 300 bars in a day. That means I would pay myself .$60 per bar, raising total price of the bar to $2.10.

This is far too low. Selling your soap for that little will run you out of business, especially if you’re making closer to 3 batches of soap a day. (If you’re at a point where you’re making all 300 bars, I hope you’ve scaled up from a 10-inch mold!)

If I were to figure the price hourly, still paying myself $50/hour, I still get the cost of $2.10/bar. However, if I figure the pricing model I proposed in Why You Need Wholesale Pricing First, this number would be my starting point, and not my end point. My wholesale price per bar would be (rounding up) $4.25, the retail price $8.50.

Those are numbers I am far more comfortable with for recouping expenses.

If I were still selling handspun yarn, I would never be able to sell it using this method. I could probably spin one, maybe two skeins of yarn in one day, unless I was doing super chunky stuff. That means 1 skein would cost roughly $275. Usually, I was lucky if I could sell the yarn I spun for twice the price of materials at around $50.

For soaping and spinning, I’m not sure this model works, even though I consider those artisan crafts. However, for woodworking, for sewing, I could see how it could work very well.

What do you think? Which pricing model works best for your handmade business?

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Selling Without Fear: Why You Need Wholesale Pricing First

wholesalepricingpin

Now that you are thinking of yourself as an entrepreneur and have started on your branding journey, you have to be ready to sell, right? What’s left? You’re never going to make any money if you don’t sell, right?

Correct. If you never start selling, you won’t make any money–but you know what else makes you no money? Setting your prices to low.

I know you’ve heard that your prices are probably too low before, and there is a reason for that. A lot of new entrepreneurs want to sell their work for the lowest price possible because they are afraid no one will buy it otherwise–it is a chronic problem. It is also a trap, one that I am begging you to avoid.

Prices are hard. How do you even start to quantify your hard work? Is the love that you put into your pieces worth a number? Does it matter if you would keep making those scarves, mugs, prints, earrings, lip balms, etc. even if you weren’t selling them? Yes. It matters.

If you want to continue your business long term, you have to make enough money to keep it going.

Chances are, you probably want to make enough money to quit your day job. To do that, the prices on the items you sell have to accurately reflect not just the cost of their production, but also cover your mortgage. And if you don’t want to eat ramen for every meal, it’s good to be realistic up front about how much you need to make and how much you can reasonable expect to charge for your product.

How to Figure Your Pricing:
Step 1: Figure the cost of goods sold. You need to know how much everything costs: your supplies, shipping and packaging, branding materials, website, studio space, advertising. This also includes your hourly rate, and feel free to give yourself a raise. You are working your ass off to get this business off the ground.

Add the cost of the supplies that goes into each product plus the amount of time you spent on each product plus the costs of packaging and promotion. This gives you the cost of goods sold. (The investment you have put into each individual product.)

Step 2: Do your research. How much are other makers selling similar products for? Take a look at etsy and local shops that sell items similar to what you make. What are their price points? Keep in mind that some markets vary a lot on the sort of product they can sell. A gift shop at an art museum is going to have much higher price points than a corner grocery store, which is going to be different from an artist’s collective or boutique. Where does your product fit best? If you’ve done your branding homework, this should be an easy question to answer.

Step 3: Take your cost of goods sold and multiply it by two. Then multiply it by two again. The first number is your wholesale price. The second is your retail price. Compare these numbers to your market research. If the number is too high, work to get your costs down. Look for new suppliers, make more efficient use of your time, but do not decide to pay yourself less. That hourly rate is non-negotiable.

The other thing that’s non-negotiable, is that step where you figured your wholesale pricing.

I know it’s tempting to make that wholesale price your retail price. You will probably sell twice as many $1.50 lips balms as you will $3.00 lip balms, so it’s no big deal, right? Sure, maybe you will, but then you’ll have come up with containers and oils and packaging for twice as many products on half the money. If you’re selling your lip balms at shows and online one tube at a time, $1.50 isn’t a very big return, even if you’re selling ten a day. That’s $11.50 per day vs. $30.00 per day. (See how that number more than doubled there?)

The other major thing to keep in mind is that while most artist-entrepreneurs start out at shows and online, getting into brick and mortar stores can become your bread and butter. Brick and mortar stores like to place large orders all at once. That’s good for you, because instead of getting your money in $3.00 at a time, you can sell a shop 50 tubes of lip balm at a time and you get $75.00 all at once. That’s money that it normally would have taken you three to four days to make that you just made in one.

The lump sum is the first reason you need wholesale pricing. Another is that if you don’t offer discounted pricing on your work to stores that are buying from you in bulk, they will flat out not buy from you again. If you charge a shop the same $3.00 you retail lip balm for, that means the shop has to sell it for $5.00 to $6.00 to recoup their investment. That’s getting to the high end of the lip balm spectrum and could be difficult to sell. On top of that, if customers find out that they can undercut the store by going directly to you, you might get the business of a few people buying from you one time, but you’ll lose multiple large orders from that store because they can’t sell your product. You want those consistent lump sums.

The most important reason of all that you need to know your wholesale pricing before start selling is because knowing your wholesale price gives you power. Whether you’re trying to sell at a show, working with a buyer or negotiating with a collaborator, you know the bare minimum amount that you can accept for your product, and you can even set a minimum amount that a person needs to order to get that price. Setting your terms up front makes you look good and engenders trust. When your customers trust you, they are a lot more willing to give you their money so you can pay your mortgage. And that is always a good thing.

Next week we’re talking the glory that is a line sheet. Hold onto your hats, ladies and gentlemen, it’s going to be a blast.