Have you heard this yet? “Etsy has to raise our fees due to rising costs, and inflation.” This is untrue, and we can prove it with a simple example. Let’s begin.
It’s 2010. You’re an artisan with a handmade product, and you want to start an Etsy shop. How do you figure out a price for that product?
Here’s how. This is a pricing formula that will work for any handmade business. It’s a very simple formula. Here it is:
In this post, I’m going to cover pricing for the type of business that I actually have. This example will be for a somewhat labor-intensive product – something that takes an hour to make. With labor-intensive products, you can use an even simpler pricing formula, as long as flat costs (things like etsy listing fees, pretty packaging, business cards and other printed material) are tiny as a percentage of the whole.
In this case, your pricing formula becomes:
What is your markup? This depends on a ratio. How long do you spend making items, and how long do you spend on other things, like listing items, social media, photography, customer service, etc. If it’s half and half, 2.5 is your minimum markup, and 3 would be better. If it’s one third making and two thirds everything else, 3.5 is your minimum markup, and 4 would be better.
Now we’re going to do the math for a sample product, with the following numbers:
Labor rate: $30 per hour
Time to make: 1hr
Markup: 2.5
Materials: $6
($30 + $6) x 2.5 = $90 Retail
Shipping cost: $10
In this example, your customer will pay $100 with shipping. After subtracting off $3.35 in Etsy fees, and $3.25 in payment processing fees, and the cost of materials, you’re left with $77.40 in net income. When you’re self employed, you pay higher taxes – so we’ll subtract off another 7.65% to cover the taxes that an employer would typically pay on your behalf, and we’re down to $71.48.
Subtract off the two hours you spent making it and selling it at $60, and you have $11.48 left to grow your business, cover things that might not be figured into your formula, and save some money for a rainy day.
It’s years down the road, and your Etsy shop is a success. In that time, what have you done? Have you kept selling your products at the exact same price? I doubt it. I certainly did not. The price of our materials rises with inflation, and the cost of the things we need to buy to live does too. It’s a pretty simple concept that if we don’t raise our prices at least enough to cover inflation, on average, we’ll be making less money, year after year!
And I work hard on my Etsy shop – enough that I deserve a raise from time to time. How about you?
I put those numbers into a table with inflation calculations – figuring on hourly rate, materials cost, and shipping keeping up with inflation for our simple example.
By looking at the table above, it’s easy to see that Etsy’s income per hour of work done by each seller will increase over time, at a rate equal to or greater than inflation, as long as we continue to set prices for our items that increase at a rate equal to or greater than inflation.
The only way it wouldn’t increase is if too many of us didn’t take our businesses seriously enough to ever raise our prices.
My three most popular products on Etsy happen to be things that I’ve been selling for a very long time. I had designed all three of them by 2014, so I was able to compare 2014 price to 2018 price for each of my three most popular items.
Inflation from 2014 to 2018 was 5.22%.
In my shop, prices for those popular items increased (on average) by 28% from 2014 to 2018. Like most Etsy sellers of labor-intensive items, I didn’t fully understand just how long “everything else” would take, and in the earlier days of my shop charged too little for my time.
In my case, Etsy has been profiting from my labor at a rate that has increased far more than inflation.
Yet people tell us that they have to raise our fees due to rising costs of doing business.
Comments are closed, but trackbacks and pingbacks are open.