Pricing your handmade goods can feel like walking a tightrope. You’ve poured your heart and soul into every piece, and now it’s time to assign a value to all that hard work. But how do you make sure you’re not underpricing yourself? Or worse—pricing yourself right out of the market? In this tutorial, we’ll break down how to price your products so that you’re not just covering your costs but actually turning a profit. You deserve to be paid for your time, effort, and creativity, but that doesn’t mean you should scare off potential buyers with a price tag that’s too steep.

We’ll tackle the essentials: the psychology of pricing, how to factor in Etsy’s fees, calculating the real cost of your goods, and understanding competitive pricing. We’ll also touch on those tough questions like whether to offer free shipping and how to run sales without looking like you’re clearing out your garage.

By the end of this tutorial, you’ll have a clear pricing strategy that ensures you’re making money—not just breaking even.

Step 1: The Psychology of Pricing – Why $19.99 Is Better Than $20

Let’s start with a little bit of pricing psychology. Have you ever noticed how products are rarely priced at round numbers like $20 or $50? Instead, you’ll see prices like $19.99 or $49.95. This isn’t just a marketing gimmick—it’s a strategy that taps into the way our brains perceive prices.

Here’s why it works:

1. Charm Pricing. When you price something at $19.99 instead of $20, it’s called charm pricing. Even though the difference is just one cent, customers perceive $19.99 as significantly cheaper than $20. Our brains focus more on the first number (the “19”) and less on the cents, making the price feel lower than it actually is.

2. The Power of Nines. Studies have shown that prices ending in 9 (like $19.99, $29.99, etc.) can increase sales more than prices ending in other numbers. It’s a subtle psychological trick that makes customers feel like they’re getting a better deal.

3. Price Anchoring. This is when you set an initial price that’s higher than what you eventually ask for. For example, if you list a product as “originally $30, now $24.99,” that higher original price makes the discounted price seem like a steal, even if you were planning to sell it for $24.99 all along. The customer feels like they’re getting a deal because their mind anchors to that higher original price.

4. Pricing Tiers. Sometimes, offering your product in different pricing tiers can be effective. For example, you could have a “basic” product at $15, a “deluxe” version at $25, and a “premium” version at $35. This gives buyers options and makes them feel in control of how much they want to spend.

Pro Tip: Try experimenting with charm pricing in your Etsy store. Even a small price tweak from $20 to $19.99 can make a big difference in how customers perceive your products.

Step 2: Understanding Etsy’s Fees – Don't Get Shortchanged

Before you start pricing your items, you need to understand Etsy’s fee structure. Etsy isn’t just a platform where you can list your products and sell them—they take a cut of every sale, and if you’re not careful, these fees can eat into your profits.

Here’s what Etsy charges you:

1. Listing Fee: Every time you create or renew a listing on Etsy, you’re charged $0.20. This fee is non-refundable, and it applies whether or not your item sells. Listings stay active for four months or until they sell, so keep this in mind when factoring in your costs.

2. Transaction Fee: When you make a sale, Etsy takes 6.5% of the total sale price (including the shipping cost). This is Etsy’s commission for connecting you with a buyer. It may not sound like much, but it adds up, especially if you’re making a lot of sales or selling high-priced items.

3. Payment Processing Fee: If you’re using Etsy Payments to accept credit card payments (which most sellers do), you’ll also be charged a payment processing fee. In the U.S., this fee is 3% of the total sale price, plus $0.25 per transaction. The fee varies depending on your country, so be sure to check Etsy’s guidelines for your location.

4. Advertising Fees (Optional): If you’re using Etsy’s paid ads to promote your listings, there’s an additional fee for that. Etsy offers two types of advertising: Etsy Ads (where you pay-per-click) and Offsite Ads (where Etsy promotes your listings outside of Etsy, like on Google or Facebook, and charges you a fee only if you make a sale through those ads). The Offsite Ads fee ranges from 12% to 15% of the sale price.

Example Calculation:

Let’s say you sell an item for $50, and your shipping cost is $5. Here’s how the fees would break down:

• Listing Fee: $0.20
• Transaction Fee (6.5%): $3.58 (6.5% of $55)
• Payment Processing Fee: (3% + $0.25):** $1.90
• Total Fees: $5.68

That means out of your $50 sale, you’re actually only pocketing $44.32 after fees. Make sure you’re factoring these fees into your pricing so you’re not accidentally underselling yourself.

Pro Tip: Use Etsy’s fee calculator (there are several free ones online) to play around with different pricing scenarios. This will help you get a better sense of how much profit you’ll make after Etsy takes its cut.

Step 3: Cost of Goods Sold (COGS) – What Does It Really Cost to Make Your Products?

Now that we’ve covered Etsy’s fees, it’s time to get into the nitty-gritty of how much it actually costs you to make each product. This is called the cost of goods sold (COGS), and it’s a crucial part of your pricing strategy. If you’re not accurately calculating your COGS, you could be selling your products for less than it costs to make them—and nobody wants that.

Here’s how to calculate your COGS:

1. Material Costs: Start by adding up the cost of all the materials you use to make your product. This includes everything from fabric, beads, and thread to wood, paint, and clay. Be as detailed as possible and don’t forget to include any extra materials like glue, tape, or embellishments.

2. Packaging Costs: Don’t forget about packaging! The cost of boxes, envelopes, tissue paper, bubble wrap, and tape should all be included in your COGS. If you use branded packaging (like custom stickers or printed boxes), factor that in as well.

3. Labor Costs: You’re not just paying for materials—you’re also paying yourself for the time it takes to make each item. How long does it take you to create one product? Whether it’s 10 minutes or 3 hours, you need to assign a dollar value to your time. If you’re not sure how much to charge for your labor, think about what an hourly wage would look like for someone doing similar work. For example, if you spend 2 hours making a necklace and you want to pay yourself $20/hour, your labor cost for that necklace would be $40.

4. Overhead Costs: These are the costs of running your business that aren’t directly tied to a specific product, like rent for your workspace, utilities, website hosting, or software subscriptions. To calculate your overhead cost per item, take your total monthly overhead expenses and divide it by the number of products you make in a month.

Example:

Let’s say you’re selling a hand-painted mug. Here’s how you might break down the COGS:

• Material Costs: $3.50 (for the mug, paint, and sealant)
• Packaging Costs: $2.00 (for the box, bubble wrap, and tissue paper)
• Labor Costs: $15.00 (you spend 1 hour painting each mug and pay yourself $15/hour)
• Overhead Costs: $1.00 (you calculate that your overhead costs are about $1 per mug)

So your total COGS for the mug is $21.50. That means if you want to make a profit, you need to sell the mug for more than $21.50. But how much more? That’s where profit margin comes in.

Step 4: Competitive Pricing – Researching Without Copying

Once you’ve figured out your COGS, the next step is to see what other sellers are charging for similar products. You don’t want to price yourself too high (and scare off potential buyers), but you also don’t want to price too low (and devalue your work). Finding that sweet spot can take some research, but it’s worth the effort.

Here’s how to research competitive pricing without just copying someone else’s prices:

1. Search Etsy for Similar Products: Start by searching for items that are similar to yours. Look at the top sellers in your category and see how they’re pricing their products. Pay attention to factors like size, material, and complexity—if your product is more intricate or uses higher-quality materials, you can justify a higher price.

2. Check Their Reviews: Take a peek at the reviews for similar products. Are customers raving about the quality, or are there complaints about the product being overpriced? This can give you valuable insight into whether the pricing is fair.

3. Consider Your Unique Selling Point (USP): What sets your product apart from the competition? Maybe you use eco-friendly materials, offer customizations, or package your items in a unique way. These factors can justify a higher price, so don’t be afraid to charge more if your product offers something special.

4. Don’t Undersell Yourself: It can be tempting to undercut the competition by pricing your products lower, but this isn’t a sustainable strategy. Remember—you’re running a business, not a hobby, and you deserve to be paid fairly for your work. Instead of competing solely on price, focus on offering exceptional quality, unique designs, or top-notch customer service.

Pro Tip: If you’re just starting out and aren’t sure what to charge, try pricing your products slightly lower than the competition to attract early buyers. Once you have a few sales and positive reviews under your belt, you can gradually raise your prices to reflect the value of your work.

Step 5: Free Shipping or No?

Offering free shipping can be a game-changer on Etsy, especially since the platform’s algorithm favors listings with free shipping. But how do you offer it without losing money? Here are a few strategies:

1. Build Shipping Costs Into Your Product Price: The easiest way to offer free shipping without taking a hit is to build the shipping cost into your product price. For example, if it costs $5 to ship an item, raise your product price by $5 and offer free shipping. This way, customers feel like they’re getting a deal, and you’re not losing money on shipping.

2. Offer Free Shipping on Orders Over a Certain Amount: If you can’t afford to offer free shipping on every order, consider offering it on orders over a certain amount (like $50 or $100). This encourages customers to buy more items to qualify for free shipping, which can increase your average order value.

3. Test It Out: If you’re not sure whether free shipping will boost your sales, try running a test. Offer free shipping for a month and track your sales to see if there’s a noticeable difference. You can always switch back if it’s not working for you.

Pro Tip: Etsy offers a “Free Shipping Guarantee” that allows you to offer free shipping to U.S. buyers on orders of $35 or more. If you enroll in this program, Etsy will prioritize your listings in search results, which can help you get more visibility.

Step 6: Discounts and Sales – The Art of Running a Sale

Running a sale can be a great way to attract new customers and increase sales, but you don’t want to look like you’re desperate to offload inventory. Here’s how to run a sale without devaluing your products:

1. Keep It Limited: A sale should feel special, not like an everyday occurrence. If you’re constantly running sales, customers will start to expect discounts and may hold off on buying until you offer another one. Keep your sales limited to special occasions (like holidays or store anniversaries) to maintain the value of your products.

2. Don’t Go Too Deep: While it might be tempting to offer steep discounts to attract buyers, be careful not to cut your prices too much. A 10-20% discount is usually enough to incentivize buyers without making you lose money. If you need to clear out old inventory, you can offer bigger discounts, but make sure you’re still covering your costs.

3. Advertise Your Sale: If you’re running a sale, make sure your customers know about it! Use Etsy’s “On Sale” feature to highlight discounted items, and promote your sale on social media or through email marketing.

Pro Tip: Etsy’s algorithm favors stores that run sales, so offering discounts can help boost your visibility in search results. Just make sure you’re not overdoing it—sales should feel special, not like a regular occurrence.

Wrapping It Up – Your Pricing Strategy for Etsy Success

Pricing your products can be tricky, but it’s one of the most important aspects of running a successful Etsy store. By understanding the psychology of pricing, factoring in Etsy’s fees, calculating your COGS, and researching competitive prices, you can create a pricing strategy that ensures you’re not just breaking even—you’re making a profit.