If you’re a fellow Etsy seller or online business owner, you’ve probably asked yourself: how much should I sell this for?
In this post I’m sharing the pricing method my sister uses to price the physical products she sells in her Etsy shop, Carefully Crafted (I’m intending to do another post about how I price my digital products).
How to price your products using a pricing calculator
To make the pricing process quicker and easier and to avoid bits of scrap paper scattered here, there and everywhere, I created a pricing calculator in Excel so my sister could simply plug in the numbers and it would spit out the price she should charge.
To better explain how the pricing calculator works, I’ve recorded a step-by-step video tutorial.
To enlarge the screen of the video, click the square icon in the bottom right hand corner of the video (it will say ‘full screen’ when you hover your mouse over the icon).
Cost plus margin pricing method
The pricing calculator uses the cost plus margin pricing method – this is the most popular and commonly used method for pricing products. Once you have the cost price determined, wholesale is typically a 150% mark-up on the cost price. Retail is typically a 200% mark-up on the cost price (i.e. double).
The pricing calculator is a good starting point but there are a few other things to factor into your pricing:
We live in Australia and most wholesalers sell in USD meaning you need to convert it to your currency. The AUD is performing very low at the moment (AUD dollar is buying approximately $0.70USD), which means my sister needs to add an additional 30% (i.e. multiply the price quoted by the wholesaler by x 1.3) – make sure you also include the shipping price if this is not quoted in your home currency.
So this is the formula she uses, which you can adapt to suit your home currency:
Exchange rate = (product price in USD + shipping price in USD) x 1.3
Tip: to save on transaction costs, make sure you get a traveler money card. Banks typically have one and we also like to use the multi-currency cash passport (this is not a sponsored post, we just like the rates and low fees).
To calculate the true cost of the product, you need to include shipping. For my sister’s physical products business, she takes the shipping price and divides it by the number of items to give a cost per product. This can be a bit of a hit and miss pricing method as if an item costs $2 and shipping was $3 because there was a large item, then you may need to adjust it.
The pricing calculator can be used to determine if the price quoted by the wholesales is actually going to be viable for you to add your own markup and the other costs and still make a profit. It can save you a lot of money and find out before you go and invest hundreds or thousands of dollars into a product line.
It can also determine if the profit you want to make is actually viable compared to the market. If the pricing calculator spits out a price, let’s use $10 as an example, but the rest of your competitors are selling the same product for $7, then you’ll need to consider the following:
Competitors in your area
Check the price charged not just by the most popular competitors but also those in your local area. You also want to check the price charged by overseas shops that ship to your country. Basically you want to put yourself in your customers shoes. If you know your target market lives in Australia and you’re comparing your items to the prices charged by sellers in Europe that only ship to Europe, then those sellers in Europe are not really your competitors’.
If you’re a fellow Etsy seller, you can filter the search results on Etsy using the left menu that appears after searching:
See how much competitors charge for shipping
While a lower price can interest customers, if the shipping costs are ludicrous they will look elsewhere. You’ll want to check the cost of shipping for individual items in a competitors’ shop (choose 3 to 5 popular competitors shops that also sell your products, or which sell products you are thinking about selling).
Check which counties they ship to and see how much shipping they charge to countries where your target market lives (most Etsy buyers typically live in the USA, Canada, UK and Australia).
I also recommend adding a few items to cart and seeing what combined shipping costs come out at. This gives you an indication of how much you’ll need to charge for shipping in order to be competitive. it can also help you determine how much to factor into your costs if you choose to do free shipping to your home country, or a discount on orders over a certain value.
Lastly, if you go to the store policies section, some sellers will state what shipping carriers they use – this is a good place to start if you’re wondering how they’re able to keep their shipping costs low!
Finding the pricing sweet spot
If you’re product cost is high and your shipping costs are high then you probably won’t make many sales. If you sell the same stuff people can readily find elsewhere, then why would they pay more when they can get the exact same thing elsewhere for less?
If you price your products low and your shipping high you will probably make more sales, but you’ll probably also receive more complaints about high shipping costs and negative feedback.
If you price your products high and your shipping cost low, people may be deterred from clicking on your product and not even realise that your shipping rates are low.
You always want to fall somewhere in the middle of the pricing spectrum. I.e. medium product price and medium shipping price.
Pricing: it’s a fine line between ‘too expensive’ and ‘too cheap’. Price too low and customers will perceive your product as bad quality. Price too high and customers will call you greedy and think you’re trying to rip them off.
Pricing too low versus too high
If you price your products too low, people are going to ask ‘what’s wrong with this product? Why is it so cheap?’ especially if you haven’t made many sales or don’t have much feedback – it’s going to make you look desperate for sales. If you price too low, people are going to expect your prices to always be low. One strategy you could try is a ‘cheap Tuesday’, or a weekly deal/s (e.g. at 30% off).
If you price too high, people are going to think it’s a rip off and buy elsewhere.
If the price comes out higher than what everyone else is charging and your shipping costs are also high, you either need to NOT proceed with stocking that product, or you need to find a way to decrease your prices:
- Buy in bulk to get a lower price
- Lower your expectations for your ‘hourly’ pay rate
- Use templates to speed up your workflow
- Find a more efficient and quicker way to make them e.g. batching tasks
You can use the pricing calculator (which will work in Microsoft Excel or Google Sheets) to experiment with pricing valuables such as:
- The hourly rate you’re going to pay yourself
- Cost price
- Retail and wholesale markup
I recommend keeping a blank copy of the template to use for each new product, and creating copies of the pricing spreadsheet (by right clicking on the tab in the file and choosing ‘duplicate’), so that you have one pricing worksheet for each product you sell. This way you can refer back later, or update based on changes to shipping rates, exchange rate fluctuations or changes in supplier pricing.
Want to download the Pricing Calculator?
Other posts you may be interested in:
- How to use Google Adwords Tool to do Keyword & Market Research for Etsy Sellers
- What Expenses Can I Claim? FREE Printable Checklist of 100 Tax Deductions
- How to organize your taxes with a printable tax planner
- Simple spreadsheets to keep track of business income and expenses for tax time