As part of our creative business support series, Samantha from A Thousand Yellow Daisies explains how to work out the selling price for your textile products, including examples and five easy calculations for you to copy.
Figuring out how to price your products, your service and yourself is a minefield of questions and doubt.
Will people think that’s too expensive?
Is it really worth that much?
Is my time worth that much?
These kinds of questions are debated by the majority of small business owners, especially those just starting in the creative industry. There are so many factors to consider and so much competition, a lot of which is mass-produced faster and cheaper than those going it alone ever could. But this does not mean you have to price yourself alongside the mass-production companies.
The most important thing to remember when working out your pricing is you are selling your uniqueness. You will never be able to compete with the Tesco’s of the world when it comes to price, but you can compete when it comes to quality, bespoke products, and service.
Once you’ve realised your worth (and kept this in mind throughout the process – a surprisingly difficult task when fighting those doubts and over-analysing everything!) then you can start considering the facts and figures.
This is where it can get complicated, and will depend on your business, industry and products. There are generally three types of creative business: product, service and freelancing. As pricing can be complicated, I will break it down and cover each of the common business types in separate articles, beginning with product pricing.
Product pricing seems quite simple to begin with…take the product costs, work out the profit margin and set your price, right? In reality there is more that needs to be considered than just the cost of creating or manufacturing the product.
Your time always needs to be accounted for. To work out the cost of your time you need to know how much time you spend working as well as how much you want to be paid per hour. Your time per product is not only the time from starting that individual product to the end product but also includes the time spent on other aspects of the business. Creating and selling a successful product does not only come from the product creation but must be tested, advertised, marketed, manufactured, packaged and sent or displayed. Your business needs marketing, promotion, networking, accounts, to be a successful venture. All of these require some kind of payment, and that payment in money or your time comes from the sale of your products.
1. To work out the cost of your time, you need to know exactly what you spend your time on every week. Keep a record of what you do throughout the week to understand what you use your time for. It will be surprising how many things you didn’t think of at first, or you forget that you do. Once you have a breakdown of your hours, you can calculate how many hours you work a year. It’s easiest to multiply the number of hours you work per week by the number of weeks you work per year. If this is your full time job, then you will want to use 52 weeks, so you receive holiday pay. If you have another job to support your income, then you may decide to use slightly less weeks, as you won’t need the income from your business to cover your holiday pay.
You need to decide how much you want to be paid per hour. Always always always place yourself above the minimum wage! Your time is worth more than minimum; you are a creator, a designer, a marketer, a bookkeeper and and the CEO! Those skills and responsibility are worth more than minimum wage. Once you’ve worked out your hourly rate, multiply this by your annual hours.
I plan to work 15 hours a week, 48 weeks a year
15 x 48 = 720
My annual work hours will be 720
I want to earn £10 per hour.
720 x 10 = 7200
My annual salary will be £7200
2. Next you need to work out how many products you will sell per month. Be realistic, if you think you can sell 200 that’s great, but if you know you are only likely to sell 50 then be honest – it will help you in the long run. Work out your annual sales, and divide your annual salary by the number of products you will sell in a year.
I will be able to sell 100 per month.
100 x 12 = 1200
My annual sales will be 1200 products
£7200 salary ÷ 1200 products = £6.00
So per product sold, the cost for my time would be £6.00
3. You now need to work out the manufacture costs per product (include all materials and packaging that make your finished product, no matter how small – a few pennies here and there add up over time). Every business is different, and only you will know the costs involved. This can get complicated if you manufacture multiple products, as you need to do this process for each type of product. I know that sounds long-winded, but remember – the basis of each calculation is going to be the same so the hard work is done after one. Using the same process and same calculation for each product, just swap your manufacture costs and how many you plan to sell.
Remember to divide your total manufacturing costs by the total amount of products created to get the unit cost.
My materials cost £500 for 100 products + £10 initial supplies
500 + 10 = 510
510 ÷ 100 = £5.10
Each product will cost me £5.10 in materials
Salary cost per product + Materials cost per product = Variable cost per product
£6.00 + £5.10 = £11.10
4. Next, you need to take into consideration any fees and fixed costs. These can include your phone bill (if it’s a work phone), utility bills and rent (if you have an office/studio/workshop), business travel/car, stall rentals, website payments, shelf rentals, etc. If these are used for work and personal use, then include a percentage of the cost but don’t add the entire cost. The government has put together a guide showing which expenses are claimable and what percentage you can claim.
Work out the cost per product the same way as before by finding out your monthly fixed costs, and dividing by the products sold in a month.
Studio Rental £400 per month
Work Phone £10 per month
Insurance at £80 per year = 60 ÷ 12 = £5 per month
Utilities £30 per month
Travel £30 per month
£400 + £10 +£5 + £30 + £30 = £475 monthly fixed costs
Monthly fixed costs ÷ number of products sold each month
£475 ÷ 100 products = £4.75
My fixed costs per product are £4.75
5. Add together your variable cost per product and your fixed cost per product, to get the total product cost. It’s up to you to decide the profit you would like from your products, so calculate this and add it to your total product cost to get your sale price. Remember, your profit margin will vary depending if you are selling to retailers or directly to customers. You may have a retail price and a wholesale price to reflect this.
Fixed cost per product + Variable cost per product = Total product cost
£11.10 + £4.75 = £15.85
Total product cost x Profit % = Selling price
£15.85 x 150% = £23.78 Wholesale price
£15.85 x 300% = £47.55 Retail price
This is your basic pricing formula, but as all businesses are different, don’t feel you have to stick to it. When adding your profit you can be flexible. Not only should you consider what profit you would like to make but also look at your competitors’ selling prices. If the profit you want puts you above competitors’ selling prices, is it worth pricing yourself out of the market? If it puts you significantly below, check you haven’t missed a cost, and you have judged your competition and target market correctly.
Profit and sales are a fine balancing act, it’s a lot of work to sell 100 products and only make 105% profit on each, but equally 0 sales at 500% profit margin is still £0.
Don’t aim to undercut all of your competitors. If your products have added value (better materials, beautiful packaging, great service, etc) then customers may be willing to pay more. Remember that it can be better to sell less products if you are making a higher profit margin (and it will be less work for you to manage!) – the below example shows how.
£10 total cost price
£12 selling price
100 sales = £12 x 100 = £1200
Cost of 100 products = 100 x £10 = £1000
£1200 – £1000 = £200 profit
£10 total cost price
£20 selling price
50 sales = £20 x 50 = £1000
Cost of 50 products = 50 x £10 = £500
£1000 – £500 = £500 profit
Pricing is a juggling game of covering costs, paying yourself, and not under or over selling yourself. It’s so important to get right, so take your time, do your research, and with enough thought and calculations, you’ll find your space in the market.
If you’re offering a service – we haven’t forgotten about you! Samantha’s next article covering pricing when selling a service will be coming soon. Have any questions about pricing your products for sale? Send us an email or let us know in the comments and we’ll try and help.
*All calculations are example figures and not based on any real situation or costs.