How To Price Your Products: Handmade Business Pricing Formula That Works

Introduction

• The video is about pricing handmade products for a creative business.

• The presenter mentions that many makers make a common pricing mistake despite knowing the basic formula.

"I still see so many makers making the same mistake over and over again."

The pricing formula for physical products

• Start by adding the cost of materials and supplies used to make one item.

• Calculate the cost of labor (money paid to make the product).

• The labor cost is determined by the hourly rate and the time spent making the product.

• Add up the material cost and labor cost to get the total cost.

• Markup the total cost twice to determine the wholesale price and then the retail price.

"So this is the basic formula that works for most people making a physical product with their hands..."

Adjusting the formula for different business models

• If selling patterns or digital files, the formula needs to be tweaked to fit the business model.

• For patterns, courses, or digital files, the material cost is zero, and only the labor cost needs to be considered.

• Determine an hourly rate for labor and calculate the labor cost based on the time spent creating the product.

"If you design a pattern for example that you then get printed on products by a third party printer, you may not have to do any production work at all... this formula just needs to be tweaked to fit your business model."

Explaining markup and profit

• Markup is the profit made on each piece.

• Markup can vary based on the perceived value of the product.

• Profit is the money reinvested into the business for expenses like website hosting, materials, and education.

• Income is the money that goes to the business owner and covers personal expenses.

"Markup is your profit that you make on each piece... profit is... money that you invest back into the business... income on the other hand is money that goes to you, your household, and your family."

Importance of marking up twice

• Marking up the cost twice is not a suggestion but a rule.

• Even if one doesn't plan on selling wholesale, unexpected opportunities may arise.

• Compensation is needed for collaborations, product placement, or working with influential people or stores.

• Higher prices shouldn't be a deterrent as customers who value the product will pay for it.

"No matter how much it costs... people want your product... don't shoot yourself in the foot now by not accounting for this from the beginning."

Differentiating profit and income

• Profit is the money that belongs to the business and is reinvested.

• Income is the money that goes to the business owner's household and covers personal expenses like food, rent, and utilities.

• It is important to have a separate bank account for the business to avoid mixing profit and income.

"Profit is the money that goes back into your business... income... is money that goes to you, your household... profit money and income money you should never ever mix."

Conclusion

• The video emphasized the importance of the pricing formula and markup.

• It explained the difference between profit and income and why marking up twice is crucial.

• It also highlighted the need to view the business and personal finances separately.

"In this video, we talked about the pricing formula... markup steps... what markup really is... profit and income... so go watch that [other] when you're done with this one... let's wrap up here with a recap."