This is Part II of our series on what really goes into pricing a handmade product. If you missed it, check out Part I here.
So, we left off last week with a completed NATALIE Dress- It was pretty cool, I must admit. However, there may have been a little confusion still rummaging around as to how this completed dress could ever cost $138 when we clearly showed that the dress itself didn't even take a full day to complete. In fact, we had determined that after 4 hours and 45 minutes of tedious work, the dress was worth approximately $71.25. "Where is this extra cost coming from?" -- This was the question we left on.
Well, today, I am going to take you through the second part of our series and share a little insight with you on where this additional cost is coming from. And I promise, it is not me or any other artist trying to scam you out of your hard earned money.
In the fashion industry... actually in almost any industry where you are paying for goods & services... there is this thing called Overhead. If you haven't ever heard of the term, let me break it down for you. Basically, overhead is all of the little additional behind the scenes costs of running a business that all mix together to help create the good or services you are being offered. Overhead includes the obvious fixed costs such as:
- Employee wages
- Supplies (both office & craft)
It also includes the harder to nail down variable costs such as:
- Machine maintenance
- Car (Gas, mileage, repair)
Sounds like a lot already, doesn't it? Obviously we don't add in 100% of our rent+utilities+travel-expenses+everything-but-the-kitchen sink into this ONE dress, but these expenses do need to come from somewhere.
What so many people fail to realize when they meet an artisan is that, Yes, we do what we do out of a love for the art & craft of it, however, we are also operating as a business. We are constantly thinking of all this background chatter and how it can be divided amongst our products so as to not lose money on each sale.
So, how do you know how much to add on to each product?
This is a complicated process. Honestly, sometimes it's completely overwhelming. See, as a small business owner, you juggle a lot of different hats. As for myself, I take on the role of Designer, Seamstress, Patternmaker, Marketer, Inventory Tracker, Website Upkeep/ Design, Email Coordinator, Scheduler, Photographer, Photo Editor, Occasional Model, and on and on and on. A little crazy, right? Of course, I have help in the departments I am no good at or just don't have time to work on. But when you break all of these little additional things down you begin to realize that there are other people to in the world that are getting paid good money to do ALL of these things that I am doing, essentially, for free (Let's not dismiss the fact that many business owners do this and they also have to take time to teach themselves each of these skills). Eventually, I too will be paying for these services as the Untitled Thoughts Brand continues to grow & I need to account for that inevitable added expense.
There I am photographing model Ellie in the middle of a river!
In the fashion industry, there is a typical multiplier that the majority use to determine their final costs. I assume there are various multipliers for other industries as well (it only makes sense), but for fashion, that particular number averages between 2.2-2.5. A tad confused? Illustrated below is an example of this multiplier in action and what it means:
Let's pretend that DRESS X costs a total of $35 to create. This includes the time it took to make DRESS X, as well as the fabric, zippers, notions that were required to assemble her.
So we take $35 & multiply that by our fashion multiplier of 2.3. We come to the cost of $80.50. This is our Wholesale Price. This is the price we brands charge retailers to purchase our goods. This is also the general price many artisans will charge at your local craft fair. But this is not the final price you see in stores. To determine that we must...
Multiply our $80.50 again. You read that right. When products go from our hands to the hands of a retailer, they too need to make a profit in order to cover their own overhead. So, let's multiply our $80.50 by 2.3 again.
Our final retail price of DRESS X will wind up being roughly $185.
OK, that IS a total Rip Off! It only cost you $35 to make, and I am paying an extra $150 to take that dress home? How is that fair?
Hold on, no need to fret! I know that drastic price difference seems totally unreasonable and unfair and unjust to the naked eye, but remember all of those little expenses I mentioned before? All that extra money will go towards paying for those expenses. It's not like I am personally taking $150 and depositing right into my paycheck and going "Haha, look at how much I as able to get!" The majority of what is made from one dress will go right back into a business' expenses.
That is fine and all, but if I can make it for $35, why would I spend $185 just because you made it?
To answer that question, you will need to come back next week for Part III of this series. For now, I will leave you with another really insightful article into all that REALLY goes into the drafting of a dress from one of my personal favorite eco-friendly brands, Margu (check out her series here.) She really delves in to the creative process more than I am able to do with this short series.
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