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One of the hardest things to do when you have a handmade business is pricing products. How do you make sure you’re charging enough without charging too much?

I know how you feel. When I decided to start my own handmade business, there were so many things I didn’t have the slightest clue how to do. And pricing products was one of them.

Something about handmade goods that some people may not appreciate is the care and personal time that goes into making those products. After all, we don’t have factories and equipment helping us. We are just doing it all on our own.

Woman making handmade products using tools at workbench.

So, how do you price your handmade products while also being competitive with similar items for sale?

Don’t worry, all you need is the right strategy! That’s why in this blog post, I am going to walk you through step-by-step the best ways to price products for your handmade business.

In the business world, there are 3 common pricing models. And yes, all 3 of these pricing strategies will work with your handmade business!

The 3 most popular pricing strategies are:

  • cost-based pricing
  • value-based pricing
  • competition-based pricing

In the next section, we are going to look at these more in-depth and how they apply to a handmade business.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

Cost-Based Product Pricing

The first pricing strategy, and probably the most simple, is cost-based pricing, also known as markup pricing.

In order to calculate what the final cost of an item should be, it takes into account the costs of producing an item and adds a percentage to that.

While this is a simple way to calculate the cost of your handmade products, there are a few key considerations you should keep in mind to make sure you get a final price with a strong profit margin.

How To Accurately Determine Production Costs

Many handmade sellers often make the mistake of only accounting for the obvious cost of goods they need to make what they are selling. But, it’s usually all the smaller, often insignificant costs that start to add up quickly. And these things will take away from your profits if you don’t account for them.

This can include:

  • the cost of small materials used like glue, paper, etc.
  • shipping fees
  • wear and tear on your equipment
  • labor costs
  • storage costs for your inventory
  • and any other expenses your business incurs to produce this product

In addition to materials, you are also going to have overhead costs. This can include rent of space, insurance, taxes, marketing, etc.

Lastly, you will want enough profits to use to develop new products, build an inventory, hire employees, and so on.

Calculator and notebook on top of fabrics that can be used to make handmade items for sale.

What Are The Advantages Of Cost-Based Pricing?

  • Easy to calculate the prices. 
  • Creates predictability in the profit margins.

What Are The Disadvantages Of Cost-Based Pricing?

  • It can lead to underpriced products.
  • Doesn’t take into account unique features or customer demand. 
  • Can be impacted by cost overruns if anything changes within the production budget.

How Can This Product Pricing Strategy Work For A Handmade Business?

Cost-based pricing can be a great strategy for handmade businesses, but it needs to be done carefully.

First of all, you need to make sure you are considering absolutely all costs before calculating your selling price as I explained above.

Secondly, you need to make sure that your final price is above the floor, but below the ceiling for this kind of product. This means you don’t want to be charging less than your competitors, but you also don’t want to be charging way more either. (Unless there is something about your item that is very unique or special.)

If you do all these things correctly, you will ensure that you’ll have enough money to keep creating new products while still making a comfortable salary.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

Value-Based Pricing 

The next one of the three common pricing strategies is based on the value of your product.

This means going beyond just looking at the costs to produce a product and manage your business. Instead, value-based pricing takes into account any other benefits that your item offers such as perception, demand, customization, and so on.

The key here is to consider all the elements that make your product special and unique.

An Example Of Perception Pricing

When pricing your products, it is important to consider the perceived value of your products.

When our brains perceive something to be of a certain value, we don’t often question the price or the profits of the company making that product.

For example, if an item is made with high-quality materials and takes time to make, then we expect to pay a premium price because we also expect it to last longer than a product made with cheaper materials. This is an example of perceived value.

An Example Of Demand Pricing

Next, we have pricing that is based on market demand. Simply put, this means if the demand for something is high, we can charge a higher price as a business.

A great example of this is the cost of soda. When we buy an individual can, we expect to pay significantly more per can than we would if we bought a case of soda. Why is that?

The answer is simple; because of demand.

We as a society have proven the demand for this convenience when we buy a single can while out shopping or running errands. So soda companies get to charge more and have a higher profit margin for selling individual cans just to meet our demand.

An Example Of Custom Pricing

When a product has been customized to our personality, name, desire, and so on, we expect to pay more because of the value we have for this custom item.

A perfect example of this is custom furniture. You can go to any retailer and buy a generic bookshelf for a great price.

However, if the bookcase doesn’t quite work in the space you had in mind, you might be willing to pay more to have something custom-built for that space so that it looks better.

What Are The Advantages Of Value-Based Pricing?

  • Takes into account all of the unique features of the product. 
  • Can be more profitable.
  • Increased customer loyalty.
  • An amenable budget that allows for high-quality production control.

What Are The Disadvantages Of Value-Based Pricing?

  • Pricing can be subjective and difficult to determine.
  • Each product type will need to be priced on different measures.
  • Can be difficult to adjust pricing when needed due to market shifts.  

It’s important to note that with all value-based pricing, it will differ greatly from customer to customer, and that’s okay!

Pricing handmade wooden kitchen tools.

How Can This Product Pricing Strategy Work For A Handmade Business?

This pricing strategy works very differently from the previous strategy because you will be working backward from your final selling price.

The first step is to determine your desired price for a certain product. To do this effectively, I would recommend researching what similar products are selling for. Be sure to factor in anything that makes your product unique or special compared to similar products available.

Once you’ve set your pricing, you can then create your production costs budget, business expense budget, and so on. Since value-based is typically charged at a higher rate, you will have a lot more wiggle room when it comes to your budget and profit margins. However, be careful not to go overboard when setting your budgets as things can change.

If you find that your selling price does not cover the budgets you’ve created, then you either need to reevaluate your pricing or your budgets to see where you’ve gone wrong.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

Competition-Based Pricing 

The last pricing strategy for handmade items is competition-based. To do this, you will need to research similar products in the market and see how much they are selling for.

How To Research Your Competitor Pricing

Start by looking online for similar items. While doing this, take into account your costs to make these products and compare that to their prices.

You should also look into any customer reviews and feedback on these items for feedback and ideas.

By keeping track of pricing trends in your industry, you can stay ahead of the competition while still maintaining a reasonable profit margin. Pricing handmade goods is an ever-changing landscape, so staying informed is key!

Making a blue vase on a pottery wheel using blue paint.

What Are The Advantages Of Competition-Based Pricing?

  • Easy to compare prices with other competitors in the same market.
  • Allows you to charge higher prices if there is a lack of competition.
  • Can help you stay competitive with your prices.

What Are The Disadvantages Of Competition-Based Pricing?

  • Pricing can be subjective and difficult to determine.
  • This may lead to overpricing if not considered carefully.
  • Might limit how much profit margin you make if competition is too fierce.

How Can This Product Pricing Strategy Work For A Handmade Business?

With the increase in demand for handmade goods over the past few years, competition-based pricing has become very popular for handmade business owners. Long gone are the days of guessing and undercharging for your hard work.

With this pricing method, research is key. Take time to research what other people are charging, how many sales they are making, and what their buyers are saying.

If you want to charge more than your competitors, find a way to make your product unique from the rest.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

Other Considerations To Make When Pricing Product

Now that we have looked at the 3 main pricing strategies in depth, I want to take some time to talk about a few other things you can consider. I highly recommend considering each of these factors as well when pricing your products.

Dynamic Pricing

The first thing is something called Dynamic pricing. While this might sound complex, it really isn’t. Dynamic pricing simply means the business sets its prices based on changing demand.

For example, airlines will do this by charging more for flights during peak times, increasing the cost when there are only a couple of seats left, etc.

As an entrepreneur selling handmade goods, you can consider this with seasonal products.

For example, if you sell handmade jewelry, you might find that you can charge more during Christmas, Valentine’s Day, or Mother’s Day. Or if you sell accessories to teachers, you can increase costs before the new school year starts.

Using a heat press machine to make a t-shirt with a seasonal vinyl design.

The next thing to consider is what’s trending on social media.

As a small business owner, you can take advantage of trends by creating products that suit the trend. In doing so, you will be able to price your handmade products a bit more aggressively.

Discounts

Lastly, you should also consider any discounts you want to run in your business. It’s always nice to offer low prices to your customers when there is a special event.

However, you still want to make sure you have profits even after the discount is applied. To do this, consider the lowest price you will ever want to charge and factor that into your calculation.

Advice From A Fellow Handmade Business Owner

So, you might be wondering what is the most competitive pricing strategy for a handmade business owner.

In any business, it is very normal to use a combination of all the pricing strategies we’ve talked about in this blog post. With some products, it makes sense to price based on the competition. For other products, cost-based pricing is the best way to go.

How do you know which to choose to make your final prices?

Calculate A Price Based On All 3 Methods

Sometimes I will calculate a final price for an item using all 3 methods. That way it’s easier to see the ranges and pick a price that I feel reflects both the value of my product as well as the competition in that market.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

Do Your Research

Make sure you do your research no matter which pricing model sounds the best to you. Take a look at what other handmade businesses in your niche are charging for similar products.

If you find that their prices are too low or too high compared to the value of the product, then adjust accordingly.

Don’t Be Afraid To Experiment

Finally, don’t be afraid to experiment with different pricing strategies until you find something that works best for you and your customers.

Pricing is an ongoing process, and most of the time, it’s very subjective based on the customer. Just because one customer won’t pay for that doesn’t mean another one won’t. So, don’t be afraid to experiment and adjust when needed.

Where To Find Product Ideas For A Handmade Business?

Are you interested in starting a business selling handmade products? I have hundreds of blog posts sharing different craft ideas, free designs to help you get started, and more.

Here are some of my top picks!

How To’s:

Product Ideas:

No matter which pricing strategy you decide to go with, it’s important to remember that all handmade items are unique and should be priced accordingly.

So, make sure that when setting up your price points, you take into account the unique features, quality of materials, and customer demand. When you do that, your pricing strategy will be sure to reflect the value of your handmade items.

Does dealing with the financial aspects of your business give you horrible math class flashbacks? Don’t worry, I’ve got you covered!

For a limited time only, I am offering a discount on the Small Business Bestie, perfect for anyone selling handmade goods! To learn more about the Small Business Bestie, click the button below!

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