The Problem With Pricing Formulas: Econ 001

Put extremely simply:

Let's say I make and sell mud.
My ingredients are dirt and water.
I find a cheaper dirt supplier with higher quality mud even closer to my house.
My supply costs go down.
My time costs go down.
Why should I charge less for my new nicer mud just because my costs went down?
I could charge the same and make more.
I could charge more and maybe make even more more.

Better plan:
Look at how much people buy mud like mine.
Look how much they willingly pay.
Look for the most they willingly pay and see when and why they pay that.
Don't look at "Mud for sale: $9 gazillion" signs unless those stores have paying customers.
Don't worry about people who do things that you are physically incapable of doing.
If no one wants mud, consider selling address labels.

Art: Victor Electric Adding Machine by me (JillHannah)

The Price of Starting Over

Moving the big stuff via actual movers tomorrow. Spent weekend in Madison. Head is so far up butt right now you wouldn't believe it.

NiftyKnits wrote a lovely little pricing/econ post this morning in her blog. For people who replace things in their shops when they sell (felted booger-makers), she poses a great way of looking at the lowest price you should charge:

A complete stranger asks you to create an item (something you currently sell in your shop). That's not all, they want you to photograph, list and promote this item as well.
Whew! "Is that all?", you ask.
No, they have one more request: package that item, print a shipping label and drop it off at the post office. Now imagine they want you to do all this for the price you currently have this item listed for in your Etsy shop.
Would you do it happily? Would you grumble? Would you deny this task altogether?

Now, keep in mind this mental exercise doesn't really apply if you make things when the moment hits and don't change your production (ie don't make more) based on what sells. But if you do, then sweet mother of monkeys! hurry up and ask yourself the "how much would you have to pay me to do it again from scratch?" question and use that as the lowest price you're willing to charge for your item! You can charge as much more as people are willing to pay.

Econ topic for another day: start your pricing by looking at the final product and judging what buyers would be willing to pay. (There's more to it than that, so don't jump down my throat just yet.)

Merry Christmas.

Econ in Action: Barterer's Dilema, HSN Pricing

A few days ago I was cruising the Etsy forums (much like cruising for chicks, yeah baby) and came across the following:

BirdTrouble says: A customer is saying they cant afford my bag but they really love it. I have it included with a cosmetic pouch for the total of $38. She's asking if she can buy the bag without the pouch.
I barly even included the pouch in that cost of the pouch in the price. Gahhhh I dont know what to do, I don't want to lose out on a customer but I dont wan't to sell myself short. What would you do?

PERFECT econ example! BirdTrouble was kind enough to be my economic explanation guinea pig, so here goes!

BirdTrouble makes her bags when inspiration hits, not when they sell or to fill orders or repeats of identical bags. From the forum thread:

I make when I feel like making. Pouches are easy, bags are fun. It really comes to me when Im walking my stinky dog into the door from a walk and I'm like OH MAN that fabric would look awesome with this, WHERE IS THE PAPER!!!!

This is not a bad thing. It's an artist thing and it brings us happiness and I do it all the time with many creative and some non-creative aspects of my own life. I'm not putting it down in any way.

That being said, it puts her in the fish swimsuit maker category from my past economic example posts (don't worry if you haven't read them). She already made both the bag and the cosmetics pouch. She can never get back the time and materials she spent on them. They are sunk costs. Now, anything she gets for the bag and pouch is better than the bag and pouch just sitting there, and the goal is to get the most money possible in the least amount of time she's willing to wait.

She's priced the set at $38 for both pieces. Her customer is offering her a lower price (I don't know how much it was, let's say $25?) for just the bag. Now BirdTrouble has to ask herself if it's worth $25 now with the possibility of selling the pouch later, or if she'd rather take the risk of holding onto the set for the chance to sell them together for the full $38. It's a game show:
"BirdTrouble, you have already won $25 from the magic Etsy fishing pond. You can keep that $25, or throw it back for a chance to win $38!"

So what did she choose?

Neither. At the advice of some clever forum responders, BirdTrouble offered her customer a layaway plan to buy the set at the full $38 but over time.

In retail stores, layaway plans are usually a terrible idea for the customer. They involve fees and/or interest and customers always end up paying more in the end for the privilege of waiting to pay it. But in Etsyland, we have the power to make our plans more customer-friendly. In this situation, if BirdTrouble makes the full cost truly the $38 in four monthly installments of $9.50, then even though her customer gets to hold on to the extra money and the few cents it may accumulate in a savings account over that time, BirdTrouble is still way better off than she would have been at $25 or if it had taken more than a few weeks for another customer to buy the set at the full $38.

Thing we can all learn from the story and/or Home Shopping Network: TWELVE MONTHLY INSTALLMENTS OF $19.99! are much easier to swallow than $240, particularly in this lovely current economy of ours. Try offering a pricing plan on some of your more expensive items. But if you don't have a collections agency at your disposal, consider not sending the product until it's paid in full. Just a thought.

productivity, pricing, and why my cousin is the awesomest person ever

My best, most marketable product as of right now is probably my business card-sized wallpaper envelopes. I make my wallpaper envelopes by creating a template on heavy cardstock, tracing it onto the back of the wallpaper sample, and cutting each one out by hand with scissors.

Terribly time consuming.

I'd tried using my Xacto or matknife directly with the template, but always ended up destroying the template and making terrible ugly shredded pieces of crap instead of my near-perfect little envelopes. I tried cutting with the scissors around the templates, but I couldn't hold them still propperly. The fastest thing that yielded up-to-my-standards results seemed to be the "trace a bazillion and then cut a bazillion while watching a movie or listening to This American Life podcasts" method, which was particularly annoying for the envelope shapes that I then had to go back in with Mr. Mattknife and make slits for the top to fold in.
I do these in orders of 50 at a time.

Because my process was so slow, it was never worth it to me to sell them for less than $1 a piece. Anything below that and I was in "screw it. I'm not making them anymore" territory.

This is going back to my whole Econ 101 shtick. Once I've made the envelopes, my costs are sunk and any money I get for them is better than having them sit there forever. But because generally make them to order, I can refuse to make more for any less than my time is worth (in this case, $1 an envelope). In theory the best price for me to charge would be some number that maximizes profit where supply meets demand, blah blah blah, but!!!! having to charge over $1 a piece means that if that magic theoretically shiny perfect pricing number is under $1, I can never reach pricing utopia. Oh the horror! The theoretical econ horror! And, more practically, the getting priced out of ever doing wholesale horror!

Enter my cousin and metal artist/blacksmith extraordinaire, Joshua Gilbert. He's pretty awesome and insanely talented and rescues mangy one-eyed evil cats he thinks are sweet and actually makes a living as an artist/metalworkerperson. In exchange for a bunch of the business card sized envelopes with "thank you for your patronage" cards (that's what he wanted), he made me metal templates in two sizes, plus metal folding templates (something I never even imagined) that make folding the envelopes up into nice right angles much quicker.

Quick crappy photo of the templates and current work in progress on my floor. You get the idea.

Now, I can take my Xacto and whip out a complete envelope, folding slit and all, in the time it used to take me just to pencil trace. Oh, brave new world!

I wonder about all those template cutting tools now, like the Fiskars Shapecutter, if they'd be even faster and better than me and my Xacto, or if they even work on negative image templates...If you know, please comment! Please please please!

Back to the econ question: will I lower my prices? No. Because people don't gasp in horror when I say they're $1 each. $1 seems about right. But wholesale orders and bulk orders? Finally. We can do business. 100 doesn't have to still be $100 to be worth making. So how much would you pay for 100 of them? 1000? A gazillion? Life is exciting.

The Economics of Trading: Why it's so important I sold cards for soap

In case you haven't already heard, "The Economy" is in the crapper. "The worst _____ since 19__" has become the daily Mad Lib of the financial news, opening up employment to sports-averse statisticians while the rest of the world loses jobs and savings and all that nice shiny prosperity to which we'd grown accustomed.
We're broke, and if we're not broke we're afraid of becoming broke, so whereas a year ago we might have spoiled ourselves with the new cute handmade handbag for spring, now we're thinking more about toilet paper. But as soon as we don't buy the handbag, the person making and selling handbags suddenly has no money to buy the earrings she wanted from another artist, who can't buy the skirt, who can't buy the journal, who can't buy the soap, and on and on. So now that soap is sitting in its maker's house, the journal, the skirt, the earrings, and the handbag all staring back at their creators who have nothing to do but wonder if perhaps garbage collection wouldn't have been a better life path.

Most of the time when we buy things, we use money. Credit, cash, whatever, it's all the promise of numbers that can get us stuff. Let's go back to my Etsy fish swimsuit seller from previous econ ramblings. When someone buys a fish swimsuit, the artist can do anything she wants with the money: put it in the bank, stuff it under her mattress, use it to buy food and toilet paper, or spend it on the felted boogers she's been eying from another Etsy shop. The trouble with our current economic situation is that we're all so short on actual money, when somebody finally buys a fish swimsuit, there's little choice but to spend said money on food and toilet paper. We can understand and want to support our fellow artists, but at the end of the day, felted boogers are murder on the digestive system.

So what can we possibly do? Especially if we still have tons of inventory collecting dust on our shelves while we fill our "favorites" and wishlists with things we'd love but just don't have the money to afford?

Trade!

The felted booger maker might have an aquarium full of embarrassingly naked fish. She couldn't have justified sending precious rare dollars, but a two green mediums and a yellow extra-large she'd already made that they wouldn't accept as currency at the grocery store? Oh, happy day!

So how do you go about trading?

1. If you want something you can't afford/justify in money, approach the seller about a trade. A very simple polite convo with "Hi, I love your ____ and wondered if you'd be interested in trading for anything in my shop. I also have several children of varying ages and genders and a time-share in Guam..." The worst that can happen is they say no and you're in the same position as you were before you started. Assuming no one reports you for the whole child slavery thing...
2. Cruise the forums. Just searching for the word "trade" in the forums brings up a few gazillion threads from people looking to do just that. They'll often say what sorts of things they want, like clothing, gifts, bath products, stationery, sex toys, etc.
3. Etsy Traders. It's a big long list of trade-friendly shops, run by the Trade-A-Holics team. Some say what they want, some say what they have, some just have a link. It can be a bit daunting, but it's also the most comprehensive list I know.
   
4. The Etsian Trades message board doesn't get much activity, but it's another place to scope. Before stupid people squashed the soul of EtsyTools, they had started an amazing trade list with keywords so you could see what people had and wanted. I'm hoping someone will fill those shoes again, but it's a big job.
5. If anybody reading this knows of any other fabulous sites, please please please leave in the comments.
   
6. Chatrooms. Statistically, this is your worst bet since you're at the mercy of whatever random people happen to be online at the same time as you, but you never know. Just please don't go into a room blasting all caps "LOOKING FOR TRADE!!!!!" It's poor web etiquette. Sometimes people even set up specific trading rooms, but as long as you're polite, you can go into just about any room and ask, especially if you find a particular shop you like. "Would LOVE to trade for that ----->" while you put the coveted listing card up for the room to see is always a good way to go.

Somebody who isn't me really should set up a comprehensive trading site that could somehow allow for multi-party trades, so if the felted booger maker didn't want a fish swimsuit but did want plarn planters, and the plarn planter maker wanted fish swimsuits, the trade could still happen.
"That's why people use currency instead of just a trade-based economy," you say? True, but like I said earlier, we're all out of currency and all we have left are our many, many things that can't be used to pay bills but aren't making us happy, either. So let's get them moving around and making some happy again.

Now who wants to trade for something I can send to my almost 20-year-old brother at college and my friend who's totally reading this for her birthday?

PRICING superduper simplified

I've written about pricing before. I will probably write about it again. I was an economics major at Oberlin College for three years (my "taking time off" for a variety of reasons became permanent, but that's another story), so I do actually know what I'm talking about.

This is the unbelievably simplified version of how to price the things you sell. I should charge you for it, but I'm not, so go buy crap from my shop instead.

If you already made it and it is sitting around and there is only one like it (usually paintings, sculpture, some jewelry, and anything else that is already done and you can't or won't be making more similar to it based on its sale) then you want to choose your price based on the most you think someone will pay in an amount of time you're willing to wait to get paid.
That's it. I don't care how much your materials cost or how much time it took or any of that. The thing is already made. You already spent that money and time. It's gone. "Sunk" as they say in Econoland. Now it's just a matter of how long it will sit on your shelf. Are you willing to wait a longer amount of time in hopes that someone will pay a higher price? Or do you price it lower so it sells faster? Your choice. But remember: 1) however much it finally sells for is more than the $0 it is currently making you and 2) unless you are selling milk and eggs, not everybody will want your item at any price, no matter how low. There may be someone out there who really wants and is willing to pay a higher price for your whatever, but if she never knows it exists, putting it on sale a dozen times for the wrong audience won't do you any good.


If you already made it but you will make more based on the sale of this one or if you only make it after it sells or if you adjust how much you make based on how much you sell in any way, shape or form, pricing is a bit harder. You're actually looking for the point where supply meets demand. I'm not going into how to collect extensive pricing data right now, even though that's the real way to figure this out. You need to know if you charge $20 and you sell 5, how many would you sell by charging $15? If you sell 6 at $15, you may think "great, I sold one more!" but it's not great because you make $100 selling 5 at $20 (5 x 20 = 100) and only $90 selling 6 at $15 (6 x 15 = 90). Can you still sell 5 at $23? $25? When do people buy less based on price? Data data data. And even that is hard to know for sure since there are so many other things going on, like how much you're advertising and holidays and the economy and and and!!

So! Here's the easy version for you: figure out how much each item costs you to make. I always like to figure in a little extra to account for my many mess-ups along the way, since they are a part of the cost of making my cards. Then figure how much time it takes you to make each thing. Give yourself a minimum wage (your particular government's, a "living wage," or sweatshop labor rates are all good places to start). Add those two numbers together. Now don't charge less than that. That's what it's worth to you to make more.

EVERYBODY: Look at what other people with similarish items charge. Look at how many sales they have and when. Look at what they're selling. Just because somebody is charging a lot for something in your category doesn't mean anybody is buying at that price. It can be scary to see the people at the ends of the pricing spectrum, but look at their sales numbers. How many more sales are the people at the bottom getting than the people in the middle? If it's not a lot, then the people in the middle are probably making more money. If the people at the bottom are selling two or three times more than the people in the middle, then maybe you should be pricing at the bottom, since you'll most likely make more money total. If the people at the top of the spectrum aren't selling anything, then it's not worth it to price at the top of the spectrum. But if the people at the top are selling regularly, it might be worth it to price towards the top because your sales will still move and that may be a lovely place for supply to meet demand.

Now go! Price things! And buy my business card sized "thank you" notes to include in all the wonderful items you are about to sell (I have tons more not listed, so please convo me if you're interested)

photos (all items for sale on Etsy):
Original Mixed Media Artworks by TwoHiddenHeads
1900 Story County Bank of Ames, Iowa, Check from Artouette
a paradox - super mario question block cufflinks by pixelparty
Money Bags Pinback Button, Badge by catlover1

Econ 101: Jill gets sick of dumb pricing advice

I am not a brilliant pricer. I haven't mastered magic numbers for my shop. I haven't spent enough time researching it, but I have the advantage of knowing the economic theory behind it. It has nothing to do with the cost of my time and supplies multiplied by a magic number. In fact, for products I've already made, those things should barely come into account.

WHAT?

Yes. Revolutionary. And a little bit counter-intuitive.

Maybe you never took Econ 101. Maybe it made no sense. Maybe you hated it. But you've heard of "supply and demand." The part of supply and demand we care about right now is that a buyer will want to spend less money and you want to make more money.
Now let's do an imaginary Etsy example.
Let's say you make one-of-a-kind hand-sewn fish swimsuits. Even if they are free, some buyers still won't want them because they don't have fish, or their fish can't wear Lycra, or they just don't like your particular style. Fine.
Let's say this month you made 25 fish swimsuits. If you keep lowering your prices and your fish swimsuits are still not selling, you're probably at the point where all the people who have found your shop and would actually want to buy your fish swimsuits at any price have already made their purchases. Go advertise, fix your photos, change your product line, etc. Lowering your prices more probably won't help. After all, you aren't the only fish swimsuit seller and there is a limited total number of people who need handmade fish swimsuits in their lives.
But what if those 25 suits flew off the shelves at $1 a piece? Then you made $25. Swell.
The next month you again make 25 fish swimsuits. You want to see how much you can possibly charge, so you start with your price at $1,000 a suit and lower it until you get a sale (NOTE: this is not something I'm advising you do, since it's not like Etsy or your personal site has the traffic to make this really work, though it might be fun to try on one item just to see). Your sale finally comes in at $250. Holy crap! Someone paid $250 for a fish swimsuit! You rule!
So you should start charging $250 for your fish swimsuits and list one a day.
NO. WRONG. BAD.
Because let's say you lowered it to $200, maybe you'd sell two a month (that's $400 total per month, FYI). And what if you lowered it to $100? Holy crap, you just sold 10 of them! that's $1000 a month! $75? 20 of them, giving you $1,500!
"Ok, so then I want to lower my price until everything sells."
NO. WRONG. BAD AGAIN.
Because now let's say in order to sell all 25 of them, you have to lower your price to $50, and that gives you $1,250. When you were charging $75, you only sold 20 of your 25 sweaters, but you made $1,500. That's an extra $250. $250 buys a lot of really cute felted crap from other Etsy sellers.

"So, wait. The best price to charge is some arbitrary-seeming number that probably doesn't sell all the stuff in my shop but also isn't the the most people are willing to pay and has nothing to do with how much it cost me to make it?"
YES. If it's already made and it's not doing you any good to hold onto it. Because once you've made it, all of those "how much it cost me, how much time it took, etc" things become what the econ world officially calls fixed costs or sunk costs. They don't change if you get $1 or $10,000 for the item. As a person who handmakes things myself, I understand the sentimental attachment involved, but I use that as a sort of base worth it has to me, so no matter what I'm not willing to part with it for less than that amount.

More on fixed costs: if I spend twice the time making a card because I did the whole thing with my left hand because I thought it would be more artistic and force me to be more mindful of my creation if I made the card lefty, and it comes out looking almost the same but a little worse than the card I made immediately before it with my right hand, a buyer is not going to pay me twice as much for the one lefty card to cover the two righty cards I could have made in that same amount of time.
"But it took me twice as long!"
Yes, please, whine like that to the buyers, too. If you're doing processes that take double the time and really sinking your teeth into the integrity (note: this is different from the actual product quality, which would lead to repeat customers. I'm talking about things that aren't visible in the final product, like the fight I had with my printer because it's my grandpa's old printer but I'm loathe to get rid of it because part of me thinks he haunts it except not really) then you need to be doing it for the integrity and not expect your buyers to pay you more, too.

"How the fuck do I find this arbitrary-seeming perfect pricing number?"
How do I get a flat stomach by June? Sorry I don't have a quick-fix. Unfortunately, you need data. And even all the data in the world won't get you a perfect solution, because even if you had an entire year's worth of data, there are all sorts of other things that come into play (maybe a major movie comes out one month in which Brad Pitt makes out with a fish wearing a fish swimsuit that's totally like the kind you make! Or maybe you finally re-do all your pictures and your sales jump up) and how are you supposed to know how much that changed things? And this is all assuming you have a fairly homogeneous (most of your crap is similar) product line. How the hell do you price that one random item? Yeah, good luck with that. But as a start, try playing around with your pricing in an orderly fashion. See how many items you've been selling and your total income week by week or month by month for the lasts year or six months or however long you've been on Etsy. Now try raising your prices a bit at a time week by week and see what it does to your income. If it goes up, keep going up. If it goes down, try lowering. See if you sell more. If not, don't keep lowering. It's like that lemonade stand computer game (less than 20 years ago I played it on an Apple IIe with no graphics...I'm too young to feel this old...) only your shop is your lemonade stand. You can play a free version online here.

What would be really nice is if sellers got together and could share data, or if Etsy could release some data to sellers. Maybe I'll ask my Aquatic Animal Lycra Team (AALT) to start sharing data on Google Docs or something so we can all have a better idea about pricing, but that might be considered price-fixing and might be a little illegal. Still, if just a few of us pooled resources, how is that any different from standard market research? Clearly, I need a marketing department. Where's my dog? He could totally do it.*

Ok, deep breath.

Now, let's say you make felted boogers. Hundreds of them. You frequently make them to order, and you can easily make more or less depending on what people want and seem to be buying. You are the seller who needs to worry about the time it takes to make each item and your materials costs and things. You are much more complicated. I'm too tired to deal with you right now, but if you're lucky, I might try to figure out a way to make the theoretical crap actually practical and useful another day.

But the more immediate reason I bring you up, oh maker of felted boogers, is that it will be obvious to you that if you are at the point where all the people who know about your shop and want your felted boogers have already purchased them, you stop making them until the demand returns. You work on your advertising and your photos, or maybe you stalk Alchemy and notice a lot of requests for resin boogers and try going into the resin booger business as a supplement or instead. And this is obvious to you because you weren't covering your variable costs. Those are the things that change with the selling of each item, and since you make each item to sell each item, materials and time kind of creep in there for you. They create a bit of a pricing floor, below which it's not worth it to you to be felting boogers.
What do I mean by a FLOOR?
A level below which it is no longer worth it to you to sell your crap.

So when we go back to our friend, the fish swimsuit maker, if she's not moving her stock of 25 swimsuits, she'd better not be making any more, either. That would be dumb. When people talk about pricing things and say that they "can't charge enough to cover their materials and pay themselves a decent wage," I know this is an asshole response, but THEN DON'T MAKE IT ANYMORE! If you're doing it because you love the art, then you're going to have to consider love part of your salary. It goes in the bag with integrity. If you're trying to make a living, go play Lemonade Stand, keep track of your weekly and/or monthly sales, stalk people who sell similar items and their sales, and if you're still in the red, your magic highest number may still be red! Hopefully, it will be huge and gorgeous and positive and you can quit your day job and buy all 25 fish swimsuits. I hear that shop is having a clearance sale.


*This is assuming "Market research" involves barking at other dogs and pawing my face at 4 AM