Where to start?
Your pricing model is based on what you do and how you do it. This is traditional formula when pricing a product or piece of work
Pricing of piece example:
- Direct material costs = £10
- + your time (hourly rate multiplied by the time it took you to make the piece) = £100 (£20 per hour x 5)
- +% of your annual overhead costs = £15
- +% profit = £50
- The total accumulative cost = £175
- x 2 which equals the retail mark-up = £350 recommended retail price
How do you work out your overheads?
These are costs associated to your business but not direct to one product or piece of work
- Administration costs – the time you spend doing research, correspondence, working on logistics
- Fixed costs – insurance, electricity, rent
- Marketing costs – website, exhibiting, showing at fairs, paid adverts, printed resources, campaigns
How do you work out your hourly rate?
This is based on how much time you can dedicate to your business and in principal how much you need to earn from your business
- How much time can you dedicate to your creative business per week on average? Hours. Days?
- How much do you need to earn from your creative business? If you have a part time job to support your practice, then your approach would differ from someone aiming to earn a full-time salary from their practice.
- Do you earn solely from your making? Or are there other areas you can generate money?
How to you value your work?
Pricing can be based on a simple formula, though sometimes the final price is not that simple. Here are some things you should consider:
- Research into the markets you are aiming to sell your work and do your prices compare well, are they competitive?
- Include profit, no matter how small the percentage. The profit you earn is the money you can put back into your business, build up and invest in new equipment, training or simply contribution to your time off.
- When working out how many days you can dedicate to your business, base this on 48 weeks a year not 52, as you need to factor in time off for holiday or illness.
- Markets – a marketplace is somewhere to sell, this could be a gallery, a craft fair, an online shop such as Etsy; your own ecommerce website
- Competitive – research into markets and try to have your prices similar to others. Are your prices similar or much more expensive or much cheaper than the other work you are aiming to show alongside?
- If they are much cheaper or much more expensive then this is not the right market for you
- If your prices are much higher than your competitor, can you produce the work at a lower cost?
- If not and the work is still too expensive is this work viable product to sell?
Tips when pricing your work and earning money from your business
- Everyone differs in their opinion of value – You are producing work for a luxury market, it might have function, it might not, but in the craft world you are not producing essential items. Your products should be focused for specific audience/market, do not consider whether you can afford your product, remember you are aiming your product at people with disposable income and a desire to invest on one off, bespoke and handmade objects/products. So be realistic about your pricing.
- You cannot plan without data – You need to do your research, this means market research into material costs, production costs, market value, distribution costs and running costs. We recommend you get into the habit of recording everything even the time it takes to produce your work.
- Be SMART – Set yourself Specific, Measurable, Achievable, Realistic and Time-bound objectives. When planning the work you want to produce and sell, create a SMART plan around it; how long it takes to make, who are your potential buyers and how can you reach them, have you considered how you are going to promote the work, present it, package it and how much time you need to do all of these things with your other commitments.
- Work out a plan; start with what it is, factor in the logistics of making the plan happen and the best way to ensure you achieve this is to plan backwards; for example, if you wanted to sell at a Christmas fair, plot in the details of what you need to do each month; did you realise it takes longer than anticipated?
How to manage your finances
Look into online accounting software, this will help you manage your cash flows, your budgets, your invoicing and keep an eye on your costs. Make sure you regularly check the accounts. A lot of online accounting software has been set up to support sole traders or small enterprises. Be finance savvy, research and learn financial key words and their meaning, for example operating costs, overheads, net profit, gross profit.
Working out your overheads
What does it cost you per month and per year to run your business? Some are obvious and easy to calculate for example: training costs, membership costs. Some are not so obvious: your electricity costs if working from home. Look at HMRC on gov.uk for how to calculate your % business costs.