How to Set Prices on Etsy [Formula+Infographic]

Whether you are a Maker or a Reseller, this article will teach you how to set your prices on Etsy. I’ll give you some valuable insights that I’ve learned over the last decade(!) of building KraftHaus Supply Co. Then I’ll give you the formula that I use to determine my Etsy pricing. [And for those of you that are visual learners, I’ve created a nice How-to-Set-Prices-on-Etsy infographic at the end of the post.]

A BRIEF INTRO TO YOUR PRICING DILEMMA:

Are you unsure how to set prices on your handmade items?

Do you second guess yourself?

Do you say “people will never pay me that much?”

You are not alone. The simple fact is that most people that start selling on Etsy are not initially business-minded.

You make what you make because you enjoy it. Maybe you made one for yourself, then a friend asked you for one. Then another friend. Then a co-worker. Next, someone told you that they’d pay for one. One day someone suggests that you should sell them on Etsy… and here you are.

Now the danger is that if you’re not careful, your passion/talent/hobby might turn into an expensive and time-consuming burden. Please, please remember this…

“You are not Walmart, Amazon, or Petco. You are one person, creating your vision with care and detail.”

Nic Kristoff – President of KraftHaus

WHY THE KRAFTHAUS FORMULA WILL WORK FOR YOU:

The KraftHaus Formula will work for you because it is elegant in its simplicity. There is no need to look around at what other sellers are listing similar items for. None of that matters. The formula accounts for your cost, your Etsy-related expenses, and then allows you to charge for the skill and care that goes into your creation.

Take a look at the example below:

Kirikomade.com uses traditional Japanese indigo-dying techniques and hand-sews each scarf. Do you think Kiriko looks at Walmart and says… “Their scarves are $5.95, I should price mine accordingly.”?

Obviously they don’t. And that is ok. They probably don’t get anywhere near the amount of scarf sales that Walmart does.

But they do get plenty of sales from people who want a hand-made, traditionally-dyed scarf whose quality is worth every penny.

As you’ll see below, when you use the Krafthaus Formula to develop your prices, you will be covering the bases of your cost and allowing for profit. It is easily adjustable and can grow with your business. Most importantly, it is PROVEN and UNCOMPLICATED.

WHAT IS YOUR COST? (DON’T BE A CHEAPSKATE):

It’s pretty important to be aware of ALL your costs. Here are a few that you can’t forget about: (*remember, you may have others)

• What is your material cost?
  • Don’t be a cheapskate, buy better material. You don’t need to be told to take pride in your work, but I’m telling you… take pride in your work. Cutting costs is the name of the game, but NOT at the expense of your product’s integrity. So, ‘splurge’ on the welded D-Ring vs the un-welded.
• What is your packaging cost?
  • Be sure to include the price of your container, any stickers, tape, wrapping, and anything else that goes into your deliverable product. Nothing is too small to include because after you sell 10, or 100, or 1000, or 10,000, that small cost adds up.
  • Remember: Great packaging creates increased perceived quality and buyers are willing to pay more. Poor packaging creates an illusion of poor quality.
• What is your time cost?
  • This one is pretty straight forward… how much do you want to be paid hourly multiplied by how many hours it takes you to create your product.
  • Time is money and you deserve to be paid for your time. (*Be sure to read to the end of this article and understand the X-Factor. If you stop here, you’re still just an employee.)
• Equipment(?):
  • Not everyone will agree with me on this, but here is my take: If you had to buy a piece of equipment specifically for your Etsy Product, then I think you’re justified in factoring in a small percentage of that cost.
    • For example, if you bought a new piece of software that allows you sew unique patterns into your material, I’d say bump your price up a smidge.
  • However, don’t factor in your sewing machine or your computer if you’ve been using that sucka for years before the thought of an Etsy shop even occurred to you.
  • Use your judgement. Be fair to yourself and fair to your customers.

DON’T YOU DARE FORGET ETSY’S FEES (*EYEROLL):

Lets not forget, Etsy IS a business. As Tony Soprano would say, they need a taste of any action you get in their neighborhood.

At first blush, the take a s***load of fees, but it’s ultimately worth it for the built-in advertising, the marketplace, and the ease of getting your product in front of millions of shoppers.

Don’t believe me? Try building your own website and see how hard it is to get a single person to visit through an organic google search.

• Listing Fee – $0.20 per item
  • This renews every four months.
  • Pro Tip: If someone buys multiple items, this fee is added on to each one! So if you sell something that people buy multiples of, you can save money by creating package deals (like a 5-pack, etc)
• Transaction Fee -5% of total cost including shipping and gift wrapping
• Payment processing – 3% of total price + $0.25 (varies by country)
• Fee on the Shipping Charges – Etsy 5% of the shipping cost
• Ads Fee – Etsy will take out 15% of your profit for off-site advertising!
  • This is something that you are automatically enrolled in. You have to opt out manually.
  • Note: If you make over $10,000, it goes down to 12%.

WHAT IS THE BEST SHIPPING STRATEGY?

There are many opinions on shipping strategies out there. Free shipping. ‘Free-plus-shipping’, built-in cost. Most of the opinions will be based on how to trick the customer into buying. How to soothe them into thinking they are getting the best deal. I don’t think this is the right way to go about determining your shipping strategy.

You are not out to fool anyone. Your goal is to deliver a valuable product at a price that works for both you and the customer.

Here are some ways to set your shipping:

• Free shipping: These words are visually enticing to the buyer, but these days we have all learned to be skeptical. (Almost) nothing is free in this world. This means your shipping will be built into the cost of the item.
  • I suggest not trying to make any extra money on shipping. If the item is small and you can usually get away with shipping it for $2-3, then only add $2-3 into your price.
  • Depending on the shipping location and whether you can ship multiple items in the same order, you may make a bit of money or you may lose a bit of money but this is an easy ‘pill to swallow’ and it will even out over time.
• Fixed Price Shipping: This is another comforting strategy to the buyer. The price of the item can be lower and you set a fixed price shipping for all continental orders. There is no guess-work on the the buyers part, they know what they are getting into.
  • Once again, price accordingly. A flat $5 shipping fee is a nice round number. If your item is small and ships for $3-5 depending on location, this is perfect.
  • There is danger here if you sell different items that cost different amounts to ship. Your small item may ship for $3 on average, but if your larger item usually costs you $10 to ship then you may have to re-think your strategy.
• Calculated Shipping: This is the safest way from a business point-of-view. It takes a small amount of work in the Etsy Shop Manager section, but it will ensure that your shipping costs are covered with each purchase, no matter the size of the item and the destination.
  • The only downside is that it creates another point of ‘mental friction’ for the buyer. They have to wait and see how much “extra” money they will have to spend after adding it to their cart.
  • This is what is known as mental cost and customers can be just as leery of spending their mental capital as their monetary capital.
• if small, might be way to make up for some of the other fees
• Shipping Label Fee (covered in last section)

THE X-FACTOR:

When you have figured out all of the above, you have the beginning of a pricing template that is easily adjustable as you grow. If Etsy changes it’s fees, then you change the corresponding fee factor from above. If the cost of shipping increases, then you adjust accordingly. 2+2=4… piece of cake.

Here is where we have to have a ‘Heart-to-Heart’.

You must change your mindset and account for profit. You must insert an X-Factor into your pricing equation. It can be small or it can be large, but it must be based on what your Company is worth to you.

This is what will allow you to grow your company, expand your production and services, and eventually transition from a hobbyist to an entrepreneur.

So what should my X-Factor be?

I have some suggestions, but it is ultimately up to you. Now that you are informed about all of the small things that must be considered, you should be able to make a responsible decision. Remembering that the intent of this number is not necessarily to put more money into you pocket, but to grow the business, here are some options:

1. An arbitrary number. Example: $10. This means that for every item you sell, you will cover your cost, pay yourself for your time, and receive $10 into your business account for growth. Of course,
2. A percentage of your time cost. Example: 20% of your time cost from above. This is similar to setting a percentage for your 401k. A percentage of your pay goes directly into savings/business account.
3. Equal to your material cost. Example: Your materials and packaging cost you $4, your X-Factor will be an additional $4. This covers the cost of your next product and sets your Company up for growth.

These are just examples and each one may or may not be suitable for you depending on your actual product. But the idea is to include this X-Factor every time, no matter how big or small.

THE KRAFTHAUS FORMULA FOR SETTING PRICES ON ETSY:

Are you ready for the ‘Big Reveal’?

Here is(are) the formula(s) that I use to guide me on pricing new items for sale on Etsy:

• LIST PRICE = Material Cost + Packaging Cost + Time Cost + X Factor
• FEES = 0.08*(List price + shipping) + 0.05*(shipping) + 0.45
  • 0.08 accounts for 8% of total price and comes from 3% payment processing fee and 5% transaction fee
  • 0.05 accounts for additional 5% for shipping fee
  • 0.45 accounts for 20-cent listing fee and additional 25-cent payment processing fee
• PROFIT = List Price – Fees

Lets have an example!

Lets say it costs you $5 in materials to make one Doohickey. You package up the Doohickey super slick for $1. Then you decide you want to be paid $20/hr but it only takes you a half-hour to make the Doohickey. Etsy tells you that you can ship the Doohickey for $4. Lastly, you are new at this so you pick an arbitrary X-Factor of $5 to grow your business.

Plug and Play:

$5(material) + $1(packaging) +$10(your wages/time) + $5(X-Factor) = $21 List Price

0.08($21 + $4) + 0.05($4) + 0.45 = $2.65 in Fees

So if you charge your customer $4 in shipping, your profit is $18.35

You can then work backwards to determine if you’re comfortable with your current X-Factor.

Profit – Materials – Packaging – Time = X-Factor

$18.35 – $5 – $1 – $10 = $2.35 EXTRA profit in your business AFTER you’ve paid yourself. You’ve picked a reasonable price, covered your cost, paid yourself, and grown your business assets. Not too shabby.

For all of you visual learners…

SET PRICES ON ETSY- INFOGRAPHICS:

SOME KEY THINGS TO REMEMBER:

• Always remember that time is valuable and so is effort, account for both.
• Someone will always sell your item for cheaper.
• The minute you decide to sell on Etsy, it becomes work and stops being a hobby.
• Remember, Amazon raises their prices too.
• Lastly consider this, pricing too low could also hurt other shops.

Please sign up and join thousands of others who want to turn their passion into their profession. I have a whole series on how to be successful on Etsy that is launching in the next couple of weeks. Selling on Etsy is how I started and I think I can save you a lot of headaches and growing pains.

Nicole is a self-made entrepreneur who has built her business from a small Etsy shop to a Stand-Alone Kraft Empire serving Makers internationally. A mom of two (6 if you count the pets), Nicole’s next passion is to help others follow in her footsteps.