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I’ve seen it a lot lately.  Every time I search for a product on Etsy.  Hundreds of different sellers come up in the results.  And they are seem to be competing on one thing.  Price.

Product pricing for your creative business is such a difficult task.  And it’s never a good idea to compete on price.  Especially when you make handmade products.  It really is a race to the bottom when you make battle other shops on how much something made by hand costs.

Keep this in mind.  You are a designer and maker.  Unless you sell wholesale or are not terribly creative, your items are originals.  They can only be purchased in your online shop (or wherever else you choose to sell them).

Since when does this scarcity not have any value?  When did we get so greedy for sales as creatives that we were willing to lessen the value of our work?

I recently found this pricing formula on Design Intuition.  I tried using it to price my smaller quantity invitations.  It’s almost humorous the results.

If I followed this pricing formula for pricing my products, supposedly 15 handcrafted invitations should be priced at $50.  Ha!  Customers don’t even like to spend $30 for a set of handcrafted invitations.  How can this formula think they’d want to spend $50?

On the flip side, I’ve found a lot of people who’ve been selling their handcrafted invitations around $1.00 each lately.  Not even for large quantities.  But ten printed invitations costs $10.00.

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I can’t figure out how (or why) they do it.  They’re designs are beautiful.  I can’t even afford the supplies to make the invitations and expenses to charge $1.00 each.  Why wouldn’t they want to make more money?

So, the truth is that one of the things that I hate most about being in a creative business is when others compete on price.  But that’s what a lot of Etsy has become.  So, I’ve learned to manage it.  And, as history has shown, once a couple of sellers have gone down that path, everyone follows.

Why is it a Bad Idea to Price your Products too Low?

So, what happens when you set your prices too low?  First of all, you drive down the product pricing for your entire category of goods and hurt other shops in the process.  You don’t want to be that person.

Think about it.  If one shop chooses to sell their hand knitted baby hats for half the price of everyone else, customers start to wonder why your prices are so high.  Your product pricing is high because you probably you have bills to pay.

But all of a sudden your hand knitted baby hats aren’t worth as much as they were last week.  Even if you use the finest merino wool.  And have been on Etsy for ten years with 5 star reviews.  Customers don’t seem to be looking at those things.

Today, many customers just care about the price.  At least these customers do.  Come to think about it, they might not even be the ones that you want in your shop.

You want customers that value your workmanship, quality and design skills.  It’s not easy to find them.  But when you do, if you treat them well, they will become your biggest fans.

Another thing is that your product pricing shows how much you value yourself and your craft.  When your prices are too low, it could be because you lack the self confidence to charge more.  This might be something that you need to work through before you finalize your product pricing.  

You also want to be careful about pricing way below your competition because you don’t want to drive up your sales too quickly. 

I know.  More sales wouldn’t be bad.  But they could be.

Think about getting sales in the hundreds for those hand knitted hats.  Around the holidays.  And now you need to knit hundreds of hats and can’t physically keep up with the orders. 

So, you go to hire help.  Except a good knitter will cost you quite a bit of money.  And once you add in the cost of the extra knitters, any money that you were making from the sale of all of those adorable baby hats just evaporated so you could pay them. 

Your profit is gone because you didn’t add in the expense to your product to pay yourself or hire help.  

Oh, and did I mention that once your sales are through the roof, you’ll be knitting 24 hours a day trying to keep up.  As much as you might love knitting, this can lead to major burn out.

The sad thing is when we get burned out from our craft, we don’t want to do it any more.  And you might end up shutting your creative business down.  All because you couldn’t figure out product pricing from the beginning.

Another thing to keep in mind when you lower your prices is that it doesn’t always mean more sales.  If your prices are too low, customers will start to question the quality of your products.  This factor shouldn’t even enter into their buying equation.

You also can never put your items on sale or participate in a sales event on Etsy.  Etsy sales events are supposed to help drive more traffic to your shop – although the verdict is still out on whether this is successful.  But, even if you wanted to have an occasional sale, you need to build discounts into your pricing.

The bottom line is that if you price your products too low, you will lose money and hurt other vendors in the process. 

You don’t want to give your items away for free.  Although when I see other Etsy sellers in action, I start to wonder that maybe they do.

How Do I Figure Out the Perfect Pricing Strategy for my Products?

The art of pricing your products can be a tricky one.  You don’t want to price too low for the many reasons listed above.  On the flip side, you don’t want to price too high so that you keep customers away.

Etsy had a pricing formula that they suggested a number of years ago.  It looked like this:

materials + labor + expenses + profit = wholesale

wholesale x 2 = retail

Whenever I used this formula, though, my prices were through the roof.  They were way too high and I never would have sold a thing.

I think if I planned on selling wholesale this could have worked.  But wholesale isn’t my jam. 

If I decided to go that route, I would need to change my entire handmaking operation and get my overall costs down.  Doing this would have been a detriment to my products.  So for now, I’m only concerned about retail costs. 

What should I price my item for in the shop?

Here’s an adjusted pricing formula that I came up with:

Product pricing formula by Honestly Nat

My materials costs are the cost of the materials to make the item.  This could include all of your crafting supplies, cost to keep the electric on or the price you need to pay the POD seller to make the t-shirt.

Labor is how much your time is worth to make the item.  When deciding on your hourly wage, make sure you charge more than your babysitter costs.  If you have children or are planning on some in the future, you want to make sure you are making enough money to pay your childcare expenses. 

There was a time when I started my stationery shop that I realized I was making less per an hour than the babysitter.  I might as well been watching my children instead of making stationery.  It was more lucrative.

Expenses are all those little things that it takes to bring your product to market.  If you sell a product that needs to be shipped, expenses include your shipping supplies.  Turns out that the cost of envelopes, boxes and packing tape all add up and those costs keep rising.

Other expenses include how much money it costs to bring the product to market.  These could be advertising costs, social media promotions, website expenses and product photography.  Unfortunately, these kinds of expenses can be hard to calculate.  Sometimes it’s best to figure out a general percentage of the sale price that it costs to make a sale.  Add this number into your expenses.

The last category that I included depends on if you are offering free shipping.  If you don’t provide free shipping to your customers, then skip this step.

If you do offer free shipping, you need to include the shipping cost in your retail price estimate.  Offering free shipping is a wonderful service that helps drive more sales to your shop.  But it’s only wonderful if you don’t take too much of a loss.

So when you calculate your product pricing, include your shipping cost in your pricing formula.  This will make sure that you recoup these expenses.  Not sure how much shipping is costing you?  Check out these ideas for ways to offer free shipping as an Etsy shop.

After you have all of the figures, calculate the price you should be charging for your product.  Does it seem too high or too low?

Before finalizing your product pricing, do some market research.  Search on Etsy and the Internet for similar products.  Is your pricing close to others prices or does it seem too extreme (one way or the other)?

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What Do I Do if my Pricing is too High?

Although there’s a possibility that your pricing could be too low, I rarely see this scenario.  More often the pricing ends up too high.  Most likely it’s not you, it’s them.

I find that most Etsy sellers price their products too low to remain competitive.  It’s a tough marketplace with competition these days.  Gone are the days when customers only have a handful of a product to choose from.

And Etsy sellers have convinced themselves that the only way to sell their handmade goods is to price them lower. 

To be honest, every customer has different things that matter to them.

For me, as a buyer, I look for free shipping.  I will pay more for a product if I know that it’s going to be shipped for free.  If I find an item that I like and it’s priced a little bit more, but then I also have to pay for shipping, I won’t even consider it.

Another area I care about is the product photos.  I like products that look good on the screen.  So if you have bright photos that show the item in use, I’m more likely to purchase it.

Every customer will have a reason for purchasing your product over someone else’s.  Price isn’t the only one.

If you find that your pricing is extremely higher than your competitors, take a look at each of the categories. 

Is there a way to get your materials costs down without compromising on quality?  Can you eliminate some of your expenses?  Or are you paying yourself too much?

Do the best you can.  You might find that your pricing is higher than others in the end.  If so, figure out what you are offering that’s different and highlight those things.

One thing that’s going on a lot on Etsy right now is that there are a lot of people selling knock-offs from overseas instead of true handmade items.  They are trying to make their listing look handmade, but truly the product is made in bulk in a factory.

If you create handmade items and are charging more (which you should be), highlight this in your listing description.

The same goes with 5 star reviews.  If your shop is highly rated, then let your potential customers know.  People will pay more for amazing customer service.

What if I Decide to Sell my Products Wholesale, Eventually?

Selling wholesale is a completely different marketplace.  And one that I don’t have a lot of experience in yet.

Looking over the recommended pricing structure, it looks like your success in wholesale is based completely on your ability to get your expenses and material costs down super low.

This may or may not be something you want to consider.  If you do decide to go wholesale, start playing with your costs early on.  See where you can cut so that you can offer potential buyers a retail amount that makes both of you a profit.

Most products sold in stores sell for double (or 2.5 times) the maker’s cost.  If a shop owner thinks your wholesale price is too high, they won’t try to sell it in their store since they can’t make a profit.

Do Lower Product Prices Mean More Sales?

Simple answer.  No. 

I recently added editable invitations to my stationery shop.  They’ve been sort of an experiment and I’ve been testing out the sweet spot of product pricing to sell them.  

Looking around the Etsy marketplace, I’ve seen editable invitations from the extreme low end to the very high end.  So, I decided to price them in the middle.

And they have been selling nicely.  Since this was the case, I decided to host an introductory sale on them.  I made the listings 20% off, so they were now priced on the lower end.  I figured that lowering the prices would result in more sales.

During the sale, I didn’t sell a single one.  Since I ended the sale, I’ve gone back to selling them.

Lower prices doesn’t always mean more sales.  Many times customers value things at a certain “sweet spot”.  Going below this spot makes them uncomfortable to buy.  So, they don’t.

When figuring out your product pricing, experiment.  Don’t be afraid to try pricing on the higher end.  You can always lower the price a little if it isn’t selling.

And remember that just because a product doesn’t sell, doesn’t mean that the pricing is off.  There are lots of reasons that a product might not sell.

Before tweaking your product pricing, try fixing other things first.  You could add more product photos to the listing, simplify your listing description or work on improving your customer service.

Final Thoughts…

One of the hardest tasks you’ll have when you start your Etsy shop is deciding how to price your products.  It isn’t easy placing value on your hard work.

When deciding on your product pricing, start with the pricing formula.  Determine what you need to charge retail to make a profit.

Then, start comparing with other sellers.  Decide if this number is in the ballpark of what others are selling.  And if you think the item offers enough value to sell at that price.

Most importantly, don’t undervalue what you do and make. 

You offer an amazing service to our communities.  Selling handmade items and original designs isn’t easy.  And it takes time and creative genious.

If you find that you can’t establish an audience in the Etsy marketplace for your items, try another creative market.  Etsy isn’t the only place to sell your goods.

And if you really want to be independent, sell your works on your own website.  It might take time to establish an audience, but once you do you can charge whatever your heart desires (or you need to) without feeling all of the competition on sharing the marketplace with other Etsy sellers.  

Here’s to happy creating and pricing days ahead!


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