How to Price Jewelry? If you are intimidated or merely mystified by this process, follow this Jewelry Pricing Worksheet and learn how to crunch the numbers!
Before you set prices, you must understand your Cost Structure. There are two kinds of Costs:
Variable Costs: These costs rise and fall with sales volume
Fixed Costs: Monthly costs that remain more or less stable
Cost of Materials – variable cost
Cost of Labor – variable cost
Other Variable Costs – shipping, packaging supplies etc.
Cost of Overhead (rent and utilites) – fixed cost
Other Fixed Costs – maintenance, tradeshow fees, equipment leases
Rock Bottom Pricing must cover your material costs or you will go into debt.
Hobby Pricing covers material costs but often excludes labor and overhead.
Professional Pricing must cover Fixed and Variable costs.
Ask yourself, what is my goal? To fund a hobby or to create a sustainable business? There is no wrong answer!
Ask yourself, do I want my business (even a hobby business) to grow? If so, what will I do if I get an order too big to make by myself? If you don’t have a labor cost incorporated into your price structure, you effectively cap your growth potential at the amount of jewelry you can make yourself. The labor cost used for pricing should be the cost of hiring someone else to make the jewelry.
Now that you can categorize your costs, you are ready for the next step.
Some Popular Pricing Formulas: Variable Costs X2 or X3
Which formula is best for you? To answer, you need to calculate your Break Even Point. The Break Even Point tells you how much you need to sell to break even. Every $ above that number is profitable, every $ below is generating a loss.
Breakeven Point = Fixed Costs/(Sale Price – Variable Costs)
Example:
Jane sells earrings for $10pr with average variable costs of $5pr. Her fixed costs are $2,000 a year in craft show fees. Thus, she needs to sell 400 pairs of earrings to break even. The more she sells above 400, the more profitable her earrings become because the fixed costs are spread or amortized across more units.
*If she sells 450 pair of earrings, she will make 50X(10-5)=$250 in profit. That averages out to $.56 per pair.
*If she sells 550 pair she will make 150X(10-5)=$750, or $1.25 per pair.
*If she only sells 300 pair (below the breakeven point of 400) she will lose $500 or $1.67 per pair.
Choose a pricing formula then test it by calculating your breakeven point. Is this a realistic sales volume? If not, adjust your formula.
Finally, consider what The Market Will Bear. Adjust your price up or down but never below cost plus a reasonable return. Lower prices will often help generate volume but they will raise the breakeven point, which means you will need to sell more units to break even. Occasionally, higher prices will attract more business. Why? Why might too low pricing drive business away? The answers depend on where and how you are selling your jewelry. Etsy vs. Saks, Bargain Hunters vs. Fashion Buyers? Which takes us into Market Segments, a whole new subject to blog about!
