Setting prices on the creations of your craft, hobby
First, decide if you want to treat it as a business
By Gary Foreman
The New Frugal You
Dear New Frugal You,
I'm a crafter and have been selling a few of my
creations for fun, and I've gotten pretty darn good at it if I do say so
myself. I'm thinking that I could turn it into a side business selling at craft
shows. My problem is that I really don't know anything about business. For
instance, I have no idea how to price my stuff. I'm embarrassed to ask too
much, but I don't want to shortchange myself either. How do I know how much to
Congrats on turning your hobby into a sideline business!
It's always nice to be able to make money doing something that you love. And
you're right that decisions about pricing your creations will be key to your
There are two basic strategies that you can take in
pricing. One starts with cost and works toward price. The other starts with
price and works backward to determine how much you can spend to create the
item. Let's look at both.
Some crafters take a very simple approach. They price
things at three or four times the cost of the materials that went into the
finished product. If you're only selling a few items each month, that might be
the best way to go. Keeping track of costs is as simple as tagging each purchase
with the receipt or pasting a sticker on it with the price. Total them up when you use
them, and you'll know how much you've invested in materials.
The practice of charging three or four times cost
probably goes back to older mom-and-pop stores. They'd price that way figuring
that one times cost covered purchasing the item, the second covered the cost of
having a store (i.e., overhead) and the third time covered profit. The fourth
allowed them to discount the price if necessary.
The obvious problem is that costs can vary quite a bit
even for essentially the same end product. One crafter might buy all supplies
from retail craft stores. Another uses bits and pieces found in yard sales.
When you multiply the costs times four, the difference can grow fairly large.
You'll also need to determine what your time is worth. If
you're just trying to earn enough to pay for your hobby, then your time isn't
that valuable. But if your goal is to make some money, you'll need to factor in
what you could be making at a "real" job. It's easy to find yourself
working for pennies per hour.
Another problem with pricing based on your cost is that
you may find that no one is willing to buy at the price you want to charge. If
that's the case, you can either find a way to reduce your costs or decide to
make something else.
One way to maximize what you can charge is to create
items that are unusual, hard to duplicate or both. Almost anyone can assemble
gift baskets. It's much harder to copy intricate handcrafted work.
A different strategy for determining price is to work
backward. First, determine an appropriate price for an item. A professional
will try to factor many things into that decision. In fact, they'll say pricing
is itself an art form.
But for an at-home business you don't need anything
fancy. Just an idea of what similar items are selling for. There are a number
of ways to get that info. Check out craft shows and online sales for similar
products. Ask fellow crafters what they think your creation is worth.
Don't hesitate to experiment a bit. Try one price at one
show and a different price at a second show. You'll learn from the experience.
Pricing won't be the only challenge. You'll also need to
learn a few basic business rules. For instance, you'll want to learn about
legitimate business expenses. If you're successful, there will be income to
report to the Internal
Revenue Service at the end of the year. Fortunately, you'll
be able to deduct certain costs to reduce the income you'll pay taxes on.
You'll also need a basic accounting system. There are
inexpensive software packages that make accounting simple and easy for
nonbusiness types to use.
Ultimately, the key decision is whether you really want to
make money or are you looking for just enough income to offset your hobby
If you want to make real money, treat it like a business.
Price your work accordingly and pay attention to how much time and money you
have in each project.
On the other hand, if it's just a hobby, don't take the
fun out of it by worrying about what to charge. Anything you receive puts you
that much closer to paying for your next project. And if you're having fun
there's nothing wrong with that!
See related: Craftily set the prices of your art
For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar Stretcher.com, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a CreditCards.com reader each week.
Send your question to The New Frugal You.
Published: August 23, 2012
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