Pricing handmade products is one of the toughest parts of running a craft business. How can you charge enough to make a profit without scaring customers away?
I know how overwhelming this can feel. When I started my own handmade business, I had no idea how to price my products. It felt impossible to find the sweet spot between affordability and fair compensation for my time and effort.
The truth is, that handmade goods are special. They’re not mass-produced in factories; they’re the result of careful craftsmanship and personal dedication. Your pricing should reflect that.
In this guide, I’ll break down the most popular strategies for pricing handmade products, explore their pros and cons, and help you decide which works best for your craft business.
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.
So, how do you go about pricing 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.
What Are The 3 Most Popular Strategies for Pricing Handmade Products?
In the business world, there are three common approaches to pricing. These strategies also work perfectly for handmade products:
- Cost-Based Pricing
- Value-Based Pricing
- Competition-Based Pricing
Each method offers unique benefits and challenges. Let’s explore how they work and how you can apply them to your handmade business.
In the next section, we are going to look at these more in-depth and how they apply to a handmade business.
Cost-Based Pricing: A Simple Starting Point
Cost-based pricing, also known as markup pricing, is one of the easiest ways to calculate your prices. It involves adding a percentage markup to the total cost of producing an item.
Understanding Total Production Costs
To apply cost-based pricing, you need to calculate your total production costs accurately. Be sure to include:
- Material Costs: Include all the materials used to create your products, no matter how small.
- Labor Costs: Pay yourself a fair hourly wage and calculate the time spent on each product.
- Overhead Costs: Factor in indirect expenses like rent, utilities, insurance, and marketing.
- Miscellaneous Costs: Don’t forget wear and tear on equipment, packaging, storage fees, and shipping costs.
Example Calculation:
If your materials cost $15, your labor $10, and your overhead $5, the total cost is $30. Adding a 50% markup gives you:
$30 × 1.5 = $45
Pros of Cost-Based Pricing
- Straightforward to calculate.
- Provides predictable profit margins.
Cons of Cost-Based Pricing
- Overlooks customer demand or perceived value.
- This may lead to underpricing if all costs aren’t accounted for.
Tips for Handmade Businesses
Cost-based pricing is a great starting point, but it’s essential to consider all your expenses carefully. Make sure your final price falls within a competitive range—neither too high nor too low compared to similar products.
Value-Based Pricing: Focusing on Perceived Value
Value-based pricing considers the perceived value of your products rather than just the production costs. This approach takes into account the unique features, demand, and customization that make your items special.
Examples of Value-Based Pricing
- Perception Pricing: High-quality materials and craftsmanship often justify a higher price. For example, handmade jewelry made from premium materials can command a higher price because customers expect durability and elegance.
- Demand Pricing: Prices can increase during high-demand periods. A handmade Christmas ornament, for instance, might be priced higher during the holiday season.
- Custom Pricing: Personalized products often carry higher price tags because they meet specific customer needs, such as custom furniture designed for a unique space.
Pros of Value-Based Pricing
- Reflects the unique qualities of your products.
- Often results in higher profit margins.
- Builds customer loyalty by emphasizing quality and value.
Cons of Value-Based Pricing
- Pricing can be subjective and challenging to determine.
- Each product type requires its own pricing criteria.
Tips for Handmade Businesses
Research the market to understand what customers value most about products like yours. Identify unique features that justify a higher price and emphasize these in your product descriptions and branding.
Competition-Based Pricing: Staying Competitive
Competition-based pricing involves researching what similar products sell for and setting your prices accordingly. This approach ensures your prices remain competitive without undervaluing your work.
Researching Competitor Pricing
Start by analyzing online stores and marketplaces like Etsy for similar handmade products. Look at:
- Price ranges for comparable items.
- Customer reviews to understand what buyers appreciate or dislike.
- Unique features that competitors highlight.
Pros of Competition-Based Pricing
- Helps you stay competitive in the market.
- Allows for strategic pricing adjustments based on market trends.
Cons of Competition-Based Pricing
- May limit profit margins if competitors are underpricing.
- Doesn’t consider the unique value of your products.
Tips for Handmade Businesses
If you want to price higher than competitors, highlight what sets your products apart. This might include using superior materials, offering custom options, or ensuring higher-quality craftsmanship.
Other Considerations for Pricing Handmade Products
In addition to choosing a primary pricing strategy, there are other factors to keep in mind when setting your prices.
Dynamic Pricing
Dynamic pricing allows you to adjust prices based on demand. For example:
- Raise prices for seasonal items like holiday decorations during peak buying times.
- Offer discounts on slower-selling items to boost sales.
Social Media Trends
Leverage current trends to create in-demand products. When a trend gains traction, you can justify higher prices for items that align with it.
Discounts and Sales
While discounts can attract customers, ensure you still make a profit. Calculate the lowest price you’re willing to charge and use that as your baseline during promotions.
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.
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:
- How To Tie Dye With Acrylic Paint Step-By-Step Tutor
- How To Use Cricut Design Space For Cricut Mug Design
- How To Make A Shirt With Cricut Design Space
Product Ideas:
- DIY Apple Watch Band With Cricut Infusible Ink
- Infusible Ink Wine Bag With Cricut EasyPress 2
- Cricut Acrylic Gift Tags
- DIY Key Holder
- Monogrammed Infusible Ink Coasters
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.
