Pricing Handmade Products Without Lying to Yourself
I wish I had a better story for this one. Something with a little poker in it, pot odds and hand equity, maybe a nod to ICM and expected value under tournament pressure. That’s the version of me that sounds like he knows what he’s doing. The real version just slogged through figuring out how to price Celeste Naturals’ products the hard way, got it wrong a few times, and adjusted. No hand history, just a formula that kept needing rewrites.
The formula everyone starts with
I started where everyone starts: Profit = Revenue – Expenses. Straightforward, and about as elementary as my experience at the time.
We took our cost of goods, vessels, lids, ingredients, labels, added it up per unit, and went looking for what a “normal” markup looks like in this industry. The range we found was 4x to 10x cost. Pick a multiplier, do the math, done. That felt like pricing. It was actually the first of many learning opportunities, which is the polite way of saying mistake.
The price we set because we felt small
Here’s where the real damage happened, and it wasn’t in the spreadsheet.
We’re confident in our formulations. Put our ingredient lists and finished products next to brands we admire, Salt and Stone, Primally Pure, and we think we hold up. In some cases we think we’re better. And then we turned around and priced ourselves like none of that was true, because we were new, small, and no-name, and some unexamined part of our brain decided newness meant lesser.
That’s not a pricing strategy. That’s an inferiority complex masquerading as a spreadsheet.
Packaging isn’t the only first impression a customer forms before they’ve used the product. Pricing is a signal too, whether you intend it to be or not. Price too low and you’re not being humble or accessible, you’re telling customers the product isn’t worth much, and a lot of them will believe you. We were quietly undercutting our own quality every time we set a price low enough to apologize for existing. Fixing that meant separating two questions we’d been treating as one: what does this cost us, and what does this say about us. The first is math. The second is a decision, and we’d been making it by accident.
The costs we forgot to count
Once we actually started selling, the basic formula fell apart fast, because “expenses” turned out to be a much longer list than “ingredients and packaging.”
Market fees. Marketing. Operating costs. Utilities. Storage. Packing materials. Shipping. Credit card processing. Labor, including our own, which is the one you’re most tempted to just not count. Wholesale commissions and discounts once those started applying. If revenue is supposed to cover all of your expenses, then “all” has to actually mean all, not just the line items that were easy to think of on day one. Obvious in hindsight. Somehow still missable when you’re staring at a spreadsheet convinced you’ve already been thorough.
Working through the real list forced three realizations, none of them comfortable:
We weren’t making the margin we thought we were, and the price needed to move to close that gap.
Economies of scale weren’t optional if we wanted this to keep working. The math gets easier as volume grows, which meant volume wasn’t just a growth goal, it was part of the pricing plan itself.
Our long-term channel strategy had a cost baked into it that we hadn’t priced for. We want to grow out of markets and into more wholesale over time, on top of our direct-to-consumer sales. Wholesale typically runs at something like a 50% discount off retail. That’s not a footnote, that’s half your margin gone on every wholesale unit, and if you don’t build that into your pricing early, wholesale growth quietly turns into wholesale erosion.
Letting the customer set the ceiling
Formulas will only get you so far, because at the end of the day a product is worth whatever someone’s actually willing to pay for it, and no amount of research replaces just watching that happen in real time.
We’ve raised prices gradually based on what customers at the market were telling us, directly and indirectly. Comments comparing us favorably to pricier competitors. A flat “you should be charging twice as much as you are” from more than one person. And the part that actually surprised us: every time we’ve raised a price on that kind of signal, sales went up, not down. That’s the opposite of what the small-and-humble pricing instinct predicts, and it’s the clearest evidence we’ve had that our original prices weren’t modest, they were just wrong.
How to price your products without shortchanging yourself
Pricing handmade products isn’t a formula you solve once and move on from. It’s Profit = Revenue – Expenses, except expenses keep revealing themselves, and it’s also whatever your price tag quietly tells a customer about how much you believe in what you made. Get the math wrong and you lose margin. Get the signal wrong and you lose the argument for your own product before a customer’s even picked it up.
We’re still adjusting. We’ll probably always be adjusting. But we stopped pricing like the smallest, newest maker at the table, because our product was never actually the part that was small.