How to successfully price homemade goods

Setting up a new business selling homemade goods? Read our expert guide on how to price your products and make a profit.

Pricing is a balancing act. Figuring out how to price your products competitively is one of the most challenging questions any new business owner needs to address.

This is especially true for bespoke, original homemade goods, where pricing is less formulaic.

The good news is that with a bit of research and some calculations, you can set a fair price that customers are willing to pay if you are selling direct at craft fairs or online via your website or platforms such as Etsy or The British Craft House.

As well as retail pricing, you'll need to calculate wholesale pricing if you plan on selling goods to shops.

You'll need to add a decent mark-up too, so that you can offer discounts and promotions to attract customers without being left out of pocket.

Pricing homemade goods

Selling homemade goods - from cakes and greetings cards to jewellery and home accessories - to friends when starting out is one thing.

Selling to strangers or selling wholesale to retailers means paying careful attention to pricing, working out your costs and ensuring you have enough margin to earn an income.

Setting the right price for homemade goods involves a mix of research, guesswork, trial and learning.

New business owners often make the mistake of thinking they need to price their products low in a bid to win customers.

Try to avoid the temptation of underselling yourself.

Price can be a signal of quality.

Too low, and customers will think your homemade goods are poor quality, and you may not make enough profit.

Too high, and while you may make a decent profit, you could price your products out of the market resulting in poor sales.

Taking time to calculate pricing correctly can pay dividends and give you the confidence to charge customers fairly while ensuring that you profit from your labour.

How to price homemade goods

Pricing homemade goods involves calculating your costs, then adding a profit margin and a mark-up.

1. Work out your labour costs

This is how much time you spend making a product, divided into an hourly cost.

For example, let's say that it takes 20 minutes to craft a wire wrap pendant necklace, and you want to earn £15 per hour for your time.

You need to divide the number of items you can make in an hour by your hourly rate to arrive at the labour cost per item.

1. 60 minutes / 20 minutes per item = 3 items per hour
2. £15 per hour / 3 items per hour = £5 labour cost per item

As it takes £5 of your time to craft each necklace, you'll need to sell the necklace for at least £5 to cover your labour - and that's before the cost of materials.

2. Work out material costs

Next, you'll need to calculate the cost of materials used to create each item.

As materials are usually purchased in bulk, such as spools of wire or lengths of fabric, you'll need to work how much material is used for each type of item you make.

For example, each necklace uses around 1m of 25 gauge gold-plated copper wire, which costs around £6 per 15m spool, as well as crystals and gemstones, which cost about £15 for a box of 20, plus clasps.

1. 15m wire spool / 1m necklace wire = 15 necklaces per spool
2. £15 wire spool / 15 necklaces = £1 per necklace in wire costs
3. £15 box of 20 crystals / 1 crystal per necklace = £0.75 of crystal per necklace
4. We'll assume each clasp is around £0.02 per necklace.

The total materials cost for each necklace is:

£1 wire cost + £0.75 crystal cost + £0.02 clasp cost = £1.77 materials cost per necklace.

Your costs will be different depending on the type of homemade goods business you run but include materials such as baking ingredients, paint, modelling materials, decorative materials, card, glue, fabrics, and textiles.

3. Work out all other costs

It's a good idea to work out all of your other costs and divide them by the number of items you think you are likely to make.

Costs can vary, but typical homemade business costs can include:

• Craft show fees - £60-£250
• Craft tools - £60
• E-commerce website - £50
• PayPal fees - £250
• Photography - £50
• Shipping and packaging - £1,000
• Online selling fees - £600
• Admin costs such as accounts software and telephone - £150.

That would give a total cost of up to £2,410.

Let's assume I plan on making 600 wire necklaces each year.

£2,410 other costs / 600 necklaces = £4.02 per necklace in other costs.

4. Calculate the wholesale price

The next step is to add all your costs together to get an accurate picture of the actual cost it takes to make each product.

£5 labour cost + £1.77 materials cost + £4.02 other costs = £10.72 per necklace.

Next, you'll need to add a profit margin to calculate your wholesale price.

This is the amount that you charge on top of all your costs that you'll take as profit to pay for future investment in your business.

Profit margins tend to be between 5% and 20%, with a decent profit margin of 10% fairly standard.

£10.72 + 10% = £11.79 wholesale price

Selling a necklace at £11.79 would pay for all of your costs and give you a profit of £1.07 per necklace sold.

The wholesale price is usually the price you would sell homemade items to shops for them to resell.

5. Calculate the retail price

If you wish to sell directly to customers, such as from your e-commerce shop, then you'll need to add a mark-up to arrive at a retail price.

Within the homemade crafting industry, the amount of mark-up tends to be equal to the wholesale price.

£11.79 cost per necklace * 2x mark-up = £23.58 retail price

You might want to round the pricing, such as making it £23.50.

Setting a retail price in this way allows price flexibility, such as:

• selling to wholesalers, who typically expect to pay 50% of the retail price when buying from you in bulk
• offering discounts such as up to 50% off the retail price and still make a profit
• offering incentives such as free shipping, which the markup can absorb
• allowing for wastage costs such as returned items.

6. Research the market

Setting pricing for homemade goods this way will ensure you cover your costs and generate a profit.

However, it's worth investigating the price other sellers set for similar items.

Make sure your pricing isn't too far removed from how much customers are willing to pay.

You can price your products lower than competitors to win price-sensitive customers or set it higher if your product is of better quality.

7. Communicate your unique selling point

The price tag is just one aspect of convincing people to buy.

Make sure you communicate anything that makes your homemade items seem like they offer more value or are unique.

For example, using higher quality materials, organic ingredients or sustainable materials can attract a price premium and justify higher pricing.

8. Price testing

Pricing is dynamic, and it's wise to regularly look at prices and measure how they are selling.

Conduct customer surveys to get an idea about how they feel about your pricing, and keep an eye on competitors to see how their pricing changes.

As products are priced with a mark-up, there is flexibility to reduce or increase the mark-up depending on how you think your pricing is performing.