Welcome to my world behind the scenes as I attempt to run a business with no idea what I am doing. I Love comments/ advice/opinions or just a quick G'day so please talk to me. I adore hearing/learning/chatting with you all so every comment is most welcome.!

Saturday, August 2, 2008

Pricing? How do you do it?

I am a cost accountants daughter.
Everything I look at I break it down in my head. I cant help it. I love to make craft and sell it but seriously, depending on where you sell it, you may be lucky to come away with enough in the kitty to cover costs. This would then class you as a hobby and many are happy with this. I need to make a living though or I won't be able to pay my bills.
With craft it seems very hard to make a living. I have tried to make yummy items to attract some cash flow but in all reality the cash isn't really flowing. The work is flowing, sure, but there is no income and sometimes it is at a loss. This can be said for many craft items I have made over the years. Some times they end up as a .99 cent sale on eBay. Yet I still do it, knowing that it goes against everything that someone who has grown up as a cost accountants daughter knows.

I wonder how do you all price your craft items?
Do you break it down to get a realistic amount to charge after covering material cost, overheads and what you consider fair labor charges per hours.
When I did a small business course many years ago the average charge per hour for self employed business owners was $38.00 and this was based on the average provided by the bureau of statistics. Today's minimum wage in Australia is $13.74 so I would just be happy right now to earn more than that. If I were looking for work I probably wouldn't even consider a job that only paid that so I have to ask myself, why would I pay myself such a low wage? Have any of you ever considered this? Anything under that and you fall even lower than low income earners yet you probably don't have the added benefit they have of superannuation, paid sick days and paid annual leave. These are all the things that I considered before registering as a business. I was fortunate enough to be financially supported by my husband while I started it up so there wasn't as much pressure. If I was to find myself having to provide for a family of 6 again on my own, I would have to ditch my business and go back to full time work and trust me, 13.74 an hour would serious put a dint in our lifestyle , to the point where we may lose the house. My goal is to have a business that would support the family should that situation arise. At present, if we relied on me, we could perhaps afford a tent in a 2 star caravan park.

I see many craft business' on the Internet and I wonder if they have looked up the average to compare what they are paying themselves and how it comes up against people on real wages whether those people are self employed or employees.

I can not tell with a lot of sellers on the net if they are a real business or a hobby so this is why I wonder. Some times I see items priced so ridiculously low I think they must be hobby crafters who just do it because they love it but then there is always the possibility that maybe they don't know how to price or maybe they just don't think their product is worth it. Goodness knows I think some of my stuff is garbage(self doubt, a common thing amongst the crafty), but then some one comes along and loves it. I almost feel like charging them nothing just because they loved it. The item is basically a product that I have made to sell so maybe some emotional detachment might be in order when pricing and a more business like approach could be adopted? These are just my ponderings on the subject. Now for some real information without the rambling.

I grabbed the following from another site. I can't remember which one, however, this information is standard and they will all say the same-ish. I was too lazy to write my own version.

Pricing your product

  • Decide how much you (or your employee) will be paid per hour to produce products.
  • Multiply this hourly rate by the number of hours a week that will be spent producing crafts.
  • Write down this figure, this is your weekly cost of labor. (If you need to make $10 per hour, working 40 hours per week the weekly cost of labor would be $400.)
  • Calculate the total cost-of-supplies needed to make one finished product.
  • Determine how many products one person can produce in a week.
  • Multiply the cost of supplies-per-piece by the number of products produced in a week. (If your cost of materials per piece is $1 and you can produce 100 products a week, the figure would be $100.)
  • Add this figure to your weekly labor costs. (In our example here that would be $400 + $100 = $500)
  • Divide this figure by the number of products produced in a week. (So $500 labor/materials divided by 100 finished products a week would be $5.00 per piece.)

  • Compare this cost to similar products on the market.
  • If your price is more than similar products, you may need to reduce it by cutting hourly price, finding less expensive supplies or by increasing your production time.
  • If your price is significantly less than similar products, you may want to consider raising your price.
  • Tips:
    1. Usually one piece will not use an entire supply unit. For instance an 8-ounce bottle of glue may make a hundred pieces. In this case, calculate how many pieces can be produced from a supply and divide by the cost of the supply.
    2. This equation does not take into account any expenses other than labor and materials. You can figure in weekly costs of any other business expenses that you may have and add it to the weekly labor and material cost
    I don't ever assume to think any of you crafting wizz kids out there need this information, however , I thought I would bring the subject up because question was asked around the table last Thursday at the craft shoppe.

    With all of that being said. I best go and do some work.


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