When calculating the amount to charge for your products, there are two types of math that are commonly used. Guilt math, which states that you must charge the absolute minimum for your product and labour because it is wrong to charge people too much; and Business Math, where you set a price based on the actual retail value of your product.
Something that needs to be addressed first is the issue of money. There are many artists, having struggled to make it by while practicing their art, that believe that monetizing their art is wrong; they should produce art for the sake of producing art. While it is noble that an artist would be willing to donate their time and money to another person in such a manner is noble, this leads to the creation of Guilt Math; the form of math where an artist charges far too little for their product.
The brain, complex as it is, cannot run on ramen noodles forever. At some point it’s going to need vitamins, and to do that you need money. It is also an unfortunate truth is that nobility does not pay your bills. Using Guilt Math, I have seen artists have to work two extra jobs in order to keep up with their necessities and still be able to produce products to essentially donate to the Steampunk Community. The community appreciates their effort, but since they cannot focus on what they are producing, results are few and far between.
For example, we’ll take a Lawn Gnome that originally cost $30 in materials. The artist completely converted our Lawn Gnome to carry two detailed pistols, goggles, a faux leather jacket, and chaps. Then he sells it for $50. The original thought is that the average retail outlet charges a 20-50% markup on all products sold except groceries. Therefore if you charge $50 for a product that cost $30, you are making a 66% profit.
Forgotten by the artist, and so many others (like my wife) is the amount of labour put into each piece. The piece that retailed for $50 took almost fifteen hours to make. It had a lot of intricate detail work and had been pieced together using tools. If you divide the 15 hours by the $20 in “profit” the artist made, he received $1.33 per hour for his work. That is less than the minimum a restaurant that claims tip credits can give its wait staff.
As of this writing, in the United States, the minimum wage is $7.25 per hour. If the artist charged only minimum wage for his work, and added no mark up, he would have had the right to charge $128.75 strictly because of this wage. This price does not add in the costs of storage or marketing the item.
Before getting into the math of doing business for yourself, which can be very complex, there is something to be said about labouring on your own products. Unless you keep a time clock in your workshop, it can be very difficult to calculate the actual and precise amount of time you worked on your product, which makes it very difficult to calculate the proper amount of labour to add in. So instead of using a per-hour rate on pieces built from scratch, there is a simple formula that we can use to generate an appropriate retail price:
R=(x+xm)+z
R stands for your final Retail Price.
x is the Cost of Materials
m is the difficulty of production
z is the mark up
While High School Algebra Teachers are probably cheering right now, this formula can look a little perplexing, so let’s plug in some values to make this work better for those with less of a head for chalkboard math and more of a head for making things.
Taking our often cited example, we’ll set the cost in materials of our product to $30. So now our formula will look like this: R=(30+30m)+z
Now we need to calculate “m”. In order to do this, we need to decide how difficult it was to create the product, as this multiplier calculates your labour. In general, the simpler the piece was to make, and the shorter the time it took, the lower the multiplier will be. The longer the time, and more complex it is, the higher the multiplier will be.
m=t+c, where t is the amount of time it took to make, and c is how complex it was.
To calculate t, use the following chart:
0-2 hours: 1 2-6 hours: 2 6-10 hours: 3 11-15 hours: 4 16+ hours: 5
Then calculate c, which is much harder as it is far more subjective. When in doubt, calculate high, as you can always mark the product down later:
Simple: 1 Moderate: 2 Complex or Difficult: 3 Very Complex or Difficult: 4
For the sake of our example, we’ll say that the piece took 15 hours (which it did) and was only moderately difficult to make. This means t=4 and c=2. If we plug this into our formula m, m=4+2.
So now we can plug this into our original formula.
R=(30+30(6))+z. or R=210+z.
Now we must calculate the amount for Retail Mark Up. Already we are beginning to see how much money was lost on the sale of our $50 piece because of using Guilt Math; the actual cost of the product he made was $210. Now we must account for the costs of storage and marketing the product.
Retail Mark Up is usually based on the amount of money a company wishes to make on the product. This is the Gross Profit portion of the product, or the profit earned before expenses. Standard mark up for most pieces that can be “mass produced” (even by hand) is 20-25%. This assumes the product can move quickly and be sold at market with minimal storage time. Custom pieces, or pieces that move slowly or are a very specialized good, have been marked up as much as 60%.
While it is up to the retailer (or in this case, the artist) how much to mark up their products, it is important to remember that storage and events to sell at cost a lot of money, especially when storage becomes long term. For the sake of this example, we’ll say the artist will be able to replicate the product with reasonable ease, and sell it quickly. So he decides to mark up his product 25%.
Plugging this into our example, our formula now looks like this:
R=210+(.25)210.
Percentages are calculated as a decimal, with 100%=1. All Mark Up is based on the Cost of the product, so our mark up will be $52.50. This may look like a lot of money, but remember, the costs of running your business, such as paying for events, food, and any applicable taxes must be built into the price before you can make a profit.
This means that the Final Retail Price, R, is going to be $262.50. Most people will drop the decimal, so $262 will be a good price for retail on this piece.
This is the Price you would charge using Business Math. While it looks high, and indeed $262 is a lot of money, that is the market value of the finished Lawn Gnome, and it is likely that a handmade product found in a store would be found for that price.
As an artist, you should never be ashamed to charge the true value of your work. If customers are willing to pay the price, then that is what your piece is worth on the open market, and you should be proud of your accomplishments. If they do not wish to pay so much, they will not buy it, and you can always lower your mark up later. Remember not to sell yourself short; you’re worth it.
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