Most makers undercharge, and they do it for the same three reasons every time: they forget their own time, they forget the fees, and they confuse margin with markup. Fixing all three is arithmetic rather than attitude, and this guide walks through it in the order you should actually do it.
Start with what the item costs you
Cost is everything you paid to get the item into a sellable state:
- Materials, at what you paid including shipping and tax. Not what the yarn cost per skein in the shop, but what it cost per skein delivered to your door.
- Your time, at a rate you would accept for other work. If you would not clean an office for six dollars an hour, do not pay yourself six dollars an hour to knit.
- Packaging, including the box, the tissue, the tag and the care card.
- Shipping you absorb, if you offer free shipping. It is a cost, not a rounding error.
- Overhead, apportioned. Rent, insurance, software and the printer all have to be paid for by something.
Add those up and you have your production cost. For a candle you might land at 4.20 dollars. For a hand knit DK sweater you might land at 260 dollars, most of it labour.
Then decide what margin you want
Here is the part that trips people up. There are two ways to express profit and they give different answers from the same numbers.
Margin is profit as a share of the selling price:
price = cost / (1 - margin)
Markup is profit as a multiple of cost:
price = cost x (1 + markup)
A 40 percent margin on a 100 dollar cost gives 166.67 dollars. A 40 percent markup on the same cost gives 140 dollars. Both are called "40 percent" in casual conversation and they are 27 dollars apart.
When someone quotes you a typical retail margin in your craft, they almost always mean margin. Use the first formula, and when you read a pricing guide, check which one it is using before you copy its numbers.
Then subtract the fees, properly
Marketplace and payment fees come off the selling price, not the cost. If your platform takes 9.5 percent and payment processing takes 3 percent, that is 12.5 percent of the price gone before you see any of it.
Those fees have to come out of the same pot as your margin, so the formula extends:
price = (cost + fixed fee) / (1 - margin - fee percent)
With a 100 dollar cost, a 40 percent target margin, 12.5 percent in fees and a 0.30 dollar fixed charge, that is 100.30 divided by 0.475, which is 211.16 dollars.
Notice what happened: the price is not the cost plus a 40 percent margin plus a bit for fees. It is cost divided by what is left over. Getting this backwards is why a maker who "adds 40 percent" and then pays 12.5 percent in fees ends up with a 27 percent margin and wonders where the money went.
When the arithmetic says no
If your margin plus your fees reach 100 percent, the formula asks you to divide by zero and there is no price that works. That is not a bug, it is a real answer: at that combination, no sale can pay both the fees and the margin you want.
Far more common is the softer version. The price comes out at 340 dollars for a scarf, and nobody in your market will pay that. That is also a real answer, and it means one of four things:
- The design is too slow to make, and needs to be faster.
- The materials are too expensive for the market you are selling to.
- Your hourly rate is higher than this product can carry, which usually means small items at a high rate or large items at a lower one.
- You are selling to the wrong market, and the work belongs somewhere that pays for it.
None of those is a moral failing. The failing is setting a price that pays you six dollars an hour and calling it a business.
Work out your hourly, every time
After the price is set and the fees are paid, divide your profit by the hours the piece took. That number is the honest one, and it is the figure to compare across your products.
Many makers find that their fastest-selling item earns them four dollars an hour and their least popular one earns forty. That is information you can act on: make more of the second and reprice or retire the first.
A worked example
A crocheted blanket. 45 dollars of yarn, 3 dollars of other materials, 12 hours of work at 15 dollars an hour, no extra packaging, and a target margin of 40 percent with fees at 12.5 percent.
- Production cost: 45 + 3 + 180 = 228 dollars.
- Price: 228 / (1 - 0.40 - 0.125) = 228 / 0.475 = 480 dollars.
- Profit at that price: 480 - 228 - 60 in fees = 192 dollars.
- Hourly: 192 / 12 = 16 dollars an hour.
That is a defensible price for a large hand crocheted blanket, and it is roughly four times what most makers would charge for it. The gap is not greed. It is the labour figure that was previously being donated.
The five minute version
- Add materials, time, packaging, shipping and overhead.
- Decide the margin you want, as a share of the price.
- Add up every percentage fee you pay on a sale.
- Price = cost / (1 - margin - fees).
- Divide your profit by your hours and decide whether that number is acceptable.
If step five says no, change the product, not the arithmetic.