How do I price my jewelry?
by B3 founder Rebeca Mojica
Pricing is the eternal dilemna of crafters. Many people don't want to overcharge, so they wind up undercharging. In order to ensure you make enough profit, you should find a pricing system that works and use it for all your pieces. This article will show you one way to price your work in order to meet your expenses, pay yourself, and have money leftover to invest into the business.
For my jewelry, I've set up a spreadsheet so all I do is plug in the materials cost plus the time it took me to make the piece. The spreadsheet does its magic and gives me an estimate of how much I would make per hour (after profits, overhead and taxes) for that piece if I sold it directly to a customer and also if I sold it at a wholesale price. The hourly rate is important to me, because I spend time doing business-related tasks other than weaving. If I know how many hours a week I spend making maille, I can figure out what my hourly wage needs to be in order to cover the behind-the-scenes time when I'm not mailling. The spreadsheet comes in handy when I'm calculating the prices for new production items as well as when I need to give someone a quote for a custom piece.
If you don't want to set up a spreadsheet and are just looking for a formula, here is one possibility:
M + W + O + P = wholesale price
Materials – I highly recommend doubling your materials cost. This way, not only have you covered the cost of your piece, but you can reinvest in the materials to make another one.
Your Wages – Don't underestimate. Choose an hourly wage that will allow you to eat!
Overhead – Each piece has some overhead attached to it. Overhead includes office expenses, packaging materials, tools, etc. Figuring out a precise number is easier if you have a few months of data to look back on. Total your expenses, and divide by the number of months. Then divide by the number of hours you spend making jewelry each month. This gives you an estimation of your hourly overhead. So if that number winds up being $5.75, you should add about $6 to your hourly wage to cover overhead.
Profits – This number is very important; don't omit it! You will need to reinvest some of the money you make in order to keep making money. This allows you to purchase better tools, move from base to precious metals, replace a broken computer, etc.
|Here's an example:
Sarah made a bracelet in 1 hour. The material cost was $7. She has not been making jewelry for long, and will probably only make jewelry as a hobby, so she sets her hourly wage at $10. Her overhead is $5 per hour, and she'd like to invest $5 back into her jewelry business so it can grow.
Double the wholesale price to find the retail price: $68
NOTES about Uncle Sam: The formula above doesn't include taxes. If you make more than $400 per year with your jewelry, you will need to pay income taxes. As a sole proprietor—most jewelers and crafters start out this way—you are NOT allowed to pay yourself a wage. The government assumes that all income (Revenue minus Expenses and materials cost) goes into your pocket, and this is what they will tax. A good rule of thumb is to assume the IRS will take 30% of your income. Keep that in mind when using the formula above! You may want to inflate the number for your hourly wage in anticipation of taxes.
COGS stands for Cost of Goods Sold, and this is an important number. It's the M in the pricing formula above. Let's say you spent $500 on jump rings. Common sense may tell you to deduct $500 right away as a business expense ... but that is incorrect. You cannot deduct raw materials—aka inventory—until you sell them, or sell a piece that uses them. When Sarah made the bracelet mentioned above, she deducted the materials cost at the time of the sale, not at the time of the purchase.
In reality, you only figure out the COGS at the end of the year, by closely counting your inventory. COGS for the year is: (starting inventory plus purchased inventory) minus (year-end inventory).
Let's say your inventory at the end of the year is worth $2,000. You started the year with $500 worth of inventory, and during the year, you purchased $6,000 in materials.
Even though you are only officially calculating COGS once a year, it is a wise idea to do rough COGS calculations for each piece you sell, in order to help you set your prices. Once you've been doing jewelry for awhile, you may find that you develop a good sense for pricing and can set accurate prices prices without the time-consuming process of calculating the cost for each component used and then plugging these numbers into a pricing formula. When you're first starting out, though, using a pricing formula for all your pieces is essential.
I've only touched upon the business concepts of pricing and taxes. If you want to know more, I recommend the books below.
Small-Time Operator: How to Start Your Own Small Business, Keep Your Books, Pay Your Taxes and Stay Out of Trouble! by Bernard B. Kamoroff. ISBN 0-917510-14-3
Handmade for Profit! by Barbara Brabec. ISBN 0-87131-812-1
The Basic Guide to Selling Arts & Crafts by James Dillehay. ISBN 0-9629923-0-5
For more info, see A Pricing Experiment in the Student Newsletter Archives.