Calculating Your Costs and Setting Your Prices on Etsy®

You probably knew what you wanted to sell on Etsy® before reading this book. Before going through the effort of setting up your shop and opening for business, invest some time, research, and effort into five things: 

1. Determine what exactly you want to sell. 
2. Calculate how much money you’ll need to invest in equipment and supplies to get started. 
3. Develop relationships with suppliers, manufacturers, and other services you will need to create and package your product(s). 
4. Determine how much you’ll sell your product(s) for, taking into account all the costs associated with creating/manufacturing your items, how much you want/need to be paid for your time, your business operation expenses and overhead, and how much profit you want to earn per item sold. 
5. Start building and managing your product inventory.

Whether you opt to sell your items through your Etsy® shop, craft fairs, retail shops, or your website, it’s important first to figure out if there is a demand for your product(s) from a large enough group of people. This will help you forecast whether or not your business will be profitable. After calculating your expenses, you should be able to create, market, and sell your product(s) at a price that the consumer is prepared to pay, which is competitive with what your rivals are charging in the market.

Describe the Products You Sell

Based on your skill set and interests, chances are you already have a good idea about what you want to create and sell online through your Etsy® shop. Now it is time to define your initial product offerings. What are the main items you plan to sell? What colors, designs, sizes, and other options will you offer your customers?

Once you figure this out for your main product(s), start brainstorming about additional. However, you can offer related products at the same time. For example, if you want to knit sweaters, you might think about selling matching hats, mittens, and scarves separately. If you want to make silver or gold necklaces by hand, you might think about selling them separately. Consider offering matching earrings and bracelets to give your customers additional options. Perhaps generate larger sales when your customers purchase multiple items as bundles.

Based on the size, design, and color options you plan to offer for each product. Think about your inventory requirements and how long it will take to create each item. and how you plan to display and promote each option in your Etsy® shop. For example, if you handcraft a silver bracelet but also sell a version in 24k gold with a slightly different design. However, that will be considered a separate product if you offer the same product in three different sizes (i.e., small, medium, and large). That would be a customer-selectable option available within each Etsy® product listing. 

Define Your Audience 

As you determine who your primary target audience will be for your Etsy® shop and your product offerings. Define that niche audience as narrowly and clearly as possible. 

For example, you might decide that your ideal customers are women between the ages of 18 and 34. People who live in a major city earn at least $50,000 per year and must dress up every day for work. So they like to accessorize their outfits with handcrafted jewelry. Or, maybe your main audience is women between the ages of 24 and 34 who are engaged and planning their wedding, using this list and any other information you think is important. Write out one or two sentences that clearly define the primary target audience for your product(s). Then, repeat this process to figure out who else would be interested in your product(s).

Ultimately, you’ll want to invest most of your marketing and advertising resources to reach your core target audience. But you can also run separate advertising or marketing campaigns targeting your secondary audiences. The more narrowly and clearly you define your target market. Your ad campaigns will be more effective, especially if you use paid online advertising options like Facebook or Google AdWords.

Determine What Equipment You Need 

When it comes to creating, making, or manufacturing whatever it is you’ll be selling, you will have the following four primary categories of costs associated with it: 

1. Tools. This equipment needs to be purchased once, which you will repeatedly use to create your products. For example, if you’ll be knitting and selling handmade sweaters, your tools will include an assortment of knitting needles and maybe a sewing machine. If you need to acquire expensive tools or machinery, consider buying this equipment used. Then, using profits you earn down the road, you can upgrade your tools and equipment later. 
2. Supplies/Materials. These are the raw materials required to create your products that you will continuously need to replenish. Obtaining your supplies and materials for the lowest price possible will help your business become profitable faster and stay profitable. This will require you to seek out and negotiate the best deals possible from wholesalers, distributors, suppliers, and manufacturers. For knitting and selling handmade sweaters, your supplies include wool, buttons, and zippers.
3. Packaging. This includes the additional materials to package your product(s) so they’re ready to showcase, sell, and ship to customers. 
4. Shipping. This includes the cost of all shipping materials, including boxes, labels, stuffing, packing tape, postage, and anything else required to fulfill an order and ship your product(s) to your customers.

Choose the Right Materials and Supplies 

Once you have determined exactly what product(s) you plan to create, build, make, or manufacture, carefully evaluate your step-by-step process for creating each product. Make a list of the tools and equipment you already have and what additional equipment you need. The money needed to make these initial equipment/tool purchases will become part of the startup costs for your business. 

Next, focus on establishing a comprehensive list of the materials and supplies you need to create your product(s). This will help you determine your cost of goods sold. You’ll want to determine how much of each item you need to create a single product you’ll sell. This will ultimately allow you to determine your raw materials cost for each item you create. Use the below Figure to help you gather the supply/material information you need. When calculating costs, after determining your quantity needs for each raw material needed to create your product(s), it will likely be necessary to source some wholesalers or distributors so you can acquire what you need in bulk and pay wholesale prices.

Focus on Product Packaging 

In many situations, creating an awesome product is not enough to succeed as an Etsy® seller or online business operator. You may also want or need to develop packaging for the product. Your product packaging needs will be dictated by the type of product you’re selling and the image you want to convey to your customers. Typically, you want the product name, company logo, and related information about the product to appear somewhere on your packaging. You want the packaging to be visually attention-getting and appealing to your target customers in a way that best depicts your brand. 

Figure Out Your Shipping Requirements 

Once one of your items is manufactured, built, created, or made and placed within its packaging. You must figure out what’s required to ship that item to your customers safely. Figure out what size shipping box you need and what stuffing will be placed in the box to prevent the product from being damaged. Then figure out what additional shipping supplies are required, such as a shipping label and packing tape.

If your manufacturing time is two to three weeks for made-to-order products, make sure the customer knows before they place their order. Then they need to add additional time to receive their order based on the selected shipping method. Based on the shipping options you decide to offer, the USPS, UPS, FedEx, and most other couriers offer a variety of online, software, and mobile app tools that allow you to prepare and pay for shipments, easily request a package pickup, and at the same time keep track of your shipping-related expenses, track packages, and, if necessary, process an insurance claim.

Calculate and Set Your Product’s Retail Price 

So far, this chapter has helped you calculate your one-time tool/equipment costs, your materials/supply costs, and your packaging and shipping costs. Knowing this information will help you set the wholesale and retail prices for whatever you sell. 

However, you’ll also want to add your additional costs of doing business—your overhead costs—such as your ongoing marketing and advertising expenses, insurance costs, and business operating costs (including your phone service, internet service, and office equipment and supplies). Next, you need to determine how much you want to be paid for your time. Setting your “hourly rate” will be based on several factors, including: 

• What you’re selling 
• The uniqueness of your skill or expertise as an artist, crafter, or artisan 
• How long it takes to create the product/item 
• Your sense of self-worth from a financial standpoint 

The affluence of your target audience and how much they’re willing to pay

Based on these factors, you may set your hourly wage to be equal to your state’s minimum wage, or you could opt to pay yourself $10, $20, or more per hour. This wage will need to be calculated into your product’s wholesale and retail price. Follow these steps to figure it out. As a result, you’ll be able to fill orders for your customers on the same day they arrive (or within 24 hours). Ultimately, I fell into a wedding niche and began focusing on wedding-related graphic design. Since it started, her Etsy® business has gotten more than 12,500 sales and more than 2,500 five-star ratings and reviews.

Since it started, her Etsy® business has gotten more than 12,500 sales and more than 2,500 five-star ratings and reviews. Transforming Miss Design Berry into a full-time job, Kristen Berry has brought on one equity-holding business partner and has more than a dozen people working for her part-time. “We have our website [www.MissDesignBerry.com], but we also have a strong presence on Etsy®,” Berry says. 

Never Rely on Just One Supplier 

When seeking out wholesalers, suppliers, or manufacturers. Always find at least two or three different sources for each item you need. Then, if one supplier runs out of the item, discontinue the item. If or goes out of business, you can immediately turn to your backup supplier(s). Ensure you always have a source for the materials/supplies you require. So you can continue to create, build, make, or manufacture your products.

By relying on just one supplier, you could be unable to fill your orders. And maintain your inventory if there are ever unforeseen hang-ups. This could force you out of business or cause major delays that your customers will not appreciate.

Another drawback to relying on one supplier is that if that company dramatically raises their prices for the materials you need. Your product manufacturing costs could skyrocket. As a result, your profit margin will diminish. It could become impossible for you to generate any profit once you cover the cost of goods sold and other expenses.

Regarding the manufacturing process for your product(s), one of the biggest challenges will be ensuring that you always have an ample supply of all materials and supplies you need. Thus, you will continuously need to predict your needs and place your orders accordingly based on how quickly each supplier can fulfill your orders. 

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