Whether it’s a new weekend bag or a necklace for a wedding, several factors go into the decision to make a purchase. Some folks spend hours researching and browsing, while others focus on product quality or convenience.
Regardless of personal preferences, there is one thing that almost all purchasing decisions have in common: price. As a buyer, you're probably willing to spend within what you consider a “reasonable range.” As a seller, you’re on the hunt for that elusive sweet spot. And finding it isn't easy. To help you out, we decided to share two complementary approaches to finding that perfect price. Select one of your items to work with and get ready for some number crunching! This exercise is all about trial and error.
To get started, open this Excel worksheet or Google Drive worksheet (the worksheets are the same, so just choose whichever format you prefer). Then, create a copy of the worksheet for yourself and follow along from top to bottom.
The Top-Down Approach
Starting with this path, you’ll use the cost of the materials, time, labor and overhead expenses to determine the price of your item. Start by filling in numbers on the worksheet based on what you currently spend. Then, consider what you might change to improve your bottom line.
1. Start with your materials. Make note of the materials you use to make each item and how much you spend on them per item. If you sell vintage items or craft supplies, input the cost of the item when you purchased it.
Experiment: Delete one material to see how that changes your costs. Then, see what happens when you decrease the individual costs of your materials. If you could purchase supplies in bulk or through a wholesale account, how would that affect costs?
2. Account for overhead. Make a list of any business expenses that are not tied to a specific item. For example, you may rent studio space, purchase equipment or buy gas to drive to the supply store. Document all of these costs, then divide them by the number of items you have or plan to produce this year. That will give you an estimated overhead cost per item.
Experiment: Change the number of items produced per year or delete an overhead expenditure you could do without.
3. Cover your labor. It takes time to produce, package and ship your items. Consider your production process task by task. All in all, how many hours does it take to prepare this product for sale? What should you pay yourself for all that you do? That's the approach favored by Hana Brewster, owner of Hello Plum Studio, an Etsy shop that sells personalized home goods and celebratory items. Brewster, who creates her products in her home in Little Rock, Arkansas, suggests figuring out how much you would make at a normal day job. Keep in mind that you may be the only one doing every task involved with running your business, including production, packaging, shipping, editing photos and answering emails. "Just because you have fun with your business doesn’t mean that you shouldn’t pay yourself fairly,” Hana says.
Experiment: Eliminate a task or decrease the amount of time one step might take. Try different hourly wages. Can you make your process more efficient by coupling similar talks? Should you pay yourself more?
4. Make a pricing goal. If your business is just getting off the ground, breaking even might feel like a great place to start. Or, maybe you’re ready to move into wholesale and are re-evaluating your pricing structure. Think about your shop’s scope and where you’d like to be by the end of the year. It’s helpful to price for the future, not just the present.
The Bottom-Up Approach
You now have a good picture of what you’re currently spending. But does this mean your target customer would be willing to pay that amount, or that your pricing properly accounts for the value of your item? Not necessarily, which brings us to a second method of calculating price. In the bottom-up approach, you’ll use research and testing to determine a price you think is right and then figure out how much you’d ideally spend on each part of the process so that you reach this pricing goal. Follow these three steps to figure out an ideal price:
1. Do research. Consider where your prices exist in the wider ecosystem of items available on Etsy and online. How do your prices compare? Remember, items from a big box store don’t have the added value of a personally handled, one-of-a-kind piece. Their prices can provide a point of reference, but these retailers aren’t your direct competitors.
2. Determine your target audience. Get a clear picture of the type of folks who buy your items and for what occasion they are purchasing. For example, Olivier Gratton-Gagnė, who sells detailed map prints in his Montréal-based shop I Like Maps, knows that his maps are often used as gifts for family members and friends. "In that context," he says, "I don’t hesitate to ask for $20 to $135 for a print that costs much less in materials, because those prices make sense for a thoughtful gift for someone you love.”
3. Test and gauge response. Once you land on a price that you think makes sense, seek unbiased feedback from fellow business owners and shoppers. Ask questions and take cues from in-person shows. Talk to people in your network or seek advice through Etsy Teams. You can also set varying prices for similar items in your shop to see how well they sell – a process known as an A/B test.
Meeting in the Middle
Using both of these approaches, it’s very possible that your actual and ideal prices will look quite different. That’s totally okay – this is your chance to figure out why! Use the worksheet included above to determine the right levers to pull and make adjustments to your business. Do you need to use less expensive or fewer raw materials? Do you have to increase your efficiency or cut out tasks? Are certain details not worth your time because they’re too labor intensive? Remember, your prices are a continuous work in progress. Whenever something changes in your shop or the greater business ecosystem, it’s important to re-evaluate your approach.
What helped you find a pricing sweet spot? Share your pricing epiphanies in the comments.