To price a handmade item, add up what one costs you, meaning the materials and packaging, your time at a real hourly rate, and a share of your overhead, then set a price that leaves the margin you want after the fees of wherever you sell it, and check that price against what similar items sell for. The familiar shortcuts, materials times three or doubling twice, are useful tests, but neither is a formula you can trust on its own: one leaves out your time, the other ignores the market. In the example below, a hand-dyed linen tea towel costs $15.42 to make. At $32 at a craft market it leaves $15.62 after the card fee, a 49% margin, but at half that price for wholesale it leaves 58 cents, so the towel is priced for selling direct until its cost comes down. Below is the formula, the example, three methods compared, what each channel leaves you, and a free calculator.
The short version
- Full cost = materials + packaging + your time + a share of overhead.
- Pay yourself an hourly rate you'd pay someone else to do the work.
- Price = full cost ÷ (1 − the margin you want), then take off the channel's fees and check what's left.
- Materials × 3 usually underprices, because it leaves out your time.
- Doubling for wholesale and again for retail only works when full cost is about a quarter of the retail price.
- Check the price against five similar items; if yours is far above them, fix the cost, not only the price.
- TaroStack costs every item from what you paid and shows the margin on each product and customer. More below.
The formula
| Part | What goes in | The common mistake |
|---|---|---|
| Materials | Every material at what you paid, in the amount one item uses | Forgetting thread, glue and offcuts |
| Packaging | Tags, labels, sleeves, boxes | Treating it as free because it's small |
| Your time | Minutes per item × an hourly rate | Leaving it out, or counting only the "making" |
| Overhead | Monthly costs ÷ items a month | Leaving it out until the year-end surprise |
| Full cost | All four | |
| Price | Full cost ÷ (1 − margin you want) | Pricing from what feels right |
The margin is what's left of the price after the full cost. A 45% margin on a $28.04 price is $12.62; that's profit on top of paying yourself for the work.
A worked example: a hand-dyed linen tea towel
Windward Roots, the made-up taro business I use in these examples, has a small gift line, including linen tea towels dyed with plants from the farm.
| Per towel | Cost |
|---|---|
| Linen, 0.55 yard at $11.00 a yard | $6.05 |
| Natural dye and mordant | $0.45 |
| Thread | $0.10 |
| Hang tag and care label | $0.35 |
| Cello sleeve and sticker | $0.30 |
| Materials and packaging | $7.25 |
| Your time, 20 minutes at $20 an hour | $6.67 |
| Overhead, $300 a month ÷ 200 items | $1.50 |
| Full cost | $15.42 |
The 20 minutes is the whole job for one towel: cutting, hemming, its share of a dye batch, pressing, tagging. Time it over a batch of twelve and divide, because the minutes you remember are always fewer than the minutes it took. Overhead is the studio share, tools, the website and insurance, spread over what you make in a month.
Three ways to set the price
| Method | Price | Profit at a market, after a 3% card fee | Margin | Wholesale at half the price |
|---|---|---|---|---|
| Materials × 3 | $21.75 | $5.68 | 26.1% | −$4.55 |
| Full cost ÷ (1 − 45%) | $28.04 | $11.78 | 42.0% | −$1.40 |
| Full cost × 2 × 2 | $61.68 | $44.41 | 72.0% | $15.42 |
Materials × 3 gives $21.75, which pays for your time but leaves a thin margin, and loses money the moment a shop buys at half. Doubling twice, the wholesale formula, gives $61.68, which would be wonderful if anyone paid it for a tea towel. The margin method gives $28.04, a floor: below it, you're working for less than you decided you're worth.
Check it against the market
Find five items like yours, at the markets you sell at and online, and note their prices. In this example, similar hand-dyed linen towels sell for $28 to $36. The towel goes out at $32: above the margin floor, inside the market's range, and below the double-double price nobody would pay. If your floor had been above every price you found, the answer would be in the cost: a faster process, materials bought in bulk, or a product that's clearly better than the ones you compared.
What each channel leaves you
The same $32 towel earns different money depending on where it sells:
| Where it sells | You receive | Fees and extras | Profit | Margin on what you receive |
|---|---|---|---|---|
| Craft market | $32.00 | $0.96 card fee | $15.62 | 48.8% |
| Your website | $32.00 | $2.16: 3% plus 30¢, and a mailer | $14.42 | 45.1% |
| Wholesale to a shop, at half | $16.00 | none | $0.58 | 3.6% |
| Consignment, 60% to you | $19.20 | none | $3.78 | 19.7% |
Selling direct works at $32. Wholesale doesn't: for a shop to buy at half and still leave you a 50% margin, the full cost has to come down to $8.00, about half of what it is. Dyeing 24 at a time and buying linen by the bolt would close part of that gap, not all of it. How wholesale pricing works, with a line sheet, is in how to price handmade items for wholesale, and when consignment makes sense is in consignment inventory example.
When to change your price
Recheck the price when a material's price moves, when your time per item changes, and at least once a year. If linen goes from $11.00 to $12.50 a yard, the towel's full cost rises 83 cents, and the margin at $32 drops from 48.8% to 46.2%. That's small for one item and a lot across a range of thirty. How to tell wholesale customers about a rise is in price increase letter, and markup versus margin, the two numbers people mix up, is in markup vs margin.
Get the calculator
Download the handmade item price calculator. Type your materials and packaging with what you pay, your minutes per item, your hourly rate, your overhead and the margin you want; it works out the full cost, the three prices, and for the price you choose, what a market, your website, wholesale and consignment each leave you. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
One item is easy to cost. Thirty are not: towels in three sizes, napkins, aprons and gift sets, all cut from linen bought in different rolls at different prices, with dyes and tags shared between them. The price list is worked out once from last spring's linen price, and when the mill raises it, nobody can say which items have slipped below the margin floor until the year's numbers come in.
How TaroStack does it
TaroStack keeps the cost of every item current, from what you paid for its materials.
Every item, with its materials list. Each item has a recipe, its bill of materials, with sub-recipes for shared parts like a gift set's box and tissue. Units convert: buy linen by the bolt, use it by the yard; buy tags by the thousand, use them by the each.
Every batch, costed. Recording a batch takes materials off stock from the lots used, at what you paid for each, and divides by what came out good, so a price rise is in the cost of the next batch, not next year's spreadsheet. A price-creep report per supplier shows who's raising prices and by how much.
And the margin on every product and customer. Margins are reported by product and by customer, on what things actually cost, so an item that slips below your floor shows in the report once its next batch is costed. Connect your Shopify store or Square, and we set it up with you.
| The question | Spreadsheet | In TaroStack |
|---|---|---|
| What does a towel cost now? | Last spring's price | Every batch, at what you paid |
| Linen went up: what moved? | Recalculate thirty rows | Every item's cost, the next batch |
| Who's raising prices? | Noticed on the invoice | Price creep, per supplier |
| Which items earn the most? | A feeling | Margins by product and customer |
Recipes, batches, true cost and margins are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.