The Most Important Thing You Need to Know About Handmade Craft Pricing

Spend any time at all on the online knifemakers forums or Facebook groups and you are sure to run across the following discussion... "I have been making knives and mostly giving them as gifts to friends and family but now I want to start selling them to help pay for materials and better tools... How should I price my knives?" What follows is usually something like this: "take the time spent multiplied by your desired hourly rate and add material costs" Well, I have a news flash for you... That's total bullshit. YOU don't determine the price of a knife - the MARKET does based in the price if other knives of similar style and quality. Before I go any further, let me mention I have a Bachelors degree in business administration/marketing from The Ohio State University (Go Bucks!) and spent 4 years studying markets and pricing. That usually doesn't help me at all with my knifemaking, but I DO know a little bit about how markets work. The 'market' I'm referring to is the people who want to buy a custom knife and they don't care about your time or materials - only the finished product compared to other knives of a similar style or quality. Maybe a little thought experiment would help... Imagine you decide you want $20/hr, so you will price your knives based on that plus 3x material cost. You have a knife that cost you $35 in material ($35×3=$105) and took 8 hours to make (8x$20=$160) so you price it at $265. Will it sell at that price? Your answer would probably be "I don't know. I'd have to look at it" EXACTLY! You would need to examine it and mentally compare it to either other knives of the same style or other knives that cost the same. You wouldn't care how long it took me to make it or how much I paid for materials. Imagine it had taken me 10 hours to make - is that knife suddenly worth $305? (10x$20/hr + 3x$35 = $305) Imagine it only took you 2 that knife now only worth $75? Imagine that instead of paying for materials you used a scavenged leaf spring and some wood you found in the that knife now only worth $40? I hope you see why using any formulas that take time in materials into account are not an effective way to set a price. So what does work? Well, the best way to find out how much something is truly worth is to have an auction with lots of potential buyers. You will quickly discover what the true price should be and this method is actually called 'price discovery'. If an auction is not practical, the next best way is to compare your work to knives of a similar style and quality and guess at a price. If it sells quickly then you can up the price in the next one and continue inching the prices up until they stop selling in an acceptable amount of time...or...price it at the too end of the range and gradually drop the price I til it sells in a reasonable amount of time. All of that being said, if you are doing this to make money, it is still valuable to keep track if your knifemaking costs for your OWN analysis. It's one thing if you are making knives strictly as a hobby and would do it for free if you could. For you 'profit' is not really the issue and even if you sold a knife for less than the cost if materials, you are still ahead of where you'd be if you gave it away. But for those of you who want to actually cover costs and be compensated for your time/talent, it's a little different. There are probably a number of ways you could make extra money from. Working overtime, to getting a 2nd job, to making something other than knives. If your goal is to maximize income and you can make $34.50/hr by working overtime, then in the example above you need to be able to charge $105 materials + 10x$34.50 labor = $450. Is that reasonable for the quality of knives you make? If you turn pens in a lathe and it only takes you 2 hours to make one that you can sell for $150, (assuming $10 materials that comes out to $70/hr and is clearly a more profitable use of your time than knifemaking) The other way to increase your hourly rate is to develop the skill or buy the equipment that allows you to make knives faster. Let's say you learn to make knives in 3 hours...that $305 knife example we mentioned above now brings you $66/hr and is clearly a better choice than working OT (but still not quite as good as the pen turning example) The other way to increase profitability is to develop the skills that enable you to increase the quality, fit and finish of your knives until they bring you the price you want. So yeah, material and labor costs factor in, but not in the way or for the reasons you think. That information just helps you to compare different options If you want to make more money KNIFEMAKING, you need to constantly improve quality while working to get the time spent as low as possible without sacrificing quality. If you just want to make more MONEY, that information helps you choose the most profitable use of your time. There are a couple of exceptions to these ideas but I am going to save them for next time, so stay safe and have fun knifemaking (but don't quit your day job)

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