Pricing, Profit, and COGS: A Maker’s Guide to Financial Success
As a maker, pricing your products can feel like an emotional minefield. You want to be competitive, but you also need to make a profit. You don’t want to overcharge, but you can’t afford to undercut yourself. And then there’s the question of Cost of Goods Sold (COGS)—a crucial factor that many makers overlook when setting their prices.
If you’ve ever found yourself in the cycle of working hard yet barely covering your costs, it’s time to take control of your pricing. Understanding COGS, setting the right profit margins, and applying a sustainable pricing strategy will empower you to build a thriving business that pays you fairly.
Understanding Cost of Goods Sold (COGS)
Your Cost of Goods Sold (COGS) includes all the direct costs that go into producing your product. This means:
Materials (fabric, beads, wood, paint, etc.)
Packaging (boxes, labels, tissue paper, stickers)
Production Labor (you or if you hire help, even if it’s just part-time)
COGS does not include shipping costs, business overhead, or marketing expenses—those fall under operating expenses.
Pricing for Profit
Once you’ve determined your COGS, the next step is to set your price. But here’s where many makers go wrong: they don’t build in a profit margin.
Common Pricing Formulas
Here are two simple pricing formulas that work well for handmade businesses:
1. The Traditional Pricing Model
Retail Price =COGS ×2 to3
This formula ensures that your product is priced to cover costs, overhead, and some profit.
Using the candle example:
Retail Price = $7 × 3 = $21
This price allows for wholesale pricing (more on that below) and ensures you’re not undervaluing your work.
2. The Profit First Pricing Model
This model, inspired by the Profit First system, prioritizes paying yourself first before covering expenses. Instead of pricing based solely on costs, you reverse-engineer your pricing by factoring in:
Your desired income
Your business overhead
Your profit percentage
Example Profit-First Breakdown: If your goal is to make $5,000/month, and you estimate selling 250 candles a month, you’d need to price them accordingly:
$5000 / 250 = $20 per candle (after costs)
The Importance of Profit Margins
Your profit margin is the percentage of revenue that remains after accounting for costs. Here’s how to calculate it:
Wholesale Pricing: Should You Sell at a Lower Price?
Many makers consider wholesale but forget to build a wholesale price into their model. Wholesale buyers expect to purchase at 50% of retail—meaning you need to double your retail price to ensure profitability.
Using our candle example:
Retail Price: $21
Wholesale Price (50% off retail): $10.50
COGS: $7
This leaves you with only $3.50 per candle after costs, which might not be enough.
A better approach? Set retail prices higher to make wholesale pricing sustainable. If you charge $30 per candle:
Wholesale: $15
COGS: $7
Profit per candle (wholesale): $8
This ensures you still make money even at wholesale rates.
Avoid the Pricing Pitfalls
Here are common mistakes makers make when pricing their products:
❌ Competing with Mass-Produced Items
Big box stores and fast-fashion brands have bulk manufacturing advantages. Your handmade goods offer value through craftsmanship, quality, and uniqueness—price accordingly.
❌ Not Accounting for Your Time
Even if you love what you do, your time is valuable. If it takes you two hours to make a product, and you’re selling it for $20, you’re making $10/hour—before costs! Aim to price your products so you’re earning a reasonable amount for your work.
❌ Undervaluing Packaging & Branding
High-quality packaging and branding add perceived value. A well-designed label or box can justify a higher price, making your product feel more premium.
❌ Not Testing the Market
Pricing too low can make your brand seem “cheap,” while pricing too high may push away buyers. Test your pricing at markets and online and adjust based on sales data.
“Maker Takeaway”: Price With Confidence
Pricing isn’t about what you think people will pay—it’s about what your product is worth. When you factor in your COGS, time, and profit margin, you’ll create sustainable pricing that allows your business to grow.
Your Next Steps:
Calculate Your COGS – List all material and packaging costs.
Choose a Pricing Model – Use the traditional or profit-first approach.
Ensure Your Profit Margins – Aim for 30-50% profit margins.
Test Your Pricing – Try different prices and track customer responses.
Stay Confident! – You deserve to be paid fairly for your work.
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💬 Let us know in our maker community: What is one thing that you learned about business pricing or making a profit that you did not know before today?
