Pricing handmade items can be tricky and if not well thought out can cost you in the long run. It is not always a straightforward formula. As the industry standard, crafters are told to calculate the cost of their handmade item and multiply by 2 for a wholesale price or multiply by 3 to sell wholesale and multiply by 4 to sell retail price.
Pricing Handmade Items
A large majority never start with a precise cost of goods, overhead, and general expense values to understand what the value of their inventory is. Accounting when you are a crafter can get messy. Often selling and pricing handmade products at craft and vendor shows starts as hobbies or our businesses start in our homes, and we overlook hidden costs.
We tend to absorb extra spending by mixing it in with our finances when we are out shopping and see something that catches our attention. I am going to walk you through the pricing, and I want you to keep something in mind first.
We will look at candle making as a business since that is what I am most familiar with. This logic for pricing handmade items can apply to most crafts. If you start your craft business in your home and you outgrow your space, you will need to capture additional costs in your pricing.
If you want to grow your business, you can capture that cost in your handmade item price NOW so that you have money to invest in a bigger store. Go back and read this again.
As an example, if a candle price is $13 and you are making them from your home but need to rent a space next year, you may need to raise the price to $15. Additionally, if you want to grow your business and bring it online on a platform such as Etsy, you will need to adjust your pricing to manage the fees.
That new price will cover the added expenses of renting a space (digital space). The downside to this is you will have to get your customers to adjust to the added cost. I have an article on starting a candle business.
If you have a business plan for growth, your candle price should be set at $15 NOW and the $2 could be accrued to execute your expansion. The planned profits from each candle sale of $2 will fund the capital you need. The upside is your price will remain and your customer’s impact minimal.
Calculate the 3 Main Components of a Candle Cost
What is the candle cost of goods? (60%)
The cost of goods is anything that is an ingredient or product partially or completely resold to the end-user or consumer. Consulting a professional tax person is a good idea at this point. I am not. Examples are
- Wicks / Glue Stickers
- Candle Dye
- Fragrance Oil / Essential Oil
- Gift Boxes / Bags / Embellishments
- Shipping Material / Labels / Postage
*Labor is equal to your time or what you would need to pay someone to help you.
Additional costs are hidden costs that cannot be directly assigned to the candle or handmade item. These are the most overlooked. These are the costs associated with running your business.
What are the candle business expenses? (20%)
Expense examples are
- Office Supplies (that cannot be assigned specifically to a candle)- scissors, tape, paper, etc.
- Paper Towels
- Ink Cartridges
- Gas / Milage
- Business Cards / Promotional Material
- Hot glue
What are the candle business overhead costs? (10%)
Equipment examples are (these have different tax values)
- Wax Melter
- Heat Tools / Sealers
- Computer / Printers
- Work Clothes / Aprons
- Tools / Pitchers / Spoons
Overhead examples are (fixed costs)
- Fees / Commissions
The first step to pricing handmade items is developing a budget. I have an article on how much candle-making costs and an article on how much money you can make selling candles.
My candle pricing is an average cost. The biggest expense is the fragrance oil and the vessel. I try to buy oils for my candles that fall within that price range. This variable can greatly change your pricing calculation from candle to candle.
It has been my experience that customers do not understand that designer fragrance oils cost 20-30% more than regular candle fragrance oils. Pricing candles based on fragrance oil will confuse your customer.
This is also true for the container choice with one exception. If it looks more expensive, there is a perceived value that will allow you to charge more. A consumer will not know that the same vessel costs more from a different supplier. It is harder to pass on miss pricing homemade items later.
Pricing your candle or pricing handmade items is a business decision and changing prices can also confuse your customer base as you develop your business. This applies to many handmade items. Pricing handmade items work better if you develop a baseline.
The price for your candle should be based on your budget, not your current cost.
For example, soy wax is $75 for a 45-pound case if I pick it up. It will cost me $1.67 a pound. My budget for soy wax is $1.72 per pound. This allows for a 3% fluctuation in cost in case I need to go to an alternate supplier locally.
This is how I budget for supply shortages for candle wax, fragrance, or candle vessels.
With a wax shortage, my budget could be even higher to offset the possibility of shipping. I hope not. The cost or budget could be researched to use a 3% above the average of multiple sources. Last year I paid $65 for a 45-pound case of soy wax. The cost of candle-making supplies this year has gone up almost 15%. In this case, the pricing needs adjusting. I still have another source selling at a lower price for now so I am keeping my fingers crossed!
If you plan on growing your business, you want to buy soy wax by the pallet. This is not going to fit in the trunk of your car. If you are lucky to own a pickup truck you can pick it up if it’s local. If not, you will have to have it delivered or make multiple trips.
Pricing for handmade items changes depending on the supply of ingredients you can buy in bulk and the price break associated with the purchasing levels. The more you can buy at one time the better.
Pricing handmade items are also dependent on labor hours spent. Not all crafts have an ingredient baseline to determine the price. Labor can make up 80% of the price. You need to earn a fair wage for your talent. Pricing handmade items should include what your talent is worth not just time spent.
This may seem out of place, but you are managing a business and a creator. Coordinating your supply chain, ordering, managing, etc. is not the same function as the task assigned to a helper simply pouring melted wax paid an hourly rate.
Pricing handmade items that require a skill level to master an art or a talent like art have a different labor rate than a task that can be performed by the average person. An example would be an artist painting portraits.
This changes the structure of your soy candle wax price, availability, and delivery lead time. Working with a budget to cost your goods forces you to be more resourceful and analyze what you are spending your money on.
If your budget dictates $1.72 per pound for soy wax, then you need to start shopping around for pricing when your current supplier raises their prices.
If you are simply adding up the cost of your ingredients and using the formula we mentioned in the beginning, you will be forever chasing your candle prices.
Unlike wax, fragrance oil pricing varies on scent and volume. There are also different grades such as manufacturing grades, candle grades, and cosmetic grades. They may not all be suited to perform to your needs.
I buy cosmetic-grade fragrance oils that are also safe for candles in larger volumes because I make skin products like soaps and bath salts. I could get them cheaper in a manufacturer grade by weight, but I would have to also buy additional quantities for the skin products which is not cost-effective.
Setting a budget for categories within your candle line may be helpful too. Popular staple candle fragrances like lavender can be purchased in a manufacturer grade in 25 pounds or 55-gallon drums much cheaper than combining the cosmetic grade usage.
Determine what your product line will be and match that with what ingredient line you need to purchase.
Additionally, learning to mix your fragrances into custom blends can save a ton of cash by buying the fragrance notes separately. Create product dupes your way!
Your candle budget pricing can be tiered to fit accommodate the range in fragrance costs. We see this all the time and don’t know it with scents like lavender, sandalwood, vanilla, and citrus. Buying popular fragrances in larger volumes at $.99 per ounce because it is a staple candle fragrance offered will offset the extra cost of more expensive fragrances that average out at $1.59 per ounce (as an example). This would keep your fragrance oil budget around $1.29 per ounce. I use $1.33 per ounce as a budget.
You must control the cost of your candle. The obvious ingredients are easy. The hidden ones are not. This is all the other stuff that adds up along the way. It did not take long before I switched from Clorox wipes to generic alcohol and paper towels. No one wants to make hundreds of candles, work a weekend event, and throw their profit away on expensive clean-up products.
What it cost to make candles did not hit me until I rented a space and tried to scale my business. I learned to budget fast! I also learned that I had to start including labor in the price of my candles. I could not keep up and to pay someone had to be included. I had to add in rent and utilities. The list goes on.
Candle Pricing & Cost Estimating
How do you calculate the cost of doing business into the cost of making a candle so that you can properly price your candle?
I use a job estimating formula for pricing handmade items. My materials to make a candle are 60% of the cost. Labor and operating expenses are 20% of the cost. Overhead is 10% of the cost. The profit is 10%.
I keep track of everything I buy and save the receipts for accounting and taxes. Just like your household expenses, your business expenses need reconciliation. Bookkeeping in your handmade candle business is just as important as your candle making equipment.
What is brand pricing?
As a product becomes popular the profit margin increases. There is a sliding scale that can be associated with more popular names as a company grows. This has an impact on the pricing of handmade items.
Marketing efforts compound the market value and result in revenue that drives up the candle pricing for big names like the Bath and Body Works candles or the Victoria Fragrance lines.
Pricing a candle with designer fragrances can be a special set of candles you offer separately from the standard house fragrances. Usually, these are in different vessels to set them apart such as a 3-wick line.
Larger candles like a 3-wick can be priced with a 25% expense cost for example to make up for added handling. It can also have a high-profit margin as they are a more desirable candle.
Another branded candle is candle art or a candle made by a candle artist. These are priced by the artist as an art pieces. The price is determined by the value of art. These are signature candles.
Gift sets or candles in gift sets also have a larger markup because they are put together as a package. Pricing handmade items for this is different. The presentation can make a difference in the price of a candle. A single candle that is “presented” is worth more than a candle that is just a transaction.
The cost of the packaging is part of the materials cost, but the perceived value is higher raising the opportunity to higher the profit. Pricing of handmade items can be affected by marketing and packaging.