Pricing Formula

I'm back in the workshop again. I had one more Craft Council shop committee meeting on Wednesday afternoon to help wean me off of 4 days of AGM meetings. One of the tasks of the shop committee is to review new product coming into the Craft Council Shop at Devon House. Its a great committee to be on because I get to see a lot of amazing new product before it hits the shelves and I also get to think about product from the sellers perspective.

The price of a product is one of the most crucial elements that we consider when deciding if a product is a good investment in terms of shop space and potential sales. When I come up with prices for my new products I break everything down into a fairly simple formula, based on the cost of materials and the time it takes me to produce it. I can't recall who taught me the formula, but I'm pretty sure it was someone at the Craft Council, the Government Craft sector, or maybe even the Historic Sites Association.

Wholesale Price = (Materials + (hours worked x hourly wage) ) + 10% Profit

Retail Price = Wholesale Price x 2

Materials: This is the replacement cost of everything that goes into the product. In the case of a pair of an Elfshot earrings, it includes the cost of the stone/glass, wire, earring hooks, card hang tag, and ink to print the tag. If you pay for studio time or kiln firing, thats in here too. Sometimes you can undervalue the real cost of materials because when you are just starting a new product you tend to use the things around you. You have to think about the real cost to replace those materials when you run out and you have to go out into the woods or a store to replace them.

Hours Worked: This is the total time that you spend on a product from start to finish, including the time it takes to tag it or package it and make it ready to sell. I tend to only think about the workshop time and underestimate the time it takes to assemble and card pieces. I'm not recommending that, just pointing out a trap that I fall into. Sometimes you undervalue your own time, so just imagine you are asking someone else to do the work for you. If you had an employee who worked at exactly the same pace as you, how long would it take them to make your product from start to finish, ready to ship?

Hourly Wage: This is how much you pay yourself for your labour. That's a personal decision and I pay myself a bit more today than I did 10 years ago. Bear in mind that minimum wage in Newfoundland and Labrador is currently $8.50/hour and will be going up to $10/hour by July 1st, 2010. If you are paying yourself less than that then there is something very wrong.

As an aside, I took the clues for the little raises that I've given myself in my hourly wage over the years from the products that I made and priced a decade ago. I haven't raised the prices on many products and they have slowly become more profitable for me to make because over the years I've gotten a little faster at making them or found ways to streamline the production. Something that took me an hour to do in 1999, might take me 20 or 30 minutes today. If I was making 1 pair of earrings in an hour for $10/hour in 1999 and I can make 2 pairs in an hour today, then its kind of like I'm earning $20/hour because I've gotten faster and can do more in an hour. I don't know if I explained that very well.

10% Profit: This is 10% of the total that you come up with from the labour/materials part of the equation. It pays for your business to grow and covers the incidental costs of running it. I tend to think of it as the part of the price that pays the phone bill or keeps the electricity on, but its also the part that helps you order new materials for future work and gives you the time to go to meetings or write applications for gallery shows or funding.

Retail Price: Whatever figure you get from the wholesale equation has to be doubled if you are going to wholesale your product. The retail price is what stores carrying your product sell it for and its the amount you should sell your product to the public for. Its not an exageration. It takes at least as much of your time and effort to sell a product as it does to make it. Think of all the time and costs associated with preparing for and attending a single craft fair. It takes a lot of time to sell a product, which is why I prefer to stick to wholesale and let someone else do that work for me, but that's another topic.

Well, there's another post that snuck up on me. I was planning to talk about Groswater Palaeoeskimo harpoon heads today, or maybe some of the demos and workshops that I have coming up in the next few weeks. If I mentioned pricing it was going to be a sentence or two. Oh well, come back next week if you are interested in box based plano-convex endblades and the harpoon heads who aren't complete without them.

Photo Credits: Tim Rast

Photo Captions: Assorted earrings from the Korea, Craft Biennale boutique order.