How to work out the cost price of a handmade product

Most home sellers price by looking at what the materials cost and adding a little on top. The trouble is that materials are only part of what you spend. If you leave out your own time, you are quietly working for free, and you will not notice until the business grows and you cannot keep up. Here is a full walk through using a candle, so you can copy the method for whatever you make.

Step 1: list every material in one unit

Say you pour one jar candle. Write down what goes into exactly one candle, not the whole batch. Here are illustrative numbers:

• Wax: Rs 40
• Wick: Rs 5
• Glass jar: Rs 30
• Fragrance oil: Rs 15

Materials add up to Rs 90. If you buy wax in a 5 kg block, divide the block price by the number of candles it makes, so the Rs 40 above is your share of the block for this single candle.

Step 2: put a price on your time

This is the step people skip. Suppose it takes 30 minutes of your work per candle, counting melting, pouring, setting the wick and cleaning the jar. Decide what an hour of your time is worth to you. Say Rs 100 an hour. Half an hour is Rs 50.

Your honest number does not have to be high. It only has to be real. If you pay yourself nothing, the day you hire help or get sick, the price you set will not cover the cost of someone else doing the job.

Step 3: add it up

Materials Rs 90 plus time Rs 50 gives a cost price of Rs 140 per candle.

That is the number every pricing decision starts from. A candle sold at Rs 140 is not a profitable sale. It only means you got your materials and your hourly pay back.

What this cost leaves out

Rs 140 is a starting point, not the final answer. It does not yet include:

• Packaging such as the box, tissue paper or a thank-you card
• Shipping, if you offer free delivery
• Payment fees on online orders
• Anything you spend on ads or photography

Each of these is a real cost, and the later posts in this series cover them. For now, if packing a candle costs Rs 20, your cost per candle shipped out the door is Rs 160 before delivery.

Turn cost into a price

Once you know Rs 140, you can pick a margin on purpose. Doubling it gives Rs 280, which leaves Rs 140 above cost. Whether the market accepts Rs 280 depends on your product and your customers, which is where pricing your products when you are just starting can help. If you want a specific profit percentage, the maths is in setting a selling price from a target margin.

Keep the sheet current

Wax and jars change in price. Once every few months, recheck your supplier rates and update the numbers. A simple spreadsheet with one row per product and one column per cost is enough. If you sell candles, you may also like how to start selling candles online in India.

Next step

Pick your best-selling product, write out each cost for a single unit, and add a line for your own time. Most sellers find the real figure is higher than the number they had in their head. When you add the product to your Varchas store, you can then set the price with that number in front of you rather than guessing.