Many of these figures are easy to determine and manipulate, others are slightly more time-consuming to calculate. Materials are fairly self-explanatory. Weigh your metals, price your beads, stones or cabochons individually, calculate promotional and shipping materials if you don’t utilize a separate shipping and handling fee, and add them together. Why (x2)? The cost of metals and materials fluctuate. When I sell an item, I want to cover the cost of materials used, of course, but also cover the probability of inflation in regards to a fluctuating metal market, for instance. Since you cannot always recover the value of scrap materials, this (x2) also satisfies the unfortunate necessity for waste in a handmade market.
Your overhead is any expense required to run a business independent of direct labor and materials. This may include an hourly rate for research, photography or networking, internet, phone, electricity, mortgage (if you work from home), office supplies, selling fees or advertising, to name a few. If you work from home, you cannot rightfully claim your entire monthly mortgage payment as a business expense, since you live where you work, so it’s important to estimate the amount of space you utilize in the home, and how this relates monetarily. For instance, I utilize a tenth of the space in my home for business. My mortgage is $400. I can claim an estimated $40 a month as a business expense. I have cable and internet at home. I would have these services irregardless of my business, but since I work from home, I can claim a portion of my internet costs as a business expense. Not everyone will consider electricity, cable and mortgage as business expenses when working from home, dependent upon labor wages, so crunch the numbers either way and determine your comfort level. I spend a minimum of 10 hours a week at non-chargeable work, such as networking, advertising, photography and research, or any work not directly related to the production of individual goods. I would consider $10 an hour for this work a reasonable salary. This is $100 a week, or $400 a month. Call into account water, electricity, tools and tool maintenance as well. All expenses considered, in this scenario, my overhead is an estimated $500 a month. If I make, on average, 30 pieces a month, my overhead is $15 per piece.
So, for the piece pictured above, I used 3 grams of silver-filled wire priced $17 an ounce. This equates to about $1.10 in metal used. The 6mm amethyst is $1.25. That leaves me with $2.35 in materials. Total material costs (x2) is $4.70. So far, my equation is ($4.70 + $15 + labor) x 50% profit margin = product price. Minus labor, this equation is also an accurate representation of wholesale value.
Ah, now for the difficult part…. determining the value of your skill. This, for me, was the most difficult to justify and, through the years, has dramatically fluctuated. I used to believe the value of a craft skill set was equatable to the value of, say, a receptionist. I know, right? Completely UNrelatable! Silly me! But, as a result, I was valuing my craft at an hourly rate of $10. It took me years to recognize that a much larger percentage of people are qualified to be a receptionist than those who are qualified to perfect a craft, so my hourly (or labor) rate needs modification to represent the discrepancy in this percentage. If you are still uncomfortable assigning a value to your skill set without accountable justification, you can also calculate hourly rate as:
[desired yearly income / work weeks – vacation] / number of direct-labor hours anticipated per week.
For instance, I would like to earn an annual salary of $25,000, and plan to work 50 weeks, at 25 hours of direct-labor work a week. [$25,000 / 50 weeks] / 25 hours a week = $20 per hour.
Now, for the sake of our model equation above, let’s assume the labor rate is accurately justifiable (which is another post entirely) in relation to the skill involved, and I now value my craft at $20/hr. Assuming the piece above took 30 minutes to make, the equation now reads:
($4.70 + $15 + $10) x 50% profit margin
($29.70) x 50% = $44.55
I recommend rounding up to the nearest dollar, and adding sales tax where applicable.
What you will discover, as well, is that the difference between the cost of materials are small in comparison to this piece in silver-filled, copper or sterling. The final cost in copper, following this equation, is only $2 less and the final cost in sterling silver is only about $3 more! As a precious metal, sterling is often marked higher (sometimes as much as 100%) due to its “perceived value”, but the math, for optimal profit and pay, doesn’t require the inflation.
And there it is… my secret formula… hopefully made easy! Obviously, not all numbers are serviceable. Some figures are loosely applied. Desired yearly salary, estimated hours of direct and indirect labor, and profit margin are per individual standards, based on any number of extenuating circumstances. And there is still one more point of consideration: the market as a whole. Take the time to research the product price of like items and adjust your numbers accordingly. You want to match market value where possible, without devaluing your own investment and skill in the process.
Now you’ve punched in the numbers and you think “Oh my goodness, no one will pay that price!” and there are no examples in your research of market value to justify the final product price. You have one of three choices: (1) determine in what ways you can enhance cost-effectiveness, (2) find another line of work (3) accept that it’s a hobby and create for the sake of creation…. not the expectation of financial gain. Expecting a monetary exchange for a hobby is like saying anyone can be a doctor without paying for an education. Work = gain. Period. The more work, the more gain. It really is as simple as that. If you are a hobbyist, respect that this is a profession to others and price accordingly.
Now that you’re as bored reading this as I was writing it, and I may have raised a few hackles with my hobbyist debate, back to your regularly scheduled programs. Though hardly entertaining, it was, I hope, educational. And, as with anything I say or do, take it with a grain of salt. This is one solution to a complicated set of problems, but there are other, perhaps better, solutions. Product pricing is as personal as the process of creation to some, and as mildly irritating as a gnat to others. Find your place, stand your ground and let the opinions of others flow over you like water.
Good night and happy weaving!
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