How to Price Handmade Products: A Step-by-Step Formula

Short answer: price a handmade product by adding up four things — materials, your time, a share of overhead and a profit margin — and then making sure the price still covers the fees of the place you sell. A simple formula is price = (materials + labor + overhead) ÷ (1 − profit margin), adjusted upward for marketplace and payment fees. Finally, compare the result with similar products: if it is far above what buyers pay, change the product, the method or the market, not just the price.

Underpricing is one of the most common problems for makers, usually because labor and overhead are left out. This guide works through each step with an example you can adapt, and shows the two pricing approaches makers use most: cost-plus with a profit margin, and the wholesale-and-retail multiplier.

Step 1: Add up materials for one item

List every material that goes into one finished piece, including the small ones: thread, glue, findings, tags, labels. For materials bought in bulk, divide the cost by the number of items it makes. Include packaging that ships with every order — boxes, tissue, mailers, thank-you cards — unless you charge it separately.

Use what you actually pay today, not what you paid a year ago. If prices of a key material change often, review this step every few months.

Step 2: Pay yourself for your time

Time how long one item really takes, from preparing materials to finishing and packing. Make a batch if that is how you work, then divide the total time by the number of pieces. Multiply by an hourly rate you would accept for the work. The rate is your decision; what matters is that it is not zero.

Count only production time here. Time spent on photos, listings, customer messages and admin is real work too, but it is easier to cover through overhead and profit.

Step 3: Share out overhead

Overhead is everything the business pays for whether or not you sell a particular item: tools and their wear, software and subscriptions, studio space, utilities, insurance, card readers, market stall fees. Add up a typical month and divide by the number of items you expect to make that month.

At 100 items a month, overhead is $150 ÷ 100 = $1.50 per item. These figures are an illustrative example; use your own.

Step 4: Add a profit margin

Profit is not the same as your wage. Your wage pays for your time; profit pays for growth, slow months, new tools and the risk of making stock that does not sell. Choose a target profit margin and use:

Price before fees = total cost ÷ (1 − profit margin)

Dividing, rather than multiplying cost by 1 plus the margin, keeps the margin correct as a share of the selling price. A 30% margin on a $100 price is $30 of profit, which needs a price of cost ÷ 0.70, not cost × 1.30. Our profit margin calculator in Excel explains the difference between margin and markup and gives ready formulas.

Step 5: Cover selling fees

Marketplaces and payment providers take a share of each sale, so a price that works at a craft fair can lose money online. Work out the fee rate of each place you sell and divide by what is left after fees:

Listing price ≈ (price before fees + fixed fees per order) ÷ (1 − percentage fees)

For a US seller on Etsy without Offsite Ads, the percentage fees are 6.5% (transaction) and 3% (payment processing), and the fixed fees are $0.20 (listing) and $0.25 (processing) — see our Etsy profit calculator guide for the full fee rules and a spreadsheet you can reuse.

The full example

Check the result: at $29.95 with $5.00 shipping charged and $4.50 actual postage, Etsy’s fees come to about $3.77, and after all costs the seller earns the $10.00 labor plus about $8.18 of profit — roughly 27% of the item price. The margin lands a little under the 30% target because fees also apply to shipping. If that gap matters, round up rather than down.

The multiplier method: wholesale and retail

Many makers use a quick rule of thumb instead:

• Wholesale price = (materials + labor + overhead) × 2
• Retail price = wholesale price × 2

With the same costs, wholesale would be $37.00 and retail $74.00. The doubling for retail reflects the fact that shops buying wholesale need their own margin to cover rent, staff and fees. It is a convention, not a law, and it suits products that may one day be sold through stores. If you only sell direct, the cost-plus method above usually gives a lower, more competitive price — but if you plan to sell wholesale later, price retail high enough now that you can offer a wholesale price without losing money.

Step 6: Check the price against the market

• Compare similar products — same materials, size and quality level — in the places you sell. Note the range, not just the cheapest listing.
• If your price is higher, show why: better materials, a more detailed photo set, personalization, a clear story of how it is made.
• If your price is far higher, look at costs: buy materials in larger quantities, batch production, simplify a time-consuming step or reduce packaging.
• If your price is lower, you may be leaving money on the table. Test a higher price on a few listings.

Avoid pricing purely to beat the cheapest competitor. A price that does not cover your time cannot last, and buyers often read very low prices as low quality.

Review prices regularly

Material costs, fees and the time a product takes all change. Review prices at least once or twice a year, and immediately when a major cost changes. Track profit per product in your books so you can see which items carry the shop — our small business bookkeeping guide explains a simple weekly routine.

Frequently asked questions

Should I include my time if making things is a hobby?

If you sell regularly, yes. Leaving time out makes it impossible to grow, hire help or ever pay yourself, and it sets a price you may not be able to raise later.

What profit margin should I use?

There is no single right number. Choose a margin that covers growth and risk for your business, then check that the resulting price still sells.

How do I price custom or personalized orders?

Use the same steps with the time and materials of the specific order, and add a separate charge for design time, revisions or rush delivery.

Should shipping be part of the product price?

Either works. If you offer free shipping, add the postage to your costs before calculating the price. If you charge shipping separately, make sure it covers the real postage, because marketplace fees usually apply to shipping too.

How do I price items for craft fairs?

Start from the same cost-based price, then replace online fees with fair costs such as the stall fee spread over the items you expect to sell, plus card reader fees.