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Home-Based Business — Pricing Your Work

Alma J. Owen
Department of Family Economics and Management
Lincoln University

Many artisans without experience in markets outside their neighborhood have difficulty pricing their goods to give a fair return on their work. There are lots of ways to price — double or triple your estimated production cost or check how others are pricing similar quality items. But these do not assure that you are getting a fair price. For many of you, it may be time to be more scientific about pricing your product. Many at-home artisans work in "spare time" between washing clothes and fixing supper, after the crops are harvested in the fall or late at night when the kids are asleep. Some of your items are made, in part, from natural materials found on walks, in creek beds or on drives in the country, further confusing the real cost of the product.

The price of an item has to include the cost of all materials in the item, a fair wage for your time and other costs to make a product or run a business. Packaging and shipping may be included in the cost or may be added later, depending on how you are marketing.

Materials

Cost of materials may include paint, paper, wood, clay, fabric — anything used to make your item. Don't forget what it would cost to replace materials you have been using because they were left over around the house. Quiltmakers may start with scraps from old sewing projects, but as their business grows, they have to purchase new fabric. Therefore, the price must include cost of replacements.

Labor

The fair wage or cost of labor may be difficult to figure. If you have no better estimate of the value of your labor, start with the minimum hourly wage which is $4.25 effective April 1, 1991. However, a person with skill, experience and an established market should or will pay themselves a higher wage.

If you don't have the exact amount of time you spend on an item, there are ways to estimate. It may be easier to figure the number of items you can make in a week or month and estimate how many hours of your time over that period is spent on your craft. You can then divide the number of items into the amount of time to arrive at the figure.

Overhead costs

The final ingredient in the price is overhead costs for production or business. Production overhead costs can include the electricity to run a saw; the fraction of the sewing machine "used up" by making one quilt; the cost to use the car to pick up supplies. List those things you have to do to make this item and figure a cost per item for each type of expense.

Overhead costs of the business are those expenses that are not a part of making the item you sell. They may include promotion or advertising, the services of a tax preparer, lawyer or accountant. Printing invoices or business stationery are other areas to be considered. The entry fee to craft shows is an example of overhead business expenses. Again estimate these on a cost per item basis to be added to your price.

Packaging and shipping

You may need to estimate the cost of packaging and shipping your item to a buyer or consumer. To estimate these costs, purchase the necessary packaging materials, average estimates on shipping these items to New York or California, and add the cost of insurance on the item. Most business people recommend shipping by United Parcel Service (UPS). These costs should be included in your final retail price. The retail price that you have established for your item should be the same for all buyers. Remember that you are estimating a retail price, the one paid by a customer to purchase a single item.

You may get calls from buyers who want to place a wholesale order for your work. This is purchasing more than one item. Wholesale buyers need to buy at less than retail price because they need to cover their selling costs such as rent, cost of sales personnel, supplies, taxes, etc. The percentage of markup for wholesale is negotiable between you and the buyer but try to set your price to allow you a profit. Of course, if you have your own shop, your retail price has to cover these costs as well.

Sample worksheet

  Actual cost Running totals Cost per item
Cost of materials per item      
Labor
Hours per item times $4.25 (minimum wage) or higher
or
Hours per week divided by number of items times wage
     
Overhead for production
Electricity
Machinery depreciation
Use of car
Other ____________________
__________________________
__________________________
Total overhead for production
Divided by number of items for cost per item
__________
__________
__________
__________
__________
__________




__________
 
Overhead for business
Promotion
Advertising
Professional services
(lawyer, accountant)
Total overhead for business
Divided by number of items for cost per item
__________
__________
__________



__________
 
Shipping and handling
Box and packing materials
Insurance
Postage
Total shipping and handling
Divided by number of items for cost per item
__________
__________
__________


__________
 
Add all amounts in last column for estimated cost per item = wholesale price
Double or triple wholesale price = retail price
    $_________
$_________

References

  • Aycock, Georgia P. Cash: Pricing Crafts. Alabama Cooperative Extension Service.
  • Bank of America. The Handcrafts Business, 1980.
  • Heidingsfelder, Sharon. Craft Marketing Seminar, Cooperative Extension Service, University of Arkansas, 1980.
This publication is one of a series on home-based business and part of a project called "Alternatives for the 80s" to help generate more income for Missourians.

MP598, reviewed October 1993


MP598 Home-Based Business — Pricing Your Work | University of Missouri Extension