How to Price Your Products (on Etsy)
So one of the hardest things to figure out when starting a new business is what price to set your products at. It seems like a really complex thing, and at the back of my head I'm always thinking if my current prices are costing me business or not.
This article is all about pricing. I'm going to be talking about some things that you definitely shouldn't do and as well as just my general thoughts on the topic in general.
If you're new to the blog, my name is Ahmed, and a little over a year ago I started a sticker shop on Etsy. And this blog is really all about just documenting my own journey and sharing the tips I've learned along the way.
How to Price Etsy Products
Step 1: Know Your Costs
So before getting into all that good stuff with the pricing, the first thing you need to figure out is your costs. So we're trying to run businesses here, right? And one of the things you absolutely have to figure out first is your costs. It's like a super important number that you kind of have to have ingrained in the back of your mind because it impacts so many decisions in your business.
So there's two types of costs. There's something called fixed costs and something called variable costs. So first, fixed costs. So really simple way of thinking of fixed costs is that fixed costs stay the same no matter how much product you sell. So these are things like if you're starting a sticker shop, your cutting machine, or things like web hosting for your website, if you have one.
Another thing is like software costs if you're paying a subscription for things like Photoshop or Illustrator or something like that. So that stuff stays the same no matter how much product you're selling, which is completely the opposite with variable costs.
Variable costs are things that do go up the more that you sell. So these are things like shipping costs, material costs, blades for your cutting machine, everything that's kind of consumed with every order that goes out, that's a variable cost. So you really just need to take some time and write everything down in a list or a spreadsheet or something like that and figure out all your costs down to a single number per order.
And another thing that you really need to include is your time. I know a lot of people don't include their time because they think of Etsy as a hobby or something like that, but if you're trying to build a business, you really, really need to include your time. Like your material and supply costs are not the only costs here. If it's taking you 10 hours to make a product, to sell to a customer, you really need to include those 10 hours, right? So, yeah, come up with an hourly rate that you think you're worth and add that to your cost as well, because that's a really important one.
So, yeah, now that you have everything down to a single number, like, this is your baseline, you can't sell your product for anything less than this, otherwise you're losing money. And in a perfect world, you want to be charging way more than your cost, because the more that you charge, the more money you're making and the faster you can scale your business.
Step 2: Price vs Value
Okay, so now that we have our cost, how do we come up with our price? And before I get into that, I want to talk about pricing versus value. So there are a bunch of different definitions for what these are on the Internet. But for me, pricing is how much you charge a customer, and value is what the customer is getting. And those two things might sound kind of similar, but they're actually very different.
For me, business is all about solving problems, right? So the customer has a problem that you are able to solve. How much they're willing to pay for that solution really depends on what value they're getting from it.
So an example that I like to think about when I'm thinking about value is to imagine you have a really big problem. Like, for example, a water pipe is leaking in your house. So if you think about the plumber, the cost to fix that for him is probably really small. Like, the materials are probably really cheap. Maybe piping is less than 10 bucks or something like that. And then say he charges like an hourly rate, like $50 an hour or something like that. Like, as a homeowner, I would gladly pay more than 60 bucks to have that fixed. Like, I don't want my basement to be flooded. So I would happily pay like 100 bucks, 500 bucks, maybe even a thousand bucks to protect my house.
So that's why it's so much to think about value when you're coming up with your price, not only your costs. Like, what problem are you solving for your customer? And in general, like, the bigger the problem, the more you can charge.
So, yeah, if we're talking about pricing strategies, there's really two ways to think about it. It's like a cost plus strategy or a value based strategy. The cost plus strategy is where you're looking at only your costs, and then you're adding like a profit margin on top of that. But the value based strategy is where you're thinking about what value you're providing to your customers and then basing the price off of that.
Step 3: Use Competition as a Baseline
So the next thing I want to talk about is to use your competition as a baseline. So a lot of business people say just to ignore your competition completely. And I kind of disagree with that. I think you kind of have to know what the general market is for your product. Like, if you're really innovating and you're creating like the first tablet computer that's ever been created, then yeah, you don't really have to focus on the competition.
But for most of us, like the things that we're creating already exist. And because it already exists, I think it's useful to know what other companies are charging so we can set kind of like a baseline for what the market is. It's just to have a general idea, so then our pricing is not super crazy. It's not like we're charging $1,000 when what's available on the market is like 10.
Step 4: Don’t Compete On Pricing Alone
And then after that you should try to not compete only on pricing because if you're only competing on price, like, you and your competitor will just continue undercutting each other until there's no more profits to be had. And I really don't want to paint like a bad stereotype or anything like that, but a lot of the times when you're like serving customers that are looking for the lowest price possible, like you can just never make them happy. Like they're not looking for quality, they're not looking for customer service. All they're looking for is the lowest price possible. And yeah, it's just hard to please those type of customers.
And the other thing about having lower prices than your competitors is that it might make your product just look cheap. Like we've all been there, right? Like $100 bottle of wine tastes better than a five dollar bottle of wine. And they could be the same thing but with a different label. Like sometimes I actually think that's the case. Like it's just a perceived quality kind of thing. Like just because something is priced higher subconsciously, a lot of customers think that that means it's better quality and we can use that to our advantage.
Step 5: Can Prices Be Too High?
So yeah, I've been thinking about it a lot lately and I'm really starting to question whether prices can in fact be too high. Like I'm starting to think like they can't. So yeah, if you think about like some examples like luxury products or designer goods, like there's designer clothes where like a T Shirt is like 500 bucks.
Like, if I was selling T shirts, I don't think I could charge $500 for it and feel good about it. Like, that's just really expensive. But there's companies that are doing it right, and I'm assuming they're really successful. So, yeah, the reason these Companies can charge $5 for a T shirt is because they're able to sell it for 500.
After thinking about it like that, it's really shifted the way I'm thinking about pricing. It's less to do with what I'm offering and what the market is doing. It's more to do with my ability to sell it. I think it's really important to think about who your target customer is and to think if this is in their budget or not.
Like, if you're doing that, your pricing is a lot more flexible than if you're trying to sell to everybody. There's this quote that I really like from Seth Godin, and it goes like this: The riskiest thing one can do is build an average thing for average people and pitch it to the masses. And I think that's really important. A lot of people don't think about who they're selling to. And the more that you're trying to sell to everyone, the more you're not selling to anyone. So think about who your target customer is and really sell to them and then make that price for them.
Step 6: Losing Customers Might Be Okay
The next thing I want to talk about is that it might be okay to lose customers when you're increasing your price. This is really relevant to me because with everything going on in the world right now and everybody knows about, like, the supply chain issues, like, my costs are actually increasing, and I'm thinking about increasing my prices to go with it. And at the back of my mind, I kind of have this fear that if I increase my prices, I'm going to lose some customers, and I really don't want that. But if you just think about the math, it might make sense to do it anyways.
So, for example, say you sell a $1 product and you get 100 sales a month. That's $100 a month, right? And you're thinking about increasing your price to $2. And just hypothetically, you increase your price to $2, and the worst thing happens, you lose half of your customers. The thing is, even if you lose half your customers, like a $2 product sold 50 times, that's still 100 bucks. Like, you're still making the same amount of money and you're actually doing half the work.
So that's really something to think about too. Like, it's not always bad to lose customers. The bad thing and the thing that we're trying to avoid is to lose revenue or sales. And yeah, just in that really simplistic example, like, you'd be making the same amount of money with half the work.
Step 7: Pricing is Only One Ingredient in the Dish
The next thing I want to talk about is that pricing is just one ingredient in the dish. Like, if you're not getting sales or your sales are lower than you want them to be and you think the reason is only because of your pricing, I think that's not really right.
Like, there's so many more things, so many more ingredients that go into the dish that are weighing on customers minds when they're deciding to buy your product. In general, people are willing to spend more money if the product is better, Right?
So before thinking about pricing, is your product as good as it can be? Like, is it that much better than a competitor's that someone will choose your product over theirs? Another thing to think about is, is your branding better? Like, so many times you could have the exact same product, but you slap a logo on one of them, and that one's like $100 more. Branding is something that's really important too, and it could be something that you could use that could justify a higher price to a customer.
Another thing to think about is, is your customer satisfaction good? Like, you see this with people who shop at Costco. People are willing to spend more money for the exact same product at Costco because their customer service is really good. Customers know that if something goes wrong, Costco will take it back. They'll give you a refund, or they'll give you a new product. And people are willing to spend more money for that kind of service.
So that's something that you can think about too. Like, are customers super satisfied with your products? So, yeah, I would say all of these things are equally, if not more important than pricing. So I wouldn't get too hung up on pricing just by itself. I know there's a lot of people in my comments that have been saying like, pricing is the one thing holding them back from starting their shop and you really shouldn't let that happen, right?
Like, if you make a mistake on pricing, just change it. There's so many times where big companies have changed their price. Like, I really don't think it's that big of a deal. So that's really all I have to say about pricing. Please remember that I'm not an expert. I just started my shop a year ago and I'm still trying to figure this out now. But yeah, thinking about pricing in these ways have really helped me and I'm hoping it was useful for you too.
