Setting Prices in your Etsy Shop- Earning on Etsy Series, Part 4

We’ve discussed the Etsy basics, market research, and setting up your shop. You’re almost ready to start listing items to sell, but first we need to talk about pricing. We do want to make money, after all! Pricing can be tricky. Despite what anyone tells you, there is no perfect formula to calculate the prices your should charge. We will look at a few ways to figure your prices, then you can decide what works best for your situation. I’ll also share some tips on shipping and other pricing concerns.

Price Components

Before you calculate or estimate any prices, you will need to gather some figures for each of the items you plan to sell.

Materials

How much do the supplies used to make your item cost? Be sure to include partial costs for partially used items. For example if you use 1/4 of a roll of ribbon, include 1/4 of the ribbon’s price.

I usually get my supplies for a discount, but when I figure my prices I make sure to use the regular price. If I have to run to Michael’s in a pinch and don’t have a coupon, I want make sure I’m not losing money. Using regular supply prices to calculate my costs means that when I find great deals or buy supplies in bulk, the savings go straight to increasing my profit.

Labor

This is the part where you get paid! How long does it take you to make each item? What do you want your hourly wage to be? Do a little multiplication and you’ve got your labor cost.

Sometimes it’s not about an hourly wage. Maybe you designed a digital pattern or printable. You put in all the work upfront. Even though each sale will take you virtually no time at all, you still need to pay yourself for the work you’ve already done.

Expenses

Expenses are the costs that apply to your business as a whole like the equipment you use or the studio you rent. It can be a little tricky to figure out how to divide these costs into a per order charge, especially in the beginning. It is important to think about expenses and make sure that your business is somehow covering its expenses. Once your shop is up and running and you know your average number of sales, you can spread your average monthly expense cost out among those orders.

Other expenses to keep in mind are Etsy and Paypal fees. You can read more details about Etsy’s costs here, but here’s the important part:

Etsy fees

$.20 per listing + 3.5% of the price when the item sells

Payment fees (just choose ONE for your price calculation)

Paypal= $.30 flat fee per transaction + 2.7% of the total money collected (price + shipping)
Etsy Direct Checkout= $.25 flat fee per transaction + 3% of the total money collected (price + shipping)

You must take the fees into consideration when deciding on your prices. The tricky part is that you need at least an estimated price in order to figure out the fees since they are percentages.

Profit

In addition to paying yourself an hourly wage, you should make a profit as well. This is money that you can invest back into your business. Think of it this way: If your shop grew to where you needed to hire help, you would still want to make money even on the inventory that your employee produced. Your employee would get the hourly wage and you (or your business) would get the profit.

Formulas

There is no magic formula for pricing your handmade crafts and creations, but here are a few popular ones that you can try. In every case, you’ll want to compare your price with the market research you did. You are most likely to be successful if your price is within that range.

#1

Materials + Labor + Expenses + Profit = Wholesale Price

Wholesale x 2 = Retail Price

#2

(Materials + Labor + Expenses) x 2 = Wholesale Price

In this formula, the “x 2” accounts for profit. This formula can have a much steeper profit than #1 in many cases. Because of that, I would use this formula for pricing items that have a small labor cost.

Wholesale x 2 = Retail Price

The good thing about these formulas is that they take wholesale versus retail into consideration. The Retail Price is what you would charge on Etsy. If someone comes to your shop and wants to buy A LOT of something, they are going to expect a serious discount. If you don’t take that possibility into consideration in the beginning, you won’t be able to afford to offer a deal.

Another Way

When I first started my Etsy shop, I created a price calculating spreadsheet where I would plug in the materials and expenses (including fees) to calculate the total cost to create each item. Once I had figured the cost, I experimented with numbers in a labor/profit column (I didn’t differentiate between the two). I didn’t explicitly give myself an hourly wage, but I thought about the work involved to make each of my items.

I thought “Would I be willing to make this item for $__ ?” I made sure that I was happy with the profit on my items. Because I had done plenty of market research, I knew the range of prices. Looking at the prices I had come up with, I made sure mine were in the range of sellers of similar items. Over the years, my prices have gone up, just like the price of milk and gas have gone up.

While my prices were within the normal range, there were plenty of sellers who were selling similar items for a lot less. Looking at my spreadsheet, I could see that trying to compete with the lowest prices would mean pathetic profits for me. When it’s all there in black and white, it’s easy to say “There is no way I am going to spend __ hours making ___ and only earn $___.”

Low Prices

While some customers will jump at low prices, many people equate a low price with low quality and immediately are turned off by the thought of an artist not valuing his or her own time and talent. They figure if you don’t value what you do, then they shouldn’t either.

Sometimes I see things priced for a dollar. I want to send the seller a convo and help them crunch the numbers.

$.20 (listing fee) + $.035 (3.5% Etsy fee) +$.30 (PayPal flat fee) + $.027 (PayPal fee) = $.56

On listings that cost $1, the seller loses $0.56 to fees. With the remaining $.44 they have to pay for materials, make the item, list the item, take pictures, package the item, mail the item, and possibly answer customer emails regarding the item. I don’t even want to think about what my hourly wage would be if I were only getting 44 cents to do all of that.

So why do people do it? I wonder the same thing. My guess is that they aren’t tracking their numbers. The don’t notice the PayPal and Direct Checkout fees because that money disappears before their earnings are ever disbursed to them. At a ridiculously low price they are getting lots of order, so they are crazy busy and just figure that they are making money.

Don’t compete for the low price. Focus on selling awesome things for a price that is fair to you!

Shipping

Set a proper shipping cost, so that shipping supplies and postage don’t eat into your Etsy earnings. You should not have to subsidize any of the shipping costs. Package and weigh your items and do research on the best way to ship your creations. Be especially diligent about international shipping. It’s more expensive than you think!

You can purchase shipping labels through Etsy. I love this feature! Not only is the shipping price cheaper than at the post office, you don’t have to stand in line either! You just need a postal scale or other scale that measures in ounces. The cost of shipping labels will be added to your Etsy bill.

Shipping Tips

Add the price of your mailing supplies to the shipping cost, otherwise the cost of the bubble mailer or box is coming out of your profit. I have found the best prices on bubble mailers from this seller on Amazon. When I order in bulk the price is 20-30 cents a piece, which is much better than you’ll do at Office Max.
Keep in mind that PayPal and Etsy Direct Checkout collect their percentage on your shipping cost as well as your item cost. Your shipping charge should be at least 3% more than the actual postage plus packaging to make up for that.
Free shipping gimmicks aren’t really big on Etsy. Etsy shoppers expect to pay shipping. Unlike ebay, where you can compare and sort by price + shipping, on Etsy you have to click on the shipping tab from the item’s listing page to see the shipping costs, so free shipping won’t set you apart like it will on ebay.
However, having a free shipping code to share with your blog readers or past customers is a nice touch. Etsy makes coupon codes easy.

Final Notes on Pricing

If you sell something that has a low price, sell it in larger sets so the total earnings make it worth selling. For example, instead of selling a single greeting card, sell a set of greeting cards.
If your work takes lots of time or expensive materials and thus deserves a price that is higher than what you think the market would pay, think creatively. Could you sell a pattern or a tutorial? While I might not be willing to pay big bucks for a hand sewn children’s quiet book, I would be willing to buy a pattern and invest my own time into making it.
Don’t be afraid to try listing your items at a higher price. You might be surprised! Sometimes when I am browsing I’ll see something that looks like it has an outrageous price. Out of curiosity I’ll check to see if the item actually sells and sure enough it does!
If you are frugal like me, you will have a hard time pricing things for what they are worth. Stop thinking “What would I pay for ___?” It doesn’t matter what price you would pay, only what your customers will pay.

*Veteran Etsy sellers, how did you decide on your prices? Do you have any other pricing tips or strategies to share?***

Next Time

For the 5th and final (I think) post in the Earning on Etsy series, we’ll talk about marketing and an assortment of other important tips. See you then!

More in the Earning on Etsy Series

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