How to Price Your Handmade Jewelry
Figuring out how to price your products can be one of the most challenging steps in starting your own small business. It is also what can make or break you as a seller. (No pressure though!) We’re here to help you out. Read below to learn the importance of correctly pricing you items, and tips on how to price your items to achieve maximum sales and profit.
How Pricing Can Make or Break You as a SellerIf you price your items too low, you not only devalue your work, but you won’t make enough money to stay in business. Prices that are too low can leave customers with the impression that your products, and your brand, are cheap, low quality, or bargain. On top of this, customers will wonder why your product is so much cheaper than similar products. Could it be that you’re using cheap materials or that you don’t sell quality products? On the other side of things, pricing your items too high could push away potential customers, resulting in little or no sales. It is important to find a happy middle when pricing your items, and there are several factors to take into consideration when doing so.
A common formula for pricing your products is as follows:
Materials + Overhead Expenses + Labor + Profit = Wholesale Price Wholesale Price x 2 = Retail Price
Let’s go over each of these factors in an example situation below.
It is important to factor in the cost of all of the supplies and materials that go into making your item, no matter how small. This includes beads, clasps, fasteners, thread, and anything else you need to make your product. Let’s say that you’re making a pair of earrings. Once you factor in all the supplies you used to make the earrings, you’ve come to a material cost of $2. Now let’s move on to some “hidden expenses” that people often forget to factor in.
When you own your own business, your expenses don’t stop at the material costs. There are many other things you need to pay for, such as packaging materials, shipping materials, product labels, jewelry price tags, and studio rent. You need to factor in all of these things so that you make the profit you need in order to sustain your business. Overhead expenses can be a bit trickier to calculate than material expenses. Here’s one way to do it: Write down all of your overhead expenses. Calculate the number of pieces you plan on selling in one month and divide that number into the overhead expenses. For example, if your overhead expenses for the month come out to $300, and you expect to sell 100 pieces within that month, your overhead cost comes out to $3. Now, with the materials cost plus overhead cost, you’re at $5 total. This is the point when you’re just breaking even on costs. Next you need to pay yourself for your time, because you don’t work for free.
Labor is the amount of time you spend making your product. You do have to pay yourself for your time, and if you make quality items, you should pay yourself well. Try researching what other jewelry designers make, and go off of that. Remember though, you’re not just the designer. If you own your own business, you’re also the accountant, the administrative assistant, the sales department, and more! It is important that you don’t undersell yourself for the amount of work you do. If you decide to pay yourself $25 per hour and it takes you 20 minutes to make a pair of earrings, your labor cost for that pair of earrings would be $8.33. With materials cost, overhead cost, and labor, you’re now up to $13.33. Attention: do not sell your earrings for $13.33! Why not, you say? After all, you’ve already paid yourself for your labor. Well, think of it like this. If you hired an employee to make that pair of earrings for you, your business would make zero profit if you sold them for $13.33. You are your own employee. You need to pay yourself well. You are also the business owner, and your business needs to profit so that it can grow. Let’s move on to profit.
Profit is money that gets invested directly back into your business, and it is the only way to get your business to expand. To grow a business, you need to invest into it. How much you choose to markup your items is completely up to you. Think about where you’d like your business to be in a year, and factor in a profit margin that will help your business reach its goals. In this example, let’s say you want your markup to be 50%. Now, with the materials cost, overhead expenses, labor, and profit markup, we’ve hit a grand total of $20. This is your wholesale price.
Wholesale Price vs. Retail Price
The wholesale price is what you sell your product to other retailers for. Retailers will then markup the price to a retail price for their customers so that they can also make a profit. If you are selling your product directly to customers, you should also sell your product at retail price. Retail price is generally 2x the wholesale price. This would bring the retail price of your earrings up to $40. How you choose to price your products is ultimately up to you. Just remember to keep your prices competitive, don’t undersell yourself, and yield enough profit to grow your business. The right pricing on your products will help your small business reach its long-term goals!
Once you figure out your prices, pricing display is your next feat. Label ID Systems offers quality jewelry price tags for all of your small business needs. For more information, visit our Label ID Systems store site, or read our article on the importance of pricing display for your business!