Pricing for Profit…or not?

I had such grand plans to get a lot of work done in the studio today, but I got completely derailed by thinking about money.

Yesterday, I downloaded a digital workshop entitled “Pricing for Profit” created by Megan Auman of Designing an MBA. It’s a great set of insights into pricing for anyone running a “making” sort of business. Part of the download is a set of worksheets designed to help you price your pieces.

I decided to work through it with one of my popular items first, a Caffeine molecule like this one, currently priced at $20 in my Etsy shop.

First step is materials. Easy enough. After lots of measuring, calculating, digging up receipts and estimating, I can tell you that one Caffeine piece costs me $11.55 in materials. (That is much higher than when I first estimated the material cost for this piece back in 2008. The prices of both solder and copper foil have increased significantly!) Second step is labour, which is also pretty straightforward. I estimate that one Caffeine piece takes me 1.6 hours to make (a clear improvement in my skills over a few years ago when I would spend nearly three hours making the same piece!!) How much should I pay myself per hour? Well, minimum wage in Ontario is currently set at $10.25/hr so let’s use that as a starting point, meaning the labour cost for one Caffeine is $16.19.

Add those two together, and you have $27.74, which is already significantly higher than my current retail price. But wait, there’s more!

The third item is overhead. Take all your monthly costs and divide that by the number of production hours you put in in one month. I obtained a ridiculously large number for this, but then I remembered that my business alone is not paying our mortgage or utilities etc (and thank goodness for that!!). So I took 10% of these monthly costs instead. I’m not sure how accurate my guess at the production hours is, because some months I work really hard and other months I hardly set foot in the studio, but it’s a good estimate I think. The final number for overhead cost per hour: $4.81. Multiply that by the 1.6 hours per Caffeine piece, and we’re at $7.70. Adding that to the $27.74 from earlier, and we’re up to $35.44.

Wow!!

Now we get to the sticky part, the PROFIT. The worksheets provide several different ways to calculate this, all of which involve knowing monthly profit goals and monthly sales goals, and I am terrible at making those sorts of estimates because of the seasonal nature of my business sales. I decided to put in my own calculcation method: take the materials + labour + overhead price, and add 10%. In the case of our Caffeine example, that adds another $3.54. So now the grand total is $38.98.

But wait, that’s the recommended WHOLESALE price. Double it to get the suggested retail price: $77.96.

Double wow! Nearly $80 for a little piece measuring 4″ wide.

I don’t even know what to say. Clearly that is too much. Let’s ignore the retail/wholesale thing and pretend that the $38.98 is the recommended retail price. Is THAT too much? Where do I cut back? Taking away the 10% profit brings us back to $35. That’s starting to get back into territory that feels more reasonable, but I’m losing out on profit: money that I could be investing back into my business. I could lower my hourly wage to reduce the labour cost, but then I am short-changing myself. Are my skills and artistic vision worth less than the skills needed to do the crappiest jobs? Maybe I could cut back on the overhead, take away the household expenses. I’m certainly not paying 10% of the mortgage with my business income right NOW, but I dream about being able to contribute something tangible to our household budget.

I need to work through this process with one of my larger, more “arty” pieces as well. It doesn’t feel quite as scary to command a higher price for something like that as opposed to the molecule pieces which almost feel like a novelty item.

So there you have it. Long story short: pricing is hard.

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4 responses to “Pricing for Profit…or not?

  1. Something else to factor in – what is the going market rate in your industry? If others are charging $200 / square foot how does that compare to your rates.

    Also your pieces aren’t easy to make – Sometimes with items that are more craft pieces people will say, I won’t pay that I could make it myself. Stained glass requires special tools and skills that not a lot of people have.

    BTW I have dopamine and ice wine hanging in my office window. They’re both gorgeous.

  2. Another thought Erin .. I think you’re missing the third step: getting the product into the client’s hands. What do you spend on shipping? Packaging materials? What about gas to get to the art shows that you set a booth up at? Are there fees to attend the shows? I think there are still a lot more costs to factor in when you look at post-production costs. Looks to me like you’re operating at a signifigant loss.

  3. Neil, you’ve made some good points. Actual shipping cost is not factored into the price because the customer pays for that separately, however I did neglect to factor in the shipping box and packaging material that I need to buy. But those costs ONLY apply to Etsy sales, if I sell face-to-face I don’t need those things. Transportation and show fees are accounted for in the overhead calculation (it’s an estimate, but it’s there).

  4. Pingback: Looking Back, Looking Ahead! | Colour and Light

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