I recently viewed the pricing webinar featuring Adrianne Stone from Handmade Business. I was thinking about pricing in the completely wrong way. Here’s what I learned:
I was using the wrong formula. The “simple” formula most people use doesn’t even accurately account for labor cost. This is where the calculator that comes with the webinar comes in handy.
There were things that are considered labor costs that I didn’t even take into account. Such as how I should factor in money for additional laborers before I even considered hiring. Another thing that is often forgotten is that you have to factor in more then you are going to pay the laborer. This is to account for things such as taxes and insurance.
There are several things that need to be remembered when figuring out your material costs. Such as, any shipping that you paid in order to get your materials, any packaging that you must use for your product, and materials that you may use whose cost changes.
If you are wondering what exactly constitutes an overhead cost, it is, “expenses for running your business that can’t be directly tied to a specific item that you sell. Basically, this is anything that is not your materials or your labor” according to Adrianne. She discusses many types of rates that work well for calculating overhead costs. The calculator also takes this into account and lists possible overhead costs.
Commissions, fees, margins and markups
These extra costs —commissions, fees, margins and markups— weren’t factored into overhead because they are individualized. Examples of these fees would be retail transaction fees –such as etsy charging 3%— payment processing fees — the cost to run credit cards or PayPal— and wholesale commissions — how much the wholesaler takes of the overall sales.