I'm often asked about the price of my work. Whether it's a customer at a trade show who wants to know why a certain item costs so much more than Zara or another seller who wants to learn how to price their own work. Well here's a little run-down on how it all works.
The Magic Formula
First off, let's discuss the costs behind that item you're interested in. We all know the basics of pricing. You take the material costs, add on manufacturing and you get to a price to sell your work. Well, that's only part of the story. I am a one woman operation, meaning I don't have to pay for labor at this point. However, as a business owner, I do have to anticipate growth. As I recently heard Claire Mazur of Of A Kind say on After the Jump, "A lot of young designers have success, get to a peak and fizzle out because they weren't thinking about the pricing behind their pieces."
As hard as it is for an unknown brand to charge higher (and correct!) prices, it isn't sustainable in the long-run to under price. On the other hand, a sudden price increase once a brand is more established can alienate customers and could prove worse for the company.
So here's a little formula:
We have our material costs and labor, next we add expenses. Running a store, even an online one, has it's expenses. Etsy and Paypal fees, studio rent, transportation to and from the post office, etc. These little things add up and they have to be accounted for.
Material + Costs + Labor = Breakeven Price.
If you stopped here and sold your item at this price, you would be just breaking even. As with any business, a profit is necessary to survive so of course we need to add a profit margin to our breakeven price. The amount of this profit margin totally depends on you and your company.
Here's where it gets sticky. If an item sells at this price it will sustain but there is no opportunity for growth. Sure, you might get lucky and have an Etsy page with 1,000 purchases per day, but most likely this won't be the case. To establish a legitimate brand you have to wholesale. Getting your product into retail stores means more exposure through new audiences and hopefully more sales in each state (or country!) your product is placed in. To turn a profit, a retailer also has to mark up an item. So just like that your price gets doubled!
Materials + Labor + Expenses + Profit = Wholesale x 2 = Retail
Why Should We Care?
So who even cares, right? Why pay this price when Forever 21 has (almost) the same thing for way cheaper? It all comes down to ethics. Consumers are starting to understand why it's important to eat organic foods, even if it costs a little more. In regard to fast-fashion, most consumers need to be educated as to why it is also unethical.
Here are some tidbits:
1. According to the Center for Environmental Health, Charlotte Russe, Wet Seal, Forever21 and other popular fast-fashion chains are still selling lead-contaminated purses, belts and shoes above the legal amount. Lead exposure has been linked to higher rates of infertility in women and increased risks of heart attacks, strokes and high blood pressure. [Huff Po]
2. Polluted bodies of water and landfills stuffed with cast-off clothes that release harmful gases are just some of the byproducts of the global appetite for new clothes. [NY Mag]
3. Things like THIS happen under poor working conditions in Bangladesh's and other garment industries. [BBC]
Tips For Pricing Your Work
So for those of you out there who are starting a brand and aren't sure how to price your products, here are some tips.
Do your research. See how your peers are pricing similar items. This will give you a starting point as to what ballpark you should be in. There will be those whose prices are way too low, and you can spot them a mile away...and so can consumers. These aren't your competitors, they will drive themselves out of business in no time.
Work the Formula. Don't just pick a price that seems right and then try to work within that boundary. Start by making a list of every expense. And I mean, EVERY expense. Each tiny rivet, paint brush and piece of bubble wrap has a cost and, as small as they might be, they add up. A note on labor: don't under value yourself! Find out what a person who does that particular job gets paid in your area and calculate accordingly. Sure, you might be doing it yourself at first but when the orders start rolling in you might have to hire someone to do some of those jobs. It's better to have those costs figured in up front then have to raise prices later.
Reassess. Ok, so you worked the formula and the number is way higher than what your peers are charging. Don't panic, just reassess. Maybe you can find a cheaper source for your supplies or you can buy in bulk to cut down on costs. Or maybe some of those embellishments aren't worth the extra cost. Or maybe you're ok with the price because you're using the highest quality materials and that justifies the price. Either way, do what works for you. Remember, you can always reassess the prices again later if you need to.
Be Community Minded. If you price your products thoughtfully, everyone else who sells in your category will benefit. When you sell your items at wholesale prices on a retail level, you undervalue your work and the work of everyone else in that category. In addition, customers will want to know why your item is priced so low. Are the materials cheaper? Is it poorly made? No thanks. And let's say a large retailer approaches you and asks for 50 of your item, you won't be able to fill that order because you'll be losing money on each item! Missed opportunities all around.
Remember. You have to believe in your line. It seems daunting to charge a high price for an unknown brand even if it does make good business sense. But if you set your prices accurately from the start you save yourself a lot of headaches down the line and you're in a great position to build your company. Doing a little research at the beginning helps you see all the costs involved in running a handmade business and helps you make better decisions.
1. Why Free Shipping Sucks
2. After The Jump: The Real Cost of Business - Episode 73 and Episode 74