You've made your products and you now want to start selling - how do you figure out how much to charge? We show you how!

This is often one of the hardest parts of running a craft business - once you have made your product, how do you know what to charge for it? If you set the price too low, you might be actually losing money by the time you factor in all costs of production - so this is really one of the most important things to get right.

This is often one of the most tedious tasks to do and requires good bookkeeping practice, so many professional craftspeople unfortunately often choose to ignore this method. However, calculating exactly how much it cost you to make the item puts you in a much better position to know how much to charge for the end finished product as you will know the minimum possible price you can charge before you will make a loss on your product.

The key formula to use to calculate your prices is:
Total Material Costs + Labour Costs + Advertising Fees + Postage + Misc. Other Expenditure = Base Production Cost

One of the biggest mistakes craftspeople make in figuring out this cost is to ignore their own labour costs - it's very important to include the costs of you making your product, so set an hourly rate that you would like to be paid as part of the figure. Alternatively, you can leave this out and calculate a profit margin on top of your production cost that equals what you would like to be "paid".

Product labor and material totals in Craftybase's automatic manufacture cost calculator.

### Pricing Strategy

Once you have your base production cost, you can now determine what sort of markup you would like to add to your item. Markup is defined as the amount added to your cost price to arrive at a selling price and is a commonly used technique to use in determining how much to charge for your products.

Markup can be typically be defined as a percentage – a markup of 100% would be cost price x 2, for example. The best way to illustrate how pricing markups work is with via an example:

Jane makes a scarf and it costs her \$29 in manufacturing costs (materials and labour). She would like to add a markup of 150% in order to arrive at her final selling price. Applying the markup percentage results in \$72.50 as the suggested selling price (\$29 × 2.5 = \$72.50).

It is important that you use profit margin and markup properly – a markup of 150% does not work out to be a profit margin of 150%. In the example above, the profit margin would be 72% (\$43.50 / \$72.70 = 60% profit margin)

The automatic pricing guidance feature on Craftybase can calculate your suggested prices for all products you sell.

One of the last things to do is to look at your competitors that sell similar items - what are they charging? Is your item better made or a better quality than theirs? You might be able to charge a premium over their price for this. Have you created something unique and different? This is another opportunity to sell your products at a higher rate.

### Experiment & Tweak!

Don't be afraid to experiment with your pricing - if you feel that it might be too high and your sales are slow, you can always adjust and see if sales pick up (just remember not to go under your Base Production Cost!). Likewise, if you notice that your prices are significantly under your competitors - try increasing them slightly and see how that goes. Don't be afraid to experiment!

Craftybase inventory & business management software tracks your material costs, purchases, postage, labour and much more.