Thursday, April 10, 2008

The Slippery Slope of Pricing Your Work

I wish I could say that I always follow this formula, but I ought to. I’ve known how to do this and we have tried to stick with it for my husband’s business ( It’s not easy, but if “art” is truly is your business you should have a formula by which to price your goods. Any pricing formula should include compensation for:
Overhead (Expenses)
Your Time
Aside from these factors, which are the basics, you then have to take into account your intended market. This is where most of us fall flat. It takes some honest self-appraisal.
How easily can I replace the components in this work if I want to create a similar piece?
Was I competent in my work – is it a well made piece of jewelry.
WTMWB – What the market will bear.

One hard rule should prevail. You can not drop the final retail price below the base price formula. If you do, you will be losing money.

Base Price Formula
Base price=
(cost of materials + packaging) X 4
+ your pro-rated hourly labor rate
Then, + 10% of that total for overhead costs.

Figure your pro-rated labor cost.
30 minutes of labor to string a necklace. So, half of my $20. hourly labor rate equals $10. of labor on that necklace.
2 Next, add up the cost of your materials:
$10. of jewelry supplies + $1. packaging = $11. subtotal
3. Multiple your total cost of materials by 4:
$11. X $4. = $44
Then add your pro-rated labor to that:
$44. + $10. = $54.
Add in your overhead, which is 10% of that:
$54. X .10 = $5.40
Finally, add the overhead to your $54 subtotal:
$54 + $5.40 = $59.40
Our base price would be $59.40
(rounded to $59.)

That means we can not price the necklace below $59 without losing money on it. Here is where we can adjust the retail price up a little, or a lot, depending on all of the subjective factors you are going to take into account (the second set of red items). Does that seem like a large markup to you? When you sell beads or your jewelry, you need to be paid for all of the time, effort, and craftsmanship you put in to each piece you create. If you don’t, you won’t be in business long.

Your overhead expenses also include things like your web site, art festival fees, jewelry displays, and business cards. And don’t forget, tools, insurance, bank fees for your business account (including merchant charge fees), digital camera (and all of it’s accessories for photographing your work), trade magazines, workshops, gasoline/ or mileage, and so on.

And, when all is said and done you are hoping to have a little left over to pay yourself. Hobby or business? It’s all up to you.

Adapted from: Home Jewelry Business Tips and 20 years of Sharon’s experience.

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