Jan 30, 2020

You are underpricing

Happy new year! I spent November preparing for Christmas markets, so pricing has been on my mind. More than usual, that is, because since I'm a self-employed leftist it's not like it's ever far. Let's skip the niceties: most artists and crafters out there are underpricing brutally, it's making my life harder and the field worse, and I'm annoyed. So here's a three-part primer: why underpricing hurts everyone, how you can get a semi-decent estimate of what you should charge, and how this ties into armchair economics and political positions. ONWARDS.

The race to the bottom

Factory-made goods are so, so cheap. Mechanization sped processes up by several orders of magnitude, and reduced labor costs immensely. Manufacturing was also moved overseas, quite often to take advantage of lower wages in some countries. This is very obvious with textiles: the linen cupboard used to be a literal treasure in every household, but these days textiles are very affordable, quickly bought and discarded. This is not a good or a bad thing per se. Affordable textiles are great, textile waste is bad. My point here is that it pushes perceived value down.

It can be tempting, as a small-scale artisan, to set your prices to the same level. Pricing is difficult, and working from what we know is easy. It also makes it seemingly simple to sell handmade things, get money back to buy more supplies and clear the shelves for new projects. So you sell a handmade mug for 10 dollars, a hand-knit scarf for 300 swedish crowns, a handwoven blanket for under 100 euros. And you forget to account for the time you spent working on it.

This is a fallacy. You can't compete with factory-made goods. It's impossible. You can't compete with a machine optimized for speed while doing everything by hand. You might get some sales, but by setting prices so low, without accounting for your work time, you're hurting anyone who is trying to make a living off small-scale handmade goods. That might include yourself, if you ever decide to try and turn your hobby into an actual business! By pricing your products like they're factory-made, you're positioning yourself in the same market as large companies. Small-scale handmade goods are often high quality and unique: by making them available at prices equal to uniform factory goods you're erasing that difference.

How does this hurt us? When other handmade products are available at low prices, we have to spend extra time justifying our prices, explaining the difference. When compared with factory-made goods, we could just say "this is handmade". Instead, we have to explain our entire pricing strategy and that our labor has value. The true culprits are unquestionably mass consumption and capitalim: but by devalueing your labor, you also create unfair, unsustainable competition.

But how do you even put a price on your labor? Don't worry, I'm not here just to yell at you. The next part explains how I set my prices, and why they're so high.

Pricing basics

I'll present the method I use to calculate my own prices. That means context is important and needs to be adjusted for your own situation: there are a whole bunch of spreadsheets online for that. You can use any tool designed for freelancers, because as an independent artisan that is what you are! You just sell finished products rather than a service, and your hourly rate gets turned into a product price rather than a client invoice. My own context is as follows:

  • Living and working in Sweden, where I pay my taxes;
  • Salaried through my own aktiebolag (LLC equivalent);
  • Ballparking my take-home pay to 50% of what I pay myself to account for taxes;
  • Registered for VAT, which is 25% on most of what I sell, though that is ignored in the math below;
  • Numbers are written European-style: 20.000 is twenty thousands, not twenty;
  • You can roughly translate 10 SEK to 1 USD or 1 EUR. That won't be accurate but it's close enough.

The first step is to figure out how much you need per month. For me, that's 20.000 SEK after taxes. And you might argue that this is a high number: but I live in an expensive town, and want to be comfortable and pay back my darn mortgage, not scrape by and live paycheck to paycheck. This is an acceptable attitude to have: you're not "entitled" for refusing to struggle.

Add taxes, and I need 40.000 SEK coming in each month. This is not quite accurate, since taxes work out a bit lower when you're salaried through a company. But it's a good ballpark for the self-employed status (enskild firma), and the extra wiggle room covers some fixed overhead.

A month is 4 weeks. So I need 10.000 SEK a week.

A fulltime week is 5 workdays. So I need 2000 SEK a day.

A fulltime workday is 8 hours. So I need 250 SEK per hour.

That's my rock bottom rate. Anything below that and I'm actively underpaying myself. Ideally, I want to charge way more than that so I can work less and preserve my health: that is very easy for programming work, where rates are high, and very difficult for weaving.

Then, I track work time on every project. How many hours spent designing, counting, warping, beaming, threading, sleying, tying on, tying up, weaving, finishing, sewing? I use the same rule as I do with freelance work: "Would I do this if I wasn't working on this project?". If no, then it's billable time. Multiply hours spent by hourly rate, and that's the labor costs for a project.

Time tracking table, with the tasks in the leftmost columns, the time amounts in the center, and notes on the right. The bottom has an autocalculated total time.

To that labor cost, I add the cost of materials. I divide the total by the number of pieces in the project, adjusting for differences in size or complexity if relevant, and I get my pre-VAT price. If I charge anything below that price I'm losing money.

Now that I have significant experience, I can generally run rough estimations of how long a project will take. This allows me to calculate a preliminary price and figure out if the project is even likely to sell. See the Twitter thread when I ran through one such estimate.

The fun part about those high prices? They are still not high enough. A healthy business has margin on its products, so it can invest and grow. Retailers and galleries often take at the very least a 50% commission, meaning I'd need to double my prices, because you should not undercut your own gallery. What this math gives me is the absolute minimal price, the one I can't go below. I can charge what I charge because I'm only selling direct to customers for now. In the future, I'll either have to get a lot faster - and I'm not that slow to begin with - or raise my prices significantly.

You'll notice that market prices for industrial goods are at no point something I look at here. It's not the same market.

Oh, hi Marx!

As mentioned in the intro, I consider myself a leftist. My pricing strategy ties into that. With apologies to any actual economist reading this, I'll now explain why I consider pricing my work fairly to be political.

We're commonly taught about supply and demand and basic market economics: people want or don't want your stuff at a certain price point, and you adjust accordingly to find the sweet spot between high sales and high price. The result is supposedly the Invisible Hand Of The Market magically setting fair prices for everything. But this is only one way to look at pricing, not a natural law. Some proponents of this way to look at things push it a step further, and argue that value is assigned by the market. A product has no value unless someone is ready to buy it.

Another way to look at this is the labor theory of value. Now, as mentioned, I'm not an economist so I'm going to oversimplify and probably get details wrong. But the rough idea is that value comes from the labor embedded in a product. Be that extraction from nature, transformation, transport: the time spent by workers is what gives value to a product. Whether or not someone wants to buy it, the product has value.

See how different those outlooks are? One trusts markets to know best and wants to leave them to figure it out. The other one puts value on labor and people. One is associated with conservatism and the right-wing, though it has contaminated a large part of the modern left. The other one is typically associated with Marx and radical leftism.

There are endless arguments among economists about what the "correct" theory is. To be honest, I don't really care. Because cheap textiles are (inaccurately) associated with ignored feminine labor, oppression of workers in non-Western countries, and deconsideration of crafts skills, valuing my own labor and pricing according to the time I spent is political. It means educating customers about the process, about the true cost of the goods we use. And while that's time away from making, it's obviously valuable, especially as we try to build a society that is more in harmony with the world around us.

It is absolutely awful that the result of paying myself a living wage is prices that are not affordable to most people. For my own practice, it means trying to stay within "comfy middle class" products rather than focusing on full-on luxury price ranges. That means series rather than unique objects, it means selecting techniques that are not too time-consuming. And it means figuring out new and exciting ways to chop fabric up in small, affordable pieces, as I'm doing with the dye house / coasters Kickstarter.

I don't yet know where I'll end up. It probably won't be full-time weaving. It definitely won't be exclusively taking commissions for rich people, if only because a twinge too many of them want me and my friends dead by way of inhuman economical policies. If, like me, you're frustrated by the lack of middle road between underpricing and luxury, stay tuned. I'm not giving up just yet.

End notes

A friend helpfully pointed out that William Morris had thoughts and strategies along those lines. I wasn't familiar with that part of his work, and will research it further. I also oppose factory-made goods to handmade goods for the sake of keeping the article a reasonable length, but that dichotomy is an oversimplication. Ezra Shales' excellent book "The shape of craft" explores those nuances, and is well worth a read.

 ·  business