Handmade entrepreneurs, when starting out, often make a handful of common mistakes with their pricing. This can be a result of undervaluing their work, misunderestimating their time to create, and also not fully calculating their costs of production.
“Feels Right” Pricing
The first common mistake is to randomly pick a price based on what “feels right”. This can be a personal decision, or it might be the result of asking friends and family what they think you should charge. This, of course, does not factor in your costs and so is a strategy that can only be successful if you don’t mind making a loss on your products.
What would I pay?
Another common error is to ask yourself what you would pay if you were the customer. This is completely flawed as it assumes that your customers are economically exactly the same as you. Essentially the phrase to remember here is “You Are Not Your Customer”. You might well be able to afford to purchase your own products, however there are many handmade sellers that cannot possibly justify the expense of purchasing their own products…and this is completely okay!
Competitor Price Match
One other common strategy used by first time sellers is to look at your established competitors and price under what they are selling similar items for. The issue with this is that you don’t know their internal production processes: how they make their items and what materials they purchase makes a huge difference to profit margins. What they might be able to sell their products for could result in a loss using your current production process.
Low prices to get your initial sales
The final flaw is to assume that when starting out, all small craft businesses make losses to “get established” and noticed: it is only later when you are successful that you should start to see any profits. Unless you have generous and patient investors behind you that are fine to see losses in your first couple of years, making a loss at the start puts you at a significant disadvantage and can be the difference between you being in business in a years time or not. You want to be aiming to be making a profit on your very first sale onwards!