Would You Pay $500.00 For This Hat?
Wait. Don't go away. I know the numbers sound outrageous, but let me explain why I asked the question. I am often asked why I don't sell the beautiful knitted things I make. People are always surprised when my answer is that I can't make enough to make it worth my time. It's a subject that comes up over and over again with makers and crafters. How do I set prices for my products? There are so many factors that are involved in that very personal decision; one main one is, "What price will the market bear"? What we should be asking is, "What should I pay myself"?
I have been studying sustainability for about a year now. (More about that in a separate post). The biggest revelation in my studies was that sustainability is about so much more than recycling and using organic products. The United Nations Sustainable Goals are a series of 17 goals to promote prosperity while preserving the planet. January's goal? No poverty. Which brings me back around to the main topic. A living wage.
Let's break that down using this Aspen Hat as the product in need of a price. What do you think this hat should cost? $9.99? $19.99? $39.99? $125.00? $350.00 $500.00? Here are some features of this hat to help you come to a number. This item is one of a kind. There are no more like it. It was knit entirely by hand. I designed and wrote the pattern myself. The yarn used was made by an indpendent dyer, and it is not one that is always available. Do you have a price in mind? Great. Let's move on.
There are a number of ways makers are advised to come up with a price for their products. Most involve some permutation of:
Cost + Markup
Cost + Hourly Rate x Time.
In this case, I used 1 hank of dk-weight yarn from The Lemonade Shop (28.00), 1 Rainbow pompom (8.50), and a 1 large snap ($0.80). That means that the cost of the yarn to make this hat is $37.30. Okay. so we can definitely eliminate the two lowest prices from our estimate.
Let's talk about hourly wage. In order to meet the United Nations Sustainable Goals, workers need to be paid a minimum wage that allows them to meet their basic needs. In most cases, the state minimum wage does not come close to meeting those needs. Unsure of what the minimum livable wage is in your area? You can look it up here, if you live in the United States. I live in New Jersey, where the minimum wage is $13.00 per hour. It took me 7 hours to knit the hat, plus an additional 2 hours of calculations, winding yarn, washing and blocking. I did not factor in the time spent writing the pattern or fees paid to the tech editor. Let's calculate the price of the hat based on what information we have now:
37.30 (cost) + 13.00 (NJ minimum wage) x 9 (hours of labor) = $154.30
Wow. Suddenly that hat has jumped right over the next 2 prices. But wait! There's more. While the minimum wage in NJ is $13.00, the livable wage for a household like mine, with 2 adults and 1 child with both adults working is $22.22. Let's see how that changes the price of hour hat.
37.30 + 22.22 x 9 = $237.28
That sure added up quickly. There is another scenario. What if I am the only breadwinner in a household with 2 adults and one child? In that case, the amount for a livable wage jumps to $37.63. Let's see how much that hat costs:
37.30 + 37.63 x 9 = $375.97
Let me add another factor into the mix. The only factor I included in markup was my hourly rate. What about the other costs of running a business? Photography, tech editing, writing the pattern, hours spend on admin, social media marketing, the costs of advertising, office space, software, electricity...I think you get the point. I found this formula for finding a wholesale price on the Creative Hive Blog.
Supplies + Your Time = Item Cost (Those are the numbers we came up with so far)
Item Cost x Markup = Wholesale Price
Wholesale Price x Markup = Retail Price
You can make your markup whatever number you like, and the formula can get very complicated when you are trying to figure out how many items you think you can sell in a given month in relation to what your actual expenses might be. Mei of Creative Hive recommends a markup of 2.0 to 2.5. So lets look at those numbers for the various hourly rates:
$154.3 x 2 = $308.6 at the NJ minimum hourly wage of $13.00
$237.28 x 2 = $474.56 at the hourly wage of $22.22
$375.97 x 2 = $751.94 at the hourly wage of $37.63
You can double those numbers again to get a retail price. That could be a whole other blog topic, so I won't get into it here, but the idea is that if you ever plan to allow stores to sell your products, they will expect to pay about half of what you are selling them for on your own site.
The reverse of these calculations is, of course how much I would make per hour at each of the price points listed in the question, "What would you pay for this beanie?". Let's break that down. for simplicity sake, I did not include the wholesale markup.
(Price - Cost)/9 = Hourly Wage
(9.99- 37.30)/9 = -$3.03
(19.99-37.30)/9 = -$1.92
(39.99-37.30)/9 = $0.30
(125-37.30)/9 = $9.74
(350-37.30)/9 = $34.74
(500-37.30)/9 = $51.41
As you can see, even at $125.00, the price of the beanie above does not allow for even meeting the state minimum wage in terms of hours and materials used. The numbers become quite a bit bigger when you start think about the hours it takes to knit a sweater (about 40 to 60 hours for a worsted weight sweater depending on knitting speed) or a blanket (even longer).
So why the exercise? I think we need to start thinking about where our clothes come from. Who makes our clothes? Are they being paid a livable wage? Thanks to fast fashion, too often, the answer to that question is "no". Here is a video with more information on fast fashion and labor practices. I am not about to ask you to pay $500.00 for a knit beanie. That is way out of my price range, and probably way outside of most budgets. Believe me. I understand that, and that is why I do not offer my knitted products for sale. If you are a knitter, you can find my knitting patterns here, and for the low price of $5.00 each, you can knit your own one-of-a-kind beanie.