Many jewelry designers and artisans struggle with pricing their jewelry. Whether you are making and selling jewelry as a hobby or for business purposes, you must know how to price your jewelry so that you do not undervalue or overvalue your work.
Many people lack the confidence to charge higher prices on their handmade items, especially when they are beginning, which could be damaging for a business in the long run. However, all artisans dealing in handmade jewelry should understand that the pricing of jewelry speaks volumes about the quality of the jewelry product and plays a big role in determining the business's profitability.
Do you have a pricing formula that you use to determine the price of your creations? Having a jewelry pricing formula can help you with pricing your jewelry. There are several jewelry pricing formulas one can choose from. For this reason, find a pricing structure that works well for your business.
This article is meant to help jewelry designers and businesses who make handmade jewelry and retail the handmade jewelry. To continue doing what you do and love, this article will help you ensure that you make a profit from it.
The formula for Small Handmade Jewelry Business
Are you an individual designer or a small business focused on designing and making jewelry? If the answer is YES, this formula is for you!
Retail price = Material cost x Markup ratio + labor cost + overhead
What is Material Cost?
While making your jewelry, there are the materials you use, such as beads, threads, etc. All these items must be taken into account. Pen down the cost of each material used.
It is possible to overlook the cost of materials if you have a large stock of the items. However, you must factor in material costs at all times.
For example, if you have purchased 1 bag of beads containing 50 beads at $4.00, inclusive of the packaging and postage costs, your material costs will be $4 divided by 50 which is 0.08. Therefore, each bead cost $0.08 cents. per bead.
If the bag of beads containing 50 beads is $4 and you incur an extra fee for packaging and posting, simply add the cost of postage and packaging onto the $4. This will help you find the exact cost of each bead in the bag.
After you know the cost of each bead, you will have an easy time adding up the price of beads used to make a jewelry item easily.
Helpful Tip:
Find a reliable supplier who deals in wholesale. Buying in bulk from a wholesaler helps you get your supplies at the lowest price possible. You can even benefit from bulk discounts. Moreover, when the wholesaler is reliable, you will get quality products that you can re-order, fast and reliable shipping, and most importantly, excellent customer service.
What is a Markup Ratio?
Mark up is the amount a producer adds to the total costs incurred in producing a good or service to help cover costs and gain profit. To get the markup, take the cost of materials and mark it up by 3-4 times the cost.
For example, if the materials cost $20, mark it up by 4.
The markup ratio cost will help cover all your costs and give you a profitable business.
Helpful Tips:
- Understand your market well; markup costs are determined by the location and target market or customers.
- Put a markup that can cover all your costs, such as advertising; the markup should work well for you and your business.
What is Labor Cost?
There is a good amount of time and energy spent creating a jewelry product from scratch until it is completed. Although labor costs can be determined through pricing your labor, you should charge a considerable amount for every time spent working.
For instance, you can charge your labor in a fifteen-minute segment, half an hour segment, or hourly segment. For example, if you are pricing your labor at $20 per hour, that means that for a jewelry design that took you an hour to finish, the labor cost will be $20. On the other hand, if a piece takes half an hour to make, the labor cost is $10.
Helpful Tips:
- Charge a reasonable market labor cost; do not charge extremely high prices for labor, especially if you are just beginning. On the other hand, if you have been in business for a good time and have a good reputation, go on and charge higher labor costs. Charging reasonable labor costs could help in the long run, should you decide to expand and hire another person with the same skillset.
- Do regular training or take classes to reduce your labor cost by improving your productivity. For example, imagine a scenario where you make 10 necklaces of the same design in thirty minutes compared to making 10 necklaces each of a unique or different design.
What is Overhead?
Overhead costs are the total costs involved with running a business. They include costs such as maintaining a website, rental space to make jewelry, cost of petrol, postage, etc.
Add all the overhead costs together. Doing so will help you estimate all your spending and how much will be needed to cover these costs.
Helpful Tip
- If you are not sure of your overhead costs, in the beginning, you can add 10% on top of your calculated price.
Are You a Handmade Designer Dealing in Wholesale?
If you are a handmade designer who does wholesale, you would want to offer retailers lower prices as possible. The markup ratio can therefore be 1.5. Usually, the wholesale price is 50%-60% of your retail price.
Material cost x 1.5 + labor + overhead.
This formula will help you cover your overhead cost so that even when you are selling your handmade jewelry in bulk at wholesale price, you can still make a profit.
The formula for Jewelry Retailer
Are you a formal or larger business focused on reselling jewelry instead of designing and making jewelry all by yourself or your own team? Then, this formula is for you!
(Material cost + Labor cost) x markup ratio + overhead.
Retail price is the amount you charge the final consumer who is buying one item or two at a time.
Material Cost + Labor Cost
The material cost and labor cost are the cost you incurred during the purchase of jewelry products from the manufacturer. If you outsourced manufacturing or hired your own team to make your jewelry, material cost and labor cost are two separate items.
Markup Ratio
Since you are dealing in retail, the markup ratio should be large, usually 3-10 times. The markup ratio range is large because retail and marketing costs can be much higher.
Retailers often spend significantly on marketing (marketing campaigns to build brand image, professional photography, and models). Moreover, retailers may have a much higher cost of retail operations, and the costs need to be covered. However, these costs vary significantly depending on the business location, target market, and target customers.
Overhead
As a retailer, any cost involved with running your business and other ongoing costs should be summed together, and they must be covered. If you are unsure of your overhead costs, the 10% rule may still apply.
Parting Shot
There is no right or wrong formula to use when pricing your jewelry; these are guidelines to ensure you establish the right price for your jewelry.
The pricing formula you use must compensate your cost of materials, overhead expenses, and your time.
Buy materials in bulk at wholesale, then mark it up by 1.5 to 4 times the cost. If you use high-end materials in your handmade business, such as sterling silver or gold, the markup will be higher.
Do not undersell yourself, always charge your worth! Undercutting your jewelry designs may make customers perceive your products as cheap and nasty. Many consumers believe high-quality goods are sold for premium prices.
If you make jewelry and doubt that your products are worth the money and buyers are not prepared to pay your prices, please revisit your jewelry designs.
