As a crafts person it is most likely that you sell products and not a service.
If you want to know how to cost your design service check out How to calculate my freelance design rate? which are based on billable hours.
There are some financial disadvantages of being a maker and selling products (and not a designer), which are:
- You will have higher start up costs when you begin to get your craft business off the ground
- You have higher overheads than a designer, as you are more likely to need a studio
- You have higher direct and ongoing costs as you will need raw materials to produce your work from and you will need to keep stock (often there is a lot of money ‘locked into’ stock especially if you work in gold for example)
- And calculating your costs are slightly more complex than for a designer!
So it might be a good idea to work both as a crafts person making products AND a designer working on commissions or consultancy, to counter some of these issues.
Here we will go step-by-step through the calculation for the costs of a milliner making one hat:
Step 1: calculate your hourly overhead costs
Start with identifying your annual business overheads by checking your recent monthly or quarterly invoices, identify the various overhead costs, and list them all in a spread sheet or on a piece of paper.
Overhead costs are costs that need to be paid regardless of sales, so for example include your studio rent, phone and mobile, insurance, utilities, marketing, storage, business rates. These are the invoices that you pay often on a regular basis. Don’t include your drawings/salary or raw materials.
For our example we use £12K p.a. (PS your figure will not be as perfectly round as this!)
Let’s assume the milliner has 4 weeks holiday, this makes £12K/48 weeks = £250 per week.
Now work out how many hours per week she actually spends on average making hats, so don’t include marketing, admin, meetings and the like. In your first years you do well if you spend 40 – 50% of your time physically making.
So let’s say 40 hours per week working x 40% = 16 hours per week physically making.
The hourly overhead costs will then be £250/16h = £15.62
To keep her millinery studio running with these overheads she needs to generate at least £250 every week plus a salary to cover personal living expenses. Even if she doesn’t sell anything she will need to cover both these costs. Therefore it is really important to keep your overheads as low as possible, especially when you are just starting out. See if you can share a studio or work from home to minimise your costs and to get your crafts business off the ground.
Step 2: calculate your hourly wage
Let’s say the milliner wants to earn gross £22K p.a. (to cover her personal budget, rent, food, clothes, national insurance and tax etc).
How much salary you need or want depends on many personal circumstances, such as where you live and with whom you live, and what you want or need to have the lifestyle you want.
We use the same figures as previously: 48 weeks x 40h x 40% = 768 hours, so that makes an hourly wage requirement of £22K/768 = £28.65
Step 3: calculate your total hourly rate
This is your hourly overhead costs + hourly wage = £ 15.62 + £28.65 = £ 44.27
Step4: Calculate how long it will take you to produce one product
How long does it take you to produce one product? You hopefully have made your production a bit more efficient and effective and combine various jobs together and produce products in small batches.
If you don’t know the answer to this question, don’t guess! Check out with a time sheet and keep a time log. You might be surprised how different your guess is from the reality …
Remember to include all production processes, including cutting fabrics, sewing, finishing and packaging. Use averages e.g. you cut 6 hats in 2 hours, resulting in 20 min per hat on average.
Let’s say total time spend to get 1 hat ready is 2.25 hours x hourly rate = £99.60
(It is always good to calculate backwards too: if you are actually making 16 hours per week, does this calculation mean that you indeed produce 7 hats per week? – is this enough, too many or too little? Use this calculation to improve your own management.)
Step 5: Calculate the total material costs
Add all the costs of the materials to produce one hat. Don’t skimp, it really is important to have a bit of contingency, and don’t use the cheapest materials. We will use £22 in our example.
Tip: Don’t use the cheapest materials: if you use a very cheap zip for example your overall product will look cheap, but the chances are that it will break sooner too, and the cost of replacing a broken zip are far higher than using a good zip in the first place.
Step 6: Add contingency
Contingency is ‘just in case’ and we suggest a contingency percentage of around 10%. If your product is very expensive you might go for a lower percentage, or if you have a lot of experience with similar products you can lower this figure too.
Contingency will allow for mistakes, hidden extra etc, and will allow you to offer discounts or special offers.
Step 7: Calculate your total cost price
Add £ 99.60 + £22 x 110% = £133.76
This is the amount that it cost to produce one hat. That’s it! You have done it!
Some important notes:
So what do you think about that cost figure? Is it too expensive? This cost price would mean that this hat would sell in a shop for 4 x which would make it £535.04.
In this case I used an example of a milliner in London, who would have been going for a while, and who would have her own studio space. If she wanted or needed to earn less, and wouldn’t have her own studio space, then the cost price would come dramatically down.
Also, the answer of ‘being too expensive?’ often depends where you want to position yourself in the market. This milliner works very much with more or less bespoke pieces. I would see if she could cut her costs a little, so that the retail price would be below £500.
Would she be able to sell wholesale with this cost price? The wholesale price would normally be double the cost price, and then double again for recommended retail price. This is a very expensive hat, and it might be better for this milliner (who wants to provides a bespoke service) to actually sell directly to her customers, instead of through a retail shop. She might sell directly at consumer shows, open studios or by appointment to clients in her own studio. This would mean that she could probably sell these hats for around £350 herself directly.
Do not attempt to sell far below the retail price if you sell through shops. If you would undercut the retailer then they very quickly will drop you if they find out that you sell directly for a lot less.
She could create a cheaper range that is less bespoke and therefore less costly, and sell these through trade outlets.
Also, use this calculation as a starting point to again calculate backwards. How many hats would this milliner need to sell per year to cover her annual overheads, salary/drawings and direct costs/raw materials? Is that do able and do you feel comfortable with that, or is it far too many or far too few? What kind of business does she want to run: very bespoke and at the high end, or sell a lot more products but then at a lower price point?
Also, from calculating the cost you can start pricing your product, and there are lots of different ways to price your product.
Did you find this helpful, feel free to pass it on to others who might find this useful too. Have you got any questions or comments, please ask them below:
So, it makes an RRP £535.04? what about hats that cost £60 RRP?
Thank Kristina. Your comment meant that I have added a note at the end of the post to explain a bit more in detail.
My daughter makes beautiful polished rosewood bracelets, some accented with turquoise. She sells at farmers’ markets and the like. I’ve been teaching her about costing, pricing and margins. One significant cost your excellent article omits: hours spent sitting at a table, selling the product!
Hi Ari
Thanks for your comments. If it takes hours to calculate how much it costs I would be a little worried to be honest. That would mean you spend less time on the making, which means indeed that the hourly costs would increase. So indirectly this would be included that way.
A good overview of all the pricing process but this concerns general milliners. What about a theatrical milliners who make hats for shows and theatres? Sometimes a one-off’s. Do they have to use the same structure?
Hi Jane
The example is given here is for all crafts people who design and make products. It is essential that you know how much your products cost you, and that you need to include the hidden costs such as overheads and marketing costs in your products too.
The next stage after knowing your cost is deciding on the actual price – see the blog post about ’14 ways to price your work’ for that.
As a theatrical milliner you still need to know how much your costs are, but in a way you will be commissioned as a designer to create something. You will be more likely to have to work within a given budget, and then see what you can deliver for this.
You will need to look at how many theatre projects per year you expect to get, and at what rate. And compare that against your costs, to see if this is feasible.
I hope this helps.
This was just plain silly! It might work for hats where there is a big mark up but it doesn’t work at all for items that take huge amounts of time in other crafts and have a lower perceived value. For instance try giving yourself such a huge salary and allowing for overheads if you are knitting. A pair of socks takes 20 plus hours. No one would ever pay what they cost you to make. Same for most sewing and embroidery. This post made me laugh wryly it is so pie in the sky.
I am coming to realise that far from maths giving accuracy and security, it can often be a nonsense and lead to a very false sense of the situation. Sometimes it seems a more intuitive approach is actually the more realistic one. Take the question ‘how many will you sell in a year’? A total projection of such figures no matter which way you arive at it is totally inacurate. It’s a false hood to pretend to the bank that we know. We don’t and we can’t do. Marketing and research can tell you so much, but it will not give you the answer to how many can you sell. Yet everyone pretends it can and everyone requires the information. I will sell as many as I can sell and as many as I can produce. That’s it, the only accurate answer.
Dear Sally
I’m really not trying to be silly here. Our site is aimed at people who want to run their own craft or design business, and want to create at least an income for themselves, if not more. I know from personal experience that that isn’t always easy. Through The Design Trust website I share my 15+ year experience of working with 100′s of crafts and design businesses.
When craftspeople struggle to get the price they need for their items (such as potentially hand-knitted socks) I would ask my clients to check firstly how long it would take them (by keeping an exact time record). We would look at different options at each of the stages of the making process if there were opportunities to make them quicker. If that isn’t possible or ideal, I would suggest to look at other higher valued items, or for example larger socks (e.g. Christmas stockings) or very special socks (e.g. highly decorated, or expensive materials), which have a higher perceived value and for which you can charge the appropriate price.
With items that cost relatively a lot to make I also would focus on selling directly (e.g. online or through markets), as it would be hard to sell them wholesale.
When working creatively with these financial figures you can start giving yourself some direction to what you want to do and to help you set goals: ‘Do you want to run a hobby creating 20 socks per year, or do you want to create 100 per year, 500 or a 1,000?’ Each option is perfect for somebody, and depending on the answers you can start creating the kind of business you want to create. You can start looking at the making and labour costs, the hours you have available to put in your business, what you would like to earn, what turnover you want, what marketing you need to do, what sales channels you need to use to achieve the goals that you have set yourself, etc. From working with this costing exercise like this a lot of further business decisions can be made.
Running a business isn’t an exact science, but setting yourself targeted goals will help you to get where you want to be.
And I am definitely want to help people to run a sustainable business in the long term, who don’t undercharge (increasingly common!) or overcharge for their products.
You will be very busy, but it won’t be a business, and the fun will go out of it if you set out that your creativity should pay you an income.
Thanks for this informative piece. I don’t think your article is silly at all.
I have just discovered this website and it is really useful. It is very helpful to be realistic about all these things.
I started making gifts for friends then began doing craft markets and selling through Etsy. Last year some local shops approached me and asked to stock my products. I have done this on a fairly casual basis (and sale or return), but have just decided to take a rain check and go back a step and work out my costs properly, as I was finding that I was working like a maniac, and for very little reward.
It is very tempting when people admire your work and ask to stock your work to go follow those leads a bit blindly, but I’m realising now that I have to have a proper sense of my business plan, costs, work time available etc.
So thanks for this, it was just the article I needed right now!
One quick question – would you advise that if you do supply shops with products, that you also sell yourself online or directly at craft events, that you price them the same? I hear a lot of conflicting advice about this. Thanks.
Hi Susie
Thanks for your comments. It was more the question about the actual pricing that I wondered if that was silly, then the whole article
Concerning your questions: I STRONGLY suggest that if you sell both direct (e.g. craft fairs or online) and to retailers that you keep the prices for both more or less the same. There could be a slightly lower price (say 10%) but no more than that. Imagine if you were a gallery owner and you would work really hard to promote people’s work, how would you feel if the work would cost far less if bought directly? It is one of the quickest ways to lose your trade clients!
Make sure that you understand how cost and retail prices relate (double your cost price and then double/triple it again). This will mean that you will have a very healthy profit margin if you sell direct if you can get that price.
But if your wholesale price is too high for the market then that might mean that you need to wait a little and focus on direct selling yourself to bring your cost price down.
You can find more details in the following blog posts:
http://www.thedesigntrust.co.uk/what-price-to-use-when-talking-to-retailers/
http://www.thedesigntrust.co.uk/should-i-participate-in-a-contemporary-craft-or-design-fair/ this one explains about wholesale pricing too as you might be too expensive when you start out.
Good luck!
Hi Patricia,
Thanks for the useful summary, and for many thought-provoking articles.
However, I don’t understand why the cost price should be doubled to calculate the wholesale price for retailers, when the salary for the maker has already been accounted for in the cost price? I understand that a maker can add an extra profit margin as they see fit, in order to expand or invest in their business or simply to increase their personal income if they are fortunate enough to be able to sell at their final price point. But I just don’t think it could be feasible to double the cost price of most genuinely hand crafted products except perhaps those that have a high perceived value such as jewellery in precious metals, or makers who have already made a name for themselves in the collectors market.
Also, should a direct selling price not potentially be almost equivalent to a shop / gallery retail price, given that a maker selling primarily directly will need to spend extra time dealing with individual customers, packing products and marketing their online shop / promoting their work to individual clients? The idea of selling through a shop or gallery is that they do the job of attracting a larger number of customers and selling the product for you.
I hope I don’t sound like I’m picking holes, but pricing can be such a confusing yet crucial topic, so i think it’s important to clarify and discuss.
Dear Nicola
Thanks for your comments, and indeed there is some leeway here. But it seems to be the recommended mark up to cover hidden costs, breakages, stock damage and as you won’t sell all your work.
If you have done your calculations thoroughly and kept an eye on how you spent your time then you can decrease this %.
Dear Patricia,
Is there any chance that you could put an image with these excellent articles ? as I would like to pin this on my Professional Practice board for my students … and an image is needed for Pinterest to work… see http://pinterest.com/drjanenorris/professional-practice/
many thanks
Jane
Dear Jane
Very good question, you are the first!
The slight issue is (as you probably had already noticed) I use images on The Design Trust site rather sparingly. Rather a lot of creatives comment on this. But I actually only want to include images if they make sense, and I rather dislike those images of coins when it is about money, or birds when it is about Twitter. So to be honest, if I can find a good image, I will include it. In the meantime, you might have to send your students just the link …
(PS I am increasingly using images and videos, but then they are by or of the creatives, galleries, trade shows etc.)