On this label
- Count your time as a cost, even if you never pay yourself wages.
- Marketplace fees are a percentage of price, so add them by dividing, not by adding a flat amount.
- A “was” price must be one you genuinely offered for a reasonably substantial period (16 CFR 233.1).
Handmade sellers underprice for the same reasons again and again: they count materials but not time, they forget the fees, and they set prices by looking at the cheapest competitor. A formula fixes the first two. Knowing your numbers fixes the third, because you can see which competitors are selling at a loss.
Step 1: materials per item
Add up everything that goes into one finished piece: raw materials, findings, labels, tags and the packaging the customer receives. Divide bulk purchases by the number of items they make. Include waste: if one in ten pieces fails, spread its materials across the other nine.
Step 2: your time
Time is the cost handmade sellers leave out most often. Decide on an hourly rate you would accept for skilled work, then time a batch, including setup, finishing, photographing and packing, and divide by the number of pieces. If you price only materials, you are paying the customer to take your work.
Step 3: overhead
Overhead is everything that is not one specific item: tools, software, studio space, sample stock, photography gear and listing fees for items that have not sold yet. Estimate a month’s overhead and divide by how many items you sell in a month.
Step 4: the base cost
| Line | Example: a ceramic mug |
|---|---|
| Materials and packaging | $6.00 |
| Labor (30 minutes at $24 an hour) | $12.00 |
| Overhead share | $2.00 |
| Base cost | $20.00 |
These example numbers are illustrative only; use your own.
Step 5: profit and fees
Profit is what lets the business grow: better tools, more stock, a slow month. Add it to the base cost as a markup you choose. Then account for marketplace fees. Because fees are a percentage of the selling price, you cannot simply add them on. Divide instead:
Price = (base cost + profit) ÷ (1 − fee rate)
On Etsy, for example, the transaction fee is 6.5% and US payment processing is 3% plus $0.25, so the percentage fees total 9.5% before ads. With a $20 base cost and $10 profit, and the fixed $0.25 processing fee and $0.20 listing fee added to costs, the price is ($30 + $0.45) ÷ (1 − 0.095), which rounds up to $33.65. Our Marketplace Fees Compared: What Etsy, Amazon and a Shopify Store Take From a $40 Sale guide lists the rates for each platform.
Tip: If an Etsy Offsite Ads order would wipe out your profit at your current price, either raise the price, accept a smaller margin on those orders or, if your shop is under $10,000 in yearly sales, opt out.
Step 6: shipping
Charge shipping separately or build it into the price for “free shipping”. On Etsy and Amazon, fees apply to the shipping charge as well as the item price, so either way the fee is paid. Etsy’s annual report lists the availability of timely, fair and free shipping among the factors on which marketplaces compete. See Shipping and Packaging for Small Sellers: USPS Services, Box Sizes and the 30-Day Rule for carrier costs.
What the IRS calls cost of goods sold
IRS Publication 334, the tax guide for small businesses filing Schedule C, explains how to figure cost of goods sold for businesses that make or buy products to sell, and notes that you must value inventory at the beginning and end of each tax year if you keep one. Small business taxpayers may choose not to keep an inventory, but must still use a method that clearly reflects income. Keeping clean records of materials and packaging per batch makes both pricing and tax time easier.
Sales and “was” prices
Discounts help sell, but the Federal Trade Commission’s Guides Against Deceptive Pricing, at 16 CFR Part 233, set limits. A former price is a legitimate basis for a comparison only if it is the actual, bona fide price at which the item was offered to the public regularly for a reasonably substantial period of time. Raising a price briefly so that a later “sale” looks larger is the guides’ own example of a fictitious comparison. Comparisons to other sellers’ prices must also be based on fact.
Check against the market, not the bottom
The same guides give an example of a misleading comparison with other sellers: a retailer advertising “Retail Value $15.00, My Price $7.50” when only a few small outlets charge $15 and most of the market charges about $7.50. A comparison price has to reflect what the product actually sells for in your market.
Once you have a price, look at comparable products. If yours is higher, the listing must show why: materials, size, finish, personalization. If it is far lower than everyone else’s, you may have left something out of the formula. Remember that custom or made-to-order merchandise was about 30% of Etsy’s sales in 2025, according to the company: buyers do pay for work made for them. See What Sells Best on Etsy: The Categories, the Buyers and the Rules Behind Them.