This topic continues to plague me!! But for once I have decided to down tools and work out cent for cent exactly what it costs to make a piece of my jewellery! The internet is swamped with formulae and diagrams and infographics on how we should be doing this. For the most part they are merely a guide to follow. If any of them were to be followed exactly, I doubt if I would ever sell a piece.
It is so hard to place a value on time and I now understand why so many of us just work out the cost of materials and triple it to come up with the RRP. I am guilty myself of this easy way out solution. It has allowed me for years to be in denial about the reality of not making a profit. We get caught up with the sales figures and the money coming in. Yes it is great to be busy and to secure those orders but it is a worthless task if you are not earning a profit.
The pricing question really comes to the fore when you are considering the wholesale market. Because now you have to sell at a lower price because the retailer needs to make a profit too. The profit margin for the retailers varies considerably. But at the end of the day you have to have your own pricing set up in such a way that you make a profit whether it is wholesale or retail.
But I need to make a point here about the wholesale scenario. It is a huge opportunity for small designers and crafters. It allows you to get your name out there. It gives your product an opportunity to be seen. It is exposure for your brand.
You will also get orders for multiple pieces so if you are clever and work out your time well you should be able to spend the one time slot putting together the entire order. So take this into account when working out your mark up for wholesale. If you are not selling online this will be easier. If you are selling online your prospective wholesale customers will have to sell at the same price.
The most basic formula for working out pricing seems to be MATERIALS + LABOUR = COST or a variation thereof. This will literally just give me the cost of a pendant. I then have to work out a ‘mark up’. But if you are selling wholesale AND retailing via a website (like I do) you will need two prices – a RRP and a wholesale price. According to one formula I found online, the wholesale price is twice the cost price and then the retail price is twice the wholesale price! Ideally this is the way it should go but remember this is just a guideline.
MATERIALS + LABOUR = COST
COST x 2 + VAT = WHOLESALE
WHOLESALE x 2 + VAT = RETAIL
VAT is optional.
So what do you include under the heading MATERIALS ?
I include everything – every link of chain, eye pin, head pin, jump ring, resin, glue. It is actually shocking when you list all the components needed to make a piece. Dont forget to consider VAT, import duties and delivery charges on all those items you have bought to make up your jewellery. Dont forget the packaging! Tot it all up and this will be your material cost. To this you must add in your time…
You will have to work out what you want to pay yourself. And then how much of this time was spent on making an individual piece. What would you pay someone if you were able to employ someone? What would you expect to get paid if you were working for someone else? This is a very hard figure to come up with! When you have that worked out you will have an hourly rate and this will be what you will use for the labour cost figure. If something only takes 10 minutes to make then simply work it out and add it in.
I have concentrated mainly on labour and materials. Dont forget you can also include electricity and other overheads you may have. There are lots of ways of working out these costs and I have found the best way to do it is NOT to do it!!!!! If I ever end up working away from home I will have to consider these costs but for now I am leaving them out.
The mark up is the next difficult decision! Here you will have to work out whether you want to double your cost or go less. Personally I think doubling the cost figure is too much! So I always consider this 200% mark up to be the absolute limit! Likewise with the markup for retail. Whatever you decide to charge just make sure you are making a profit. If you are not making a profit what is the point? Unless of course your business is a hobby and is something you just adore doing. If that is the case you have nothing to stress about! But whenever you want to take that hobby to the next level PLEASE make sure to charge properly.
If you are finding that your wholesale ‘cost’ is too high for prospective wholesalers then maybe wholesale is not a viable option. This will continue to be the biggest challenge for anyone handmaking their products. And sometimes the figures will just not go in your favour. The only part of the equation you can reduce is your mark up and as many of us have this so tight there is just no further reductions possible. For me this is the ‘walk away’ moment. Retail outlets can be difficult to deal with but do your best to negotiate the best possible deal for you and your brand.
As a result of a day well spent with the calculator all my prices will be getting a considerable hike on October 1st. For the first time in three years I am feeling confident in both myself and the handmade pieces I make to finally stand up and say this beautiful piece of jewellery I have made is worth it!! Hopefully I get to actually turn that corner and make that profit!
Wish me luck!