No matter what I am teaching or talking about, someone always asks, “How should I price my work?” It is one of the most important issues any entrepreneur has to deal with in running a successful business. The main objective is to make money—not lose it, which I know sounds really elementary, but many people overlook it. Instead, they focus on “selling” and the price is often a secondary concern—even if they are losing money.
When selling a product or service, almost everyone goes through periods when they question themselves and their prices. They will look at the numbers over and over again, agonizing over a two dollar difference. It is common. It is normal. When I was involved in both wholesale and retail, my friends in the industry and I would talk endlessly about pricing, especially when material costs were fluctuating wildly.
There are as many ways to create a pricing formula as there are people running businesses, and I could speak at length on this subject. Instead, I am going to focus on makers who create a product (service providers and bench jewelers have their own unique pricing schedules which can be found online and in industry publications) and I will break my method into easy, straightforward steps.
Here is my very simple formula for pricing jewelry:
Labor (the time it takes to make a piece multiplied by your hourly charge)
+ Cost (the direct cost of materials)
= Cost of Goods Sold
x 2.0 (or 2.2, 2.5 or some variation of this) for overhead (freight, taxes, paper, etc.)
= Your Wholesale Price (the price at which you will sell your work to a retailer who will
in turn sell it to the public).
Then the retailer will multiply your wholesale price by his own figure (2.0 or 2.2 or 2.5) to cover his overhead. This is the retail price, and it’s the price you should sell your work for when you sell direct to the public through a craft show or other venue.
Below are some suggestions as you begin to establish (or refine) your pricing strategy:
- Go Shopping – I always tell students that, if they are going to sell jewelry, they’d be well-served to visit stores and research the price of similar jewelry. If you are looking at pearl earrings and they are $100 in a store, then you know the wholesale price is around $50 and the Cost of Goods Sold is roughly $25 or under. Know the prices your competition has set and know your market!
- Include Your Labor! – Many times emerging artists or beginning business entrepreneurs don’t include their “direct” labor for making a piece or providing a service, and they should calculate labor according to how long it will take to make a piece the fifth time or the hundredth, not the first time. Using a new process or working out the kinks in a design is part of the learning process.
- Create a Price Worksheet – I always have a separate price sheet for each piece in a collection. This price sheet includes pertinent information such as the date the price was calculated, which is particularly important as the prices of materials can change rapidly. Include the price of the metal on the pricing date. The weight of the piece. Findings and chains. Labor. Once you have a sheet on each piece, you can look back periodically to see if you need to make any adjustments to your numbers. I would also include the retail price, so you know what its approximate sale price should be to the ideal buyer. This is also a good place to keep information such as the Rio Grande item number for findings or to note the exact alloy metal you order. Also, very soon you will be able to download a PDF of my sample price sheet from Rio’s website! I’ll keep you posted.
- Don’t Sell at Wholesale to the Retail Public – This is one of the biggest mistakes people make when first starting out. The first problem with this is that, if you are selling to the retail public at a wholesale price, if you ever decide to sell to galleries or expand your sales base, it makes it much more difficult to provide “wholesale” pricing that will be attractive to these venues. Start out selling at full retail so you won’t have difficulties making the transition from wholesale to retail if you decide to go that direction. The second problem is that, if you are selling at a wholesale price to the public, your galleries and stores will be less than pleased that you are essentially undercutting them in the retail market. A third problem is that, if you are on Etsy or at a retail show, you are not being fair to your competition by selling at a much lower price. And finally, it is just plain smart business sense; why under-value your hard work?
- People Want to Pay a Fair Price – The buying public instinctively wants to pay a fair price for what they buy. Jeffrey Gitomer says this in his book, The Little Red Book of Sales. If the price is too low they may wonder what is the matter with the product. If it is too high, they may have trouble justifying the purchase or they may decide they can’t afford it.
There is so much to say on the topic of smart pricing that I will continue the discussion in next month’s post, which will cover more tips on pricing your work. In the meantime, feel free to send me your pricing suggestions and ideas!