You hear the famous Etsy Cha-Ching! notification sound telling you you’ve made a sale.
Yay! You’ve obviously mastered Etsy SEO.
You do the maths and realize you’ve made a loss. You don’t know why.
I’ve been there. I got caught out by a few costs I hadn’t considered (bloody Etsy offsite ads)
Let me make sure you don’t do the same and ensure you DO know how to price items on Etsy.
Importance of Price On Etsy
Pricing is an essential aspect of running any business, and Etsy is no exception. (Pretty obvious though right?)
Creating a pricing strategy that considers the cost of materials, labor, and overhead is crucial for ensuring the sustainability of your Etsy business. Slim profit margins can be a significant issue, especially as this can limit your ability to run targeted sales and promotions.
You’re running an Etsy shop to make money so you need to get this right.
Set your retail price too low and you’ll be thinking what’s the point in all this?
Do the sums and understand the cost base for your business.
The Basic Price Calculation
Before we go any further, let’s make sure we all have the same base understanding of price & margin.
When it comes to calculating price there are two main approaches Markup and Retained Margin
Retained margin is the amount of profit that a business keeps after selling a product. It is calculated as a percentage of the selling price.
For example, if a business has a retained margin of 20% and sells a product for $100, then the business keeps $20 as profit. If your costs were $80 the calculation to get your price with 20% retained margin would be $80 / (1-0.2)
Markup is the amount that a business adds to the cost of goods sold to get the selling price. It is calculated as a percentage of the cost of goods sold.
For example, if a business has a markup of 50% and the cost of goods sold is $50, then the selling price will be $75. To calculate this multiply the cost of your goods by the markup % e.g. $50 + ($50 * 50%)
|Amount of profit kept by the business
|Percentage of cost of goods sold
|The amount added to the cost of goods sold to get the selling price
|The amount added to cost of goods sold to get the selling price
My Pricing Approach
When pricing my products on Etsy I aim for a retained margin of between 30 and 50%.
The key to achieving this is to really understand your actual costs and go from there. So let’s do that.
Determining Your Costs
You need to consider what level of cost you want to include in your calculations.
For example, my Etsy business has always been a side hustle. My boring day job covers bills, rent, utilities, etc so I don’t include any of that in my pricing calculations for my Etsy productions.
As I sell print-on-demand items, I don’t include my time as a cost either.
Some handmade sellers make a full-time living from Etsy and it’s their main source of income, so they need to include all costs and also make sure they are factoring in their time.
Variable Costs (materials, labor)
One of the key factors to consider when pricing your items on Etsy is the variable costs involved in creating your products. These variable costs can include the wholesale price you paid for items like fabrics, metals, or beads, as well as the cost of any labor involved in creating your items.
It’s important to calculate these costs accurately in order to ensure that you’re making a profit on each sale.
Consider keeping track of each material used and the amount of time spent on each item to accurately calculate your variable costs. By including these costs in your pricing strategy, you can ensure that your business stays sustainable and profitable in the long run.
Fixed Costs (rent, utilities)
Fixed costs such as rent and utilities are essential for any business, including an Etsy shop. It’s important to factor in these costs when pricing your products, as they can have a significant impact on your profit margin.
One way to ensure that your pricing strategy accounts for fixed costs is to calculate how many products you need to sell each month to cover those expenses. This can help you determine the minimum price you need to set for your products to ensure sustainability.
Remember, pricing is not just about covering expenses, but also about creating value for your customers and positioning yourself in the market.
Calculating Product Cost
Calculating the cost of your handmade products is a crucial step in the pricing process. In order to ensure your business is sustainable, it’s important to diligently account for all your variable and fixed costs.
To determine the labor cost, try setting an hourly rate for yourself and tracking the time it takes to make a product. Don’t forget to include all costs, from materials to utilities and rent. Once you have a clear picture of your costs, you can use a pricing formula to determine your baseline price.
Keep in mind, it’s important to consider the market and customers’ perceived value when setting the final price.
Etsy Seller Fees
One thing that many Etsy sellers forget when setting their prices is Etsy Fees. These are what Etsy charges you for using their marketplace. These are variable costs that you need to consider.
See a summary below.
|Charged on all orders that are completed through Etsy
|6.5% of the total order amount
|Charged for each item that you list for sale on Etsy
|$0.20 USD per listing
|Charged for sales that are generated by your Offsite Ads
|15% of the order total, capped at \$100 per order
|Payment processing fee
|Charged by Etsy Payments for processing payments
|3% per transaction
Beware of offsite ads! Say you run a sale of 20% off and then make a sale via an offsite ad, you could quite easily make a loss. Not a huge amount one can do about this, just be aware of it.
There are many Etsy Pricing Calculators out there. It’s worth using one to see the sort of money you will make at every price point.
Importance of considering market
When it comes to pricing your items on Etsy, considering the market is essential. You need to understand what your potential customers are willing to pay for your handmade products. If you price your items too high, you may deter customers from making a purchase.
On the other hand, if you price them too low, you risk the perception of low quality and slim profit margins. Therefore, it’s crucial to research your competition and evaluate the pricing trends in your niche.
By understanding the perceived value of your product to your customers and pricing it accordingly, you can set a competitive price that will boost your sales and generate sustainable revenue.
Using Discounts and Etsy Sales
Sales and discounts play a crucial role in boosting your Etsy sales. These promotions allow you to attract new customers and incentivize existing ones to make purchases.
Running a sale is a great way to drive more traffic to your store, increase cross-selling opportunities, and ultimately grow your revenue figures.
Etsy offers sellers various ways to discount their products, including sales, promo codes, and targeted offers.
By leveraging these strategies, you can showcase your product’s value and quality while keeping up with your competitors’ pricing and often non-negotiable shipping costs. It’s essential to continually monitor your discounts’ performance and adjust them over time to ensure maximum impact.
From my testing, I’ve found that a sale or discount needs to be 15% or higher to attract customers and stand out from your competition.
Whilst one shouldn’t price an item high just for the sake of being able to apply a large discount (there are laws against it) you need to have high enough margins to allow for sales and the ability to still make a decent margin.
Dangers of Pricing Your Etsy Products Too Low
Slim profit margins and sustainability issues
It’s important to consider the sustainability of your Etsy business when pricing your handmade items. Slim profit margins can be a major problem for your long-term success.
If your margins are too small, it may not be sustainable to run sales during holiday seasons or in general, which can seriously hurt your shop’s growth and overall profitability.
Charging too little for your crafts will not only hurt your bottom line but also projects a perception of low quality which can turn off potential buyers. Ensuring a healthy profit margin provides the flexibility to discount to accomplish additional objectives, like acquiring new customers.
Comparison to mass-produced products
When pricing your handmade items on Etsy, it’s important not to compare your items to mass-produced products. It’s bad for your health, trust me.
Does Prada worry about how Walmart prices its handbags?
Handmade items are more expensive to produce, they also offer a unique and personalized touch that mass-produced products do not.
Remember though if you price your items too low it can give the perception of low quality.
It’s important to find a balance between offering a unique product and pricing it reasonably to not draw unwanted comparisons. Customers are willing to pay more for a well-crafted handmade item that they can’t find anywhere else.
Perception of low quality
When it comes to pricing your Etsy handmade items, keep in mind that low prices may give the impression of low quality. Customers often associate low prices with low value and may question the quality of your products. It’s important to communicate the value of your handmade items and showcase your skills and techniques used in their creation.
Don’t be afraid to highlight what makes your products unique and special, even if you are using the same techniques as your competitors. Ultimately, by convincing your target audience that your products are superior, you’ll be able to charge a higher price.
It Is All In The Mind – Human Psychology & Pricing
Use odd pricing
People tend to perceive prices that end in 9 as being lower than prices that end in 0. For example, $9.99 is perceived as being lower than $10.00, even though they are pretty much the same price.
Use reference prices
Reference prices are prices that consumers use to compare the price of a product to. For example, if you are selling a $100 product, you might want to show the price of a similar product which is $150. This will make your product seem like a better deal. So if you are selling a t-shirt, show the price of a hoodie with the same design.
Bundling is when you sell two or more products together for a single price. This can be a great way to increase the perceived value of a product. For example, you might sell a printer and ink cartridges together for a single price.
Scarcity is the perception that a product is in limited supply. This can make people more likely to buy a product, as they don’t want to miss out. For example, you might only list a limited quantity of the item in your Etsy Listing. Once you get below 5 Etsy tends to put ‘Only a few left’ under your listing photo when displayed in search results.
Urgency is the perception that a product is only available for a limited time. This can also make people more likely to buy a product, as they don’t want to miss out on a good deal. If you run a sale for a set period of time, as you get close to the end of that sale, Etsy lets users know that there are only a few hours left. This drives urgency.
Use Social Proof
Social proof is the perception that other people are buying a product. This can make people more likely to buy a product, as they want to be part of the crowd. For example, the more positive reviews you have for an item the better. So, consider follow-up reminders to encourage people to leave you a review.
Use a premium price
Sometimes, setting a premium price can actually make people more likely to buy a product. This is because people often associate higher prices with higher quality.
Strategies to Increase the Value of Your Products
Here are a few more strategies to boost the perceived value of your item:
- Use high-quality materials. This is one of the most important things you can do to increase the perceived value of your products. When people see that you use high-quality materials, they will automatically assume that your products are also high-quality.
- Pay attention to the details. The little things can make a big difference when it comes to perceived value. Make sure that your products are well-made and that they have attention to detail. This could include things like using high-quality stitching, finishing, or packaging.
- Tell a story. People love to buy products with a story behind them. When you tell the story of your products, you are giving them a reason to value them more. This could include things like the story of how you came up with the idea for the product, the story of the materials you used, or the story of the people who made the product.
- Create a sense of exclusivity. People often value things that are more exclusive. If you can create a sense of exclusivity around your products, people will be more likely to perceive them as being more valuable. This could include things like making your products in limited quantities, offering them only through your own website, or creating a waiting list for them.
- Provide excellent customer service. When people have a positive experience with your customer service, they are more likely to perceive your products as being more valuable. This means being responsive to customer inquiries, resolving problems quickly and effectively, and going the extra mile to make sure that customers are happy.
Print On Demand Pricing – Extra Considerations
When selling print-on-demand items on Etsy or anywhere else there are a few additional things you need to keep in mind.
Embroidery file digitalization costs – POD suppliers like Printful will often charge you a one-time fee for digitizing your design in order to use it for embroidery. This is charged the first time you make a sale of that design. The fee can be $6 which is a big chunk of the cost when selling a t-shirt for $25.
Some Colors Cost More – If you have a listing with multiple colors, make sure you don’t apply the same price to all colors unless you are prepared for your margin to change depending on the color of an item sold. For example white tends to be cheaper and colors like sand or forest green can be more expensive.
Size Matters – Bigger sizes cost more when you go above 2XL. So you either take the hit and get less margin for the bigger sizes or increase your price. Your call.
International Sales – Your favorite POD supplier may be great for selling domestically but if you have set your shipping profile to include other countries you need to make sure you price international shipping correctly.
Multiple POD Suppliers – If you sell using a number of POD suppliers and a customer buys two items from you that are from different POD suppliers. You are going to be charged 2 x shipping costs, but your customer will be charged Shipping + Additional Item charge, which is often lower.
Do Not Set & Forget – Review & Adjusting Prices Over Time
It’s important to keep in mind that your prices aren’t set in stone. Adjusting them over time is crucial to the sustainability of your Etsy business. Factors such as inflation, changes in material costs, and market trends all impact the viability of your current pricing strategy.
Regularly monitoring and adjusting your prices can ensure that you’re maintaining healthy profit margins and staying competitive in your market. Additionally, offering sales and discounts can be a strategic way to attract new customers and drive sales. Don’t be afraid to experiment with your pricing approach and make changes as needed to protect your bottom line.
Wrap-Up – How To Price Items On Etsy
Pricing isn’t difficult, but it is extremely important to price your products correctly.
You must know your costs. Once you do, then pricing becomes easy.
Spend time calculating the margin you make at different price points. Given that Etsy fees increase as your sale price does, this isn’t that simple but do the sums, and jot the numbers down somewhere so they are easily accessible for later when you need them.
The profit you want to make per item sold is completely down to you. You determine how much to sell it for. You know the value of the item you’re selling. It’s your business at the end of the day.