How To Price Your Leatherwork for Profit
I want to address a big problem that I see in many creative industries but especially in the traditional leatherworking field.
Traditional leatherwork is a bit of a niche field, right?
I mean, you’re creating leathergoods by hand and it’s time consuming, it requires a lot of skill and the use of quality materials and the price needs to reflect that.
If you take away one thing from this post, its that.
The price of your leathergoods needs to reflect your labor and materials costs.
But settling on a price that takes all things into consideration is often times easier said then done for some leatherworkers.
WHY IT'S IMPORTANT TO MAKE A PROFIT
It goes without saying, most people want to profit from their work, right? But what are the specific reasons why you should be concerned with profit in your business? There are 2 main reasons why you really should be paying attention to profit as a small business owner especially at the beginning!
NUMBER 1 | If you’re not making a profit then you just have an expensive hobby.
Maybe you’ve heard this one before. If you’re putting a lot of time and money into your products and not clearing a profit then you’re either breaking even or worse, you’re losing money! You're spending way more on materials and labor costs then you're earning from customers.
NUMBER 2 | You want to be creating a sustainable business that can handle your growth goals.
If you don’t have profit or excess money coming into the business, then you can’t build. When you build profit into your pricing structure, then you’re guaranteeing that with every sale, you’re making profit that will allow you to grow your business to how ever big or small that you want it.
To be clear on your profit goals, you really need to be clear on your business goals first because your pricing and profit needs to align with your business goals.
For example, if your business is a side hustle and you want to keep it that way, then your profit goals are going to be a lot different then a business with goals of hiring a staff and opening a store front.
BIG PRICING MISTAKES
Whether you’re currently selling your work or you have plans to start selling your work, the fear and frustration behind product pricing is real. A lot of leatherworkers don’t know where to start when pricing their products so they guess or worse yet, they ask people in a Facebook group what they would pay for a certain product. These are big mistakes for a few reasons.
NUMBER 1 | Are all of those people in that Facebook group your target audience or ideal customer?
Different people value things differently. You could have a group of people all look at the same item and they will all value it completely different. This is why it is so important that you know who your target audience/ideal customer is (ie the people that will place the same value on your work as you do) and how to target them.
NUMBER 2 | The people in the Facebook group that you've asked to weight in on your product pricing, have no idea of the actual costs that went into your product.
I’ve seen it before.. someone posts a wallet that they made that probably took them at least 2 hours to make and cost them $10 in materials and the suggestions from the crowd are, "charge $20".
That barely covers the material costs let alone the labor costs, and as a result that poor guy is definitely not going to make a profit with that price.
NUMBER 3 | Guessing what your product price should be is a big mistake because chances are you’re either over or under charging.
WHAT HAPPENS WHEN YOU PRICE YOUR PRODUCTS TOO HIGH?
When you price your products too high, you run the risk of not being able to make a sale. You’ve priced out your ideal customers and they're passing you by.
If you do get a customer to buy even if you're over charging, you’re kind of ripping off your customer. I mean it can be a grey area here, but I'd rather be pricing my products fairly so that both parties feel good about the transaction and there's no buyers remorse.
WHAT HAPPENS WHEN YOU PRICE YOUR PRODUCTS TOO LOW?
The other side of the coin is pricing your products too low. This is just as bad. You wind up short changing yourself and not making a profit. As I mentioned earlier, if you're not making a profit that supports your business goals then you’re not creating a sustainable business that is going to last.
Some people price low in the beginning with the idea that they can always raise their prices. This is true, you're the business owner you can do whatever the heck you want to. But nobody like a price increase. Instead, charge a fair price based on the actual value of the product from the get go.
To do this, you can use a formula and some key concepts to get your pricing to where it should be.
KNOWING AND RUNNING YOUR NUMBERS
To price your products fairly, accurately and for profit, you first need to know your numbers and then know how to run your numbers.
STEP 1 | KNOW YOUR NUMBERS
At the most basic level, you need to know 3 main things to determine your product price. You need to know your materials costs, labor costs and how long it takes you to make the thing. If you don’t know these things already, thats ok! I’m going to show you how you can figure it out.
Know your materials costs - How much did your leather cost? How much did your thread, wax, hardware and everything else cost. You should only be counting the actual materials used in producing the item.
Know your labor costs - Know what your time is worth. There are many ways to think about this one and there are a lot of different factors that can come into play here. Things like geographical location and skill level are things that could affect this number.
I like to think about it like this… if I were to hire someone to do this work for me, what would I have to pay them per hour for work that is up to my quality standards in my area?
Know how long it takes you to make the thing - Have you made it a few times and have your method of construction down?
Then make it one more time and this time, time yourself from start to finish and make a note of how many minutes or hours it takes.
STEP 2: RUN THE NUMBERS
Once you have those numbers from Step 1 noted, the you can run your numbers. Ever heard anyone say that and been totally confused but what that even means?
It's ok, you’re not alone. There are a ton of people who aren’t quite sure what "running the numbers" actually means.
But it's pretty simple. All it means is, plug your numbers into some calculations and analyze what you come out with.
The 2 simple calculations below will give you your retail price and wholesale price:
WHOLESALE PRICE = (Material Cost + Labor cost) x 2
RETAIL PRICE = Wholesale X 2
I’m going to use the following sample data for a leather handbag as an example.
Materials cost for the bag = $35
Labor cost = $60
And this is how i'm getting my final results...
Wholesale price = ($35 + $60) x 2
Wholesale price = $95 x 2
Wholesale price = $190
Retail = $190 x 2
Retail = $380
Now run the numbers with one of your products and see how your pricing come out.
WHAT YOU GET WHEN YOU PRICE FOR PROFIT
A few really awesome things happen when you factor profit into your product price.
NUMBER 1 | It allows you to build a sustainable business.
A sustainable business is one that can be maintained and supported over the long haul. Once you’ve priced your product for profit, you will ensure that you profit from every sale. Every single sale has a built in profit that you can use to grow and support your business, thus making it sustainable and strong.
NUMBER 2 | You're being fair to your customer.
You will be being fair to both yourself and your customer with pricing that reflects actual costs and value.
You might be thinking how is it unfair to my customer?
Well if you were guessing your price and inadvertently over charging them, that would be unfair. Of course we can charge whatever we want as business owners, but its always a good idea to take into consideration what the actual value of the item is and price accordingly.
Your customers will appreciate that and probably become returning customers.
NUMBER 3 | You can have confidence in your price.
Lastly and this might be my favorite reason, you can breath a sigh of relief if you have actual data to back up your product price. Having the data to justify the price, gives you confidence to stand behind it instead of cringing or feeling discouraged when people's eyes bulge at the price.
Now you can say this is the price and then educate your customer, telling them about the high quality materials that went into the product as well as the the traditional leatherworking methods that you used to create it.
This will help them understand the value of the product.
If their eyes are still bulging, then smile and wish them a good day. These people are not your ideal customer and that is ok.
There's really only one way that you can ensure that you’re pricing your products accurately and taking profit into consideration. And that is by using facts about your product and process and running the numbers.
And while there are many different factors that can change your pricing structure and the pricing formula that you might use (like overhead, expansion and hiring), these basic formulas and guidelines that i've laid out here, is a good jumping off point for you if you are just starting your side hustle and have no idea where to start.
If you already have products on the market but they’re not selling, try running your numbers through these formula and see what price you get compared to the price that you're charging.
And if you need more help, the best way to get started is to click below and download the free guide that will help you to increase your leathergoods sales month after month.