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 to 3

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 and ensures you're not undervaluing your work.

2. The Profit First Pricing Model

This model 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. A healthy profit margin for handmade goods is typically 30–50%.

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% off retail.

Using the 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

❌ 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

Your time has value. If it takes you 2 hours to make a product and you value your time at $20/hour, that's $40 in labor alone—before materials.

❌ Underpricing to "Get Sales"

Underpricing devalues your work and attracts customers who won't pay fair prices later. Price with confidence.

Your Pricing Action Plan

1. Calculate your COGS for your top 3 products
2. Apply the Traditional Pricing Model to see where you land
3. Compare to your current prices—are you leaving money on the table?
4. Adjust your prices with confidence, knowing your value

You deserve to be paid fairly for your craft. Pricing with intention is an act of self-respect—and good business.