Pricing Strategies for Handmade Jewelry

13 01 2013

“How much should I sell my jewelry for?” That’s the big question that many jewelers ask, and it’s a good question. 

I assume that you want to make money from your jewelry. Right? Your pricing strategy determines the price, and price affects whether or not someone will buy your jewelry. In this way, the pricing strategy you choose will determine how much you make. 

For each strategy, we will use an example of a 7-inch, sterling silver Byzantine bracelet. 

A single strand of silver is pretty by itself.

The four most common strategies are as follows.

  1. Sales volume
  2. Perceived value
  3. Hourly rate
  4. Market value

Let’s look at each of these.

 Sales Volume

Sales Volume means you price your jewelry to make as many sales as possible. This is the worst way to price your jewelry. 

Generally, lower prices produce more sales, and higher prices produce fewer sales. If you want the greatest number of sales, therefore, choose the lowest price. However, you will not earn the most money. 

Let’s say you price your bracelet at $0.01. Yes, one penny. You may make 100 sales and earn $1.00, a whopping whole dollar. But you made a lot of sales, so that’s good, right? No. That’s bad. In fact, you lost money. You may have spent nearly $3,000 on materials to make 100 bracelets. To make the most sales possible, you just lost $2,999.

 What if you priced the bracelet at $100 and only sold 10? You made fewer sales, so that’s bad, right? No, that good! You sold your pieces for $1,000 and spent around $300. Making fewer sales, you earned $700. 

Price

Volume Revenue Cost

Profit

$0.01

100 $1.00 $3,000 -$2,999
$100 10 $1,000 $300

$700

The only time to emphasize more sales is when you’re trying to build a reputation and get people to start recognizing your name. More sales equals more people knowing about your jewelry. Once you’re better known, you can raise your prices, right? No. This can also lead to problems. Someone who buys jewelry from you because the price is ridiculously low will probably not pay higher prices later, so you lose any benefit you gained from your original low prices.

 As I said, sales volume is the worst strategy.

Perceived Value

Perceived Value means pricing your jewelry based on how much buyers will appreciate it. The more value the buyer places on the jewelry (the more pleasure the buyer feels), the more the buyer is willing to pay. This is a good strategy, but difficult to accomplish.

To use this strategy, you have to get in the head of your buyer. What does the buyer think when he or she examines your piece? Buyers will have a maximum price they will pay based on the perceived value. Any price above that, and the buyer won’t buy because buyers won’t pay more than they think the piece is worth. Any price at or below the maximum, and the buyer might purchase the jewelry.

Perceived value depends on many factors.

  • Who is the buyer?
  • How much cash does the buyer have to use?
  • How well does the buyer understand the quality of the piece?
  • How well does the jewelry fit the buyer’s fashion preferences?
  • How common is the piece?
  • How well made is it?
  • What materials did you use?
  • And so forth. 

If you set your price higher than the average perceived value, you might get a few sales. Some people will place a higher than average perceived value on your bracelet, so they will be willing to pay a higher price than the average buyer.

To get the maximum sales and revenue, determine (or estimate) the average perceived value, and price your jewelry there. 

Take a look at the graph below. When the price (blue line) is above the average perceived value, sales (green line) are very low. When the price drops to the average perceived value, sales climb rapidly. Eventually, as the price gets very low, sales slow down because people will question the quality of the piece. 

bandicam 2013-01-13 14-12-44-904

The lesson, therefore, is to set your price at or just below the perceived value to have the most sales and to make the most money from your jewelry.

Calculating perceived value and price based on materials

If the material cost is a significant factor in determining price, the following information will be useful. For example, if you’re using sterling silver or gold-filled wire, pricey stones or beads, and the like, then the cost of materials is relevant to the price, and you can use the materials cost as the basis for your price. (If the materials are low cost, under 5 dollars, for example, then you’re better off using an hourly rate as the basis for establishing the price.)

If I use the Perceived Value pricing strategy and if I’m using costly materials, I have a formula for determining price, using a Value Multiplier. Here’s how it works for the sample bracelet. 

First, I determine materials cost.

Materials cost = $35

Second, I apply the “value multiplier.”

            Value multiplier = 4

Then I multiply to get the price.

$35 cost x 4 = $140 price

What this means is I think the perceived value of the finished bracelet is 4 times greater than the perceived value of the materials. Another way to say this is my work adds 4 times the value to the raw materials.

(As I said before, this doesn’t work with low-cost materials. It only works if the raw materials have a perceived value to the buyers. Materials that cost under $10 or so simply aren’t  a significant factor in the price consideration because they don’t have a perceived value to potential buyers. For example, if I make the sample bracelet using silver-plated wire, the materials may only cost 2 or 3 dollars, which would give me a price of $8 or $12. This price is far lower than the market value and the perceived value, and it’s not worth my time to make and sell a bracelet with such as low price. With low-cost materials, I would use other pricing strategies.)

The Value Multiplier calculation works even with different materials. If I use 14/20 gold-filled wire instead of sterling silver, the material cost about $60. I use the same value multiplier when I make the same piece but with different materials. With the value multiplier of 4, the price will be $240. In this case, I’m doing more or less the same work, but the perceived value of high-grade gold-filled wire is much higher than the perceived value of sterling silver, and the final price reflects both the increase in material costs and the increase in perceived value. 

In fact, you have a higher profit margin with higher cost materials, which makes sense because the perceived value is higher. Whereas you might make $30 profit with lower cost materials, you might make $60 profit with higher quality materials. You did the same work, but you earned more. You are being rewarded for taking the risk of paying for costlier materials without a guaranteed sale and for bearing the cost until you sell the piece.

I use a range of value multipliers, from 1 to 10. A value of 1 means I add no value to the materials, so the materials cost and jewelry price will be the same.  (Example: $35 material cost x 1 = $35 price.) A value of 10 means I add a very high value to the materials and that people will perceive that the jewelry has great value. For example, for the Viper Basket, I use a low value multiplier (2.5) because the weave is simple and the work is fairly straightforward. For the Rondo a la Byzantine, which is much more difficult to make well and is quite complex, I use a middle value multiplier (6). 

Determining an appropriate value multiplier is difficult. I used the market value strategy to determine the price of one piece, determined what multiplier would produce that price, and then used that multiplier as a basis for determing the multiplier for other pieces. Easier, less glamorous pieces have a lower multiplier value, and higher-end, fancier pieces have a higher multiplier.

Hourly Rate

Hourly Rate means you price your jewelry based on how long it takes to make. Use this strategy if your time is more important to you than material costs, such as when your materials costs are low. This is a decent strategy but also has challenges. 

If you work fast, the price for the jewelry piece will be less, which could translate into more sales. That’s ok because you still earn a set amount for every hour you work. On the other hand, you might be earning more revenue by having more pieces to sell. If you’re earning more than needed to cover your material costs and time, either the hourly rate you pay yourself should go up or you have more money to invest in future jewelry pieces, such as for higher-quality materials.

If you work slowly, the price for the piece of jewelry will be higher. That’s ok, too, if slower work means better quality and higher perceived value. However, if you work very slowly, the price may be higher than buyers are willing to spend (see Perceived Value). 

What’s a good hourly rate? The answer depends on how you value your time. $20 per hour is pretty common for people making jewelry at home, but that’s too low for me. I can make more than $20 per hour by doing other stuff. For the sake of example, let’s say I would be happy with $35 per hour. In addition, my work is high quality, with great attention to detail. Higher quality workmanship should equal a higher per hour rate.

I don’t recommend using an hourly rate to price a particular piece until you have made enough of them to know how long it actually takes; generally, the more times you make a particular piece, the less time you will need until you get a consistent rate. You become more efficient. Wait until you’re efficient before setting the price to avoid overpricing the piece.

Also, each time you make the piece, try to find ways to make the process more efficient. You want to make the piece as quickly as you can without sacrificing quality workmanship. Regardless of the hourly rate, as your work hours increase, your price will increase because you’re pricing the jewlery based on the time you need to make it. For the sample piece, I need 2.5 hours (from making rings to tossing it in the tumbler for polishing). 

Finally, you will want to make your hourly rate after expenses. Otherwise, you’re actually making less per hour.

You have to be aware of the perceived value. If you work too slowly and, therefore, have a high price, you risk no one buying your jewelry. If your price, based on hours needed, is far above the typical perceived value, you will need to lower your hourly rate. Then you will need to decide whether you’re willing to work at that lower rate.  

Here’s how it works for the sample bracelet. 

First, I determine the materials cost.

Materials cost = $35

Second, I determine the hours I spend on average to make the piece.

            Hours = 2.5 hours

Third, I determine my hourly rate.

Rate = $35 / hour

Then I apply the formula to determine price.

(2.5 hours x $35) + $35 materials =

$87.50 for time + $35 materials = $122.50 price 

You could get really fancy and use different rates for different stages of the work. For example, making rings from wire takes less skill than weaving them together, so I could have a lower rate for that step. But that’s silly. Regardless of the difficulty, I’m the one doing it, and my time has a certain value to me. Only use different rates if you pay various people to do the various stages. 

Market Value 

Market value means setting a price that is in the typical range of prices for comparable pieces. In brief, find jewelry that is the same quality of yours and that has the same perceived value, and set a price that’s similar. This is an important strategy. In most cases, it is the most reliable strategy.

If your jewelry is priced a lot higher than similar pieces, most buyers will buy the lower cost, equal quality jewelry. If your jewelry is priced a lot lower than similar pieces, buyers may wonder what is wrong with it. If I see a bracelet similar to the sample bracelet, and if the price is under $100, I can almost guarantee that the quality is poor. 

Even so, you have a range…but stay in the range. The typical range I use for the sample bracelet is $120 – $140. Sure, some people are selling similar bracelets for over $200, and other people are selling it for under $75. Most people, however, are in the typical range (which is why it’s called the typical range, right?). 

To set your price using the market value range, you have to do two things.

  1. Research similar pieces in the sales outlet you’re using.
  2. Be honest with yourself about the quality of your jewelry and services so you can determine what other jewelry is similar to yours. 

Sales outlet is very important. If you sell at a flea market or church bazaar, buyers will expect you to offer low prices, so the typical range will be lower. If you sell at a well-known craft fair that caters to wealthy buyers, the typical range will be higher and you can charge more. Do your research. The range I use for the sample bracelet comes from research on Etsy and eBay. 

Until you have a strong reputation with a lot of sales, you will be a price taker, not a price maker. This means you’re limited to the price range other people use. You don’t set the top end of the typical range. Find the jewelry sellers with strong reputations and lots of sales. What prices do they use? Your price should not be above (or barely above) theirs. They are the price makers. People will compare your prices with theirs. If your price is much higher than the sellers they know and trust, buyers will go to them.

Can you go above the market value range? Yes, but only if you can find a way to increase the perceived value. For example, does the jewelry come in a gift box (or the plain white box that I use)? Does it have a better polish? Do you offer better customer service? Do you have a large and well-established reputation with name recognition? Is the workmanship somehow better? If you can make the buyer place a higher perceived value on the jewelry, the buyer will be willing to pay more than the market value range.

Can you go below the market value range? Yes, but why would you want to? 

Combining Strategies 

As you can see, you will need to consider both market value and perceived value. If you use the hourly rate, you still need to stay within the market value and you can’t expect to price your jewelry above the perceived value and make many sales. If you use the perceived value and market value strategies, you will need to determine whether you will be happy with the price and whether it’s worth your time to make. 

The only strategy I really recommend avoiding is the Sales Volume strategy. You will go out of business if that’s your strategy.

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One response

13 01 2013
whisperingiris

Oh boy, more research? You sound like you know what you’re talking about. I should take your advice. Thanks!

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