How to reality-check your handmade prices
Today we’re talking about pricing and more specifically, I want to help you with one simple exercise to help you “reality-check” your handmade prices.
This article was inspired by one of the TIZZIT community members who asked me if he should lower his prices to be more competitive, or if he should try to find new ways to attract a new market, new customers, who would be ready to pay a higher price for his products. And here is what I told him:
You can watch the video, or read the post below.
step 1 – What is your target revenue?
The very first thing to do in that situation is to start from the beginning, which is how much money do you need or do you want to make from your handmade shop every month? That’s very personal and everyone would have a different answer, and it depends on various factors; are you working another job? Do you have some savings? Is your spouse or partner making money as well?
Whatever your situation is, write down on paper how much revenue you want to make each month from your handmade shop.
step 2 – how many products do you need to sell?
The next step is to ask yourself how many products you need to sell each month to reach that revenue goal. And finally the last question is, is it realistic? By that, I mean in terms of sales goals, but also in terms of time, how much time does that mean you’re going to have to spend creating those products to reach your revenue goal?
step 3 – Is it realistic?
To make it a little bit easier to understand and to put a bit of context around all this questioning, I’ve created a really simple example that I want to run you through just so that you can see more clearly what I mean when I ask if it is realistic.
Here’s an example:
In this example, I’ve used a revenue goal of a thousand dollars per month, and we’re also looking at a situation where I’m selling a product for $50, and I’m making $10 profit every time I sell this product. I’m sure you’re selling more than one single product and if that’s the case, just use an average. This is really just to give you a simple example. What it means is that to reach my revenue goal of a thousand dollar every month, I would have to sell a hundred products.
In terms of is it realistic or not, this is where it gets really interesting.
If I’m making a product that’s quite time consuming to make, and it takes me two hours to create this one particular item, this means that to reach my revenue goal, I would have to spend 200 hours just on product creation so that I can have those one hundred products in sales.
Every week, that means that I’m spending 50 hours in the studio working on product creation alone. That’s excluding doing your marketing, uploading things on Pinterest and Instagram and trying to get customers through the door, it’s purely on product creation.
If with that same goal I’m looking at a product price of $180, and I’m making a profit of $70 on each product, that means that I would only have to make more or less 15 sales every month to reach my revenue goal. In terms of time, it becomes much more realistic because it means that I only have to work 30 hours a month to create those 15 items, which is a really reasonable 7.5 hours a week.
I don’t know about you, but I think 7.5 hours sounds much better than what we were looking at in the first example, which was 50 hours a week just on product creation!
There’s much more than just this one question that goes into determining a profitable and successful pricing strategy, and I’ll link to some really useful videos and downloads at the end of this article, so make sure you check out those resources.
I think it really helps to put a bit of context around a pricing strategy, especially when you’re just starting out and you’re a one-woman shop( or one-man shop for the gentlemen) and you might not have an army of people working for you and helping you with product creation. You need to take these things into consideration.
Final step – And now, what?
If you want to increase your prices after doing this exercise and you’ve started thinking, “OMG, yeah, this is crazy, it’s not realistic at all”, there is a way to do that with better branding, a better perceived value for your customers, a better unboxing experience, and I’ve got plenty of really awesome resources about branding and adding value to your products in the free TIZZIT resource library right here.