Determining Your Wages – Handmade Item Pricing

Simone Walsh, the handmade jewelry seller behind the website SimoneWalsh, published an article on her website about professional pricing for craftspeople and designers.  The article was written for emerging makers who may find pricing their work to be a very daunting prospect.  In fact, these crafters may have no idea of where to begin.  Simone offers practical and proven tips.

“It’s well worth spending the time to understand how to price properly and to lay the groundwork to make sure you are doing so,” Simone writes in her article.

Simone helps sellers with two parts of this process – determining wages and determining overhead costs.

The first step to pricing your craft is to calculate your wages.  “Your business should pay you a realistic wage for the amount of time you spend working in the business, including tax,” Simone suggests.  “If this makes you feel uncomfortable, think about how much you might need to pay other people to do the work that you do. Also think about how much you’d want to be paid if you were employed doing the same work you do in your business.”

Simone reminds crafters that they are just as entitled to earn at least a living wage from what they do as anyone else in the working world.  “Even if you love what you do!” she adds.

The next step is to calculate non-chargeable wages.  “Most makers are at least aware of incorporating a labor rate into their pricing for the items they make to sell. However, wages shouldn’t usually end there.”

Simone tells handmade sellers to consider the time they spend in their business over the course of a year – time which is not chargeable as part of creating an item.

“This might include time spent photographing, promoting, doing admin work, researching, sourcing materials, etc.,” Simone says.

Simone suggests sellers start by estimating the number of hours per week or per month they think are required for this type of non-chargeable work.  Next, determine an appropriate hourly rate for this work.  Stuck on a fair rate?  Simone says try asking yourself what you would pay someone else in your economy to do it?

The next step is to calculate the time and wage into an annual figure.  “This annual ‘non-chargeable wage’ figure should then be included in your overheads calculation,” she writes.  Simone explains the overheads calculation in a later article.

Next, determine your chargeable wage.  “Your chargeable wage is the income generated by the labor rate charged for each each item you make to sell,” Simone explains.

Simone explains that every handmade piece a seller makes should have the amount of labor factored into it.  “It doesn’t have to be timed down to the last second – I just make an educated guess as to what a piece will take me to make on average once I have it in production,” she tells HandmadeMarketing.org.

Simone has a simple way to determine a crafter’s labor rate.  “A great place to start is to think about the annual amount of income (on top of the above non-chargeable figure) which you need or want to be earning from your business,” she writes.  “Then determine how many weeks a year you will work in your business (allowing time for holidays, illness, etc – 48 weeks works for me). Finally, work out how many hours a week you estimate you’ll work specifically on making items which you will be selling. Remember to allow time for all of those other business-related things you need to do – and don’t forget you need to have a life, as well!”

To determine your chargeable wage, simply divide the annual amount you wish to earn from your labor by the number of weeks you intend to work per year.  Next, divide that figure by the number of hours per week you estimate you’ll spend actually making work to sell to get your hourly rate.

To help readers through this equation, Simone provides an example in her website article:

“So, as a fairly outrageous example, let’s just pretend you want to make $500,000 a year in wages (!). $500,000 divided by 48 weeks = $10,416 a week. Let’s say you intend on working just 5 hours a week making what you sell: $10,416 divided by 5 = $2083 – that’s your hourly labor rate!” she writes.

Simone suggests that if your final result looks unreasonably low or high, sellers should take a step back to the big picture and reassess.  “Keep doing this until you have a figure you’re happy with,” she recommends.

“Of course it’s entirely up to you as to the final wage figure you decide upon and you can always adjust it at any point,” Simone reminds readers.  “This is just a method to help you come up with a realistic figure, based on your own life and needs, along with your own economy (almost every country will be different as to what an appropriate labur rate looks like).”

“Use your final hourly rate figure to calculate costs for your time for everything you make. This figure does not get added to your overheads,” she writes.  Simone details how to determine your overheads cost for your business in a later article.

What did you determine your chargeable wages would be?  What do you think of Simone’s step by step process for determining how your wages impact your product pricing?