Pricing feels like guessing because two different bits of math are being mixed up, and Etsy fees are quietly left out. Fix those two things, and pricing becomes a sum you can do on paper.
Margin and markup are not the same thing
This is the classic trap, and it catches almost everyone once.
Markup starts from your cost and adds a share on top. Say an item costs you $10 to make and you add 30% on top. You price it at $13. The markup is 30%.
Margin starts from the final price and asks what share of it you keep. On that same $13 price, the $3 you added is only about 23% of the $13. Your margin is about 23%, not 30%.
Same item, same price, two different numbers. When you say "I want to keep 30% of what the buyer pays," you are talking about margin. If you then price using markup, you will keep less than you planned on every single sale, and you will not know why. Decide which one you mean — for keeping money, margin is the honest one — and use it on purpose.
A pricing formula that includes the fees
Work backwards from what you want to keep. The pieces are:
- Your materials cost for one item
- Packaging for one item
- The shipping you will charge the buyer
- Etsy's fees on that sale
- The share of everything the buyer pays that you want to keep
Here is the verified example, step by step in words. Say your materials cost $8, packaging costs $1, and you will charge $5 for shipping. You want to keep 30% of everything the buyer pays — that means 30% of the item price plus the shipping, after fees and after your $9 of costs are taken out.
For an ordinary sale in the US, the price that does exactly that is $10.62. At $10.62 plus $5 shipping, the buyer pays $15.62. The transaction fee, payment processing, and listing fee come off, your $9 of materials and packaging comes off, and what remains is 30% of what the buyer paid. Not roughly — exactly, because the price was built backwards from the goal.
Notice how close the price sits to the costs. That is because the $5 shipping is part of the pot the 30% is measured on. Pricing by feel fails here: shipping money, fees, and your costs are all in the same pot, and only the sum knows the truth.
Why pricing for the ordinary sale alone loses money
Now the same item sells through an Offsite Ad. Same materials, same packaging, same $5 shipping, same wish to keep 30%.
The price that still keeps 30% is now $15.77 — not $10.62.
The ads fee (15% for a shop that took under $10,000 in the last 365 days, 12% at $10,000 or more) is charged on the whole order. It is so large that the price has to rise by over $5 to hold your 30% steady. If you keep the $10.62 price, the ad sale does not keep 30%. It keeps far less, and on a thin-priced item it can keep nothing at all.
You have three honest choices. Price for the ad sale and be pleasantly ahead on ordinary sales. Price somewhere between the two, knowing ordinary sales keep more than your target and ad sales keep less. Or price for the ordinary sale and accept that ad sales are nearly free work. What you cannot do is price for the ordinary sale and believe the ad sales are keeping the same share. They are not, and your statement will prove it every month.
The time question
Your time is real. An hour spent making is an hour you could have spent on something else, and a business that never pays for its maker's time is a hobby with extra paperwork.
But your own labor is not a material cost, and mixing it into the cost sum causes two problems. First, it makes the "cost" of an item whatever you feel that day, so your prices wobble. Second, when you later work out your taxes, the cost of goods sold counts materials — not your own labor. A price built on a mixed-up cost will not match the numbers anywhere else in your shop.
The clean way: price so the margin — your kept share after materials, packaging, and fees — is large enough to pay you for your time. Track how long items take. If an item takes two hours and leaves you, say, $6 of margin, you are paying yourself $3 an hour, and that is a fact worth knowing plainly when you decide what to keep making.
A steady way to price
Write your true materials and packaging cost for the item. Choose the share you want to keep. Work the price backwards including fees, for the ordinary sale and for the ad sale. Look at both numbers, pick your price with your eyes open, and write the sum down so next month's you can check it.
If you want the backwards sum done for you, the free pricing calculator on mykeptmoney.com takes your costs and the share you want to keep and gives you the price for an ordinary sale and for an ad sale.