How to price Etsy products without losing money

Step 1: find your real cost per item

Four parts, and sellers usually miss the last two:

• Materials, including the share of anything bought in bulk.
• Packaging: box, tissue, label, the thank-you card.
• Your time, at a rate you would accept from an employee doing the same work. Time the whole thing: making, photographing, listing, packing.
• Overhead: tools, software, workspace. Divide a typical month of these by the items you sell that month.

Our example is a hand-poured candle: $4.20 of materials, $1.30 of packaging, 30 minutes of time at $18 an hour ($9.00) and $1.50 of overhead. That is $16.00 before Etsy takes anything.

Step 2: why cost plus a markup falls short

Say you want to keep 25% and you multiply $16.00 by 1.25 to get $20.00. Then Etsy's standard fees take their share of that $20.00:

• Price$20.00
• Transaction fee, 6.5%− $1.30
• Processing, 3% + $0.25− $0.85
• Listing fee− $0.20
• Your cost− $16.00
• What is left$1.65

That is an 8% margin, not 25%. Two things went wrong. A markup of 25% is measured on your cost, while a margin of 25% is measured on the price, so the same percentage means different money. And the fees scale with the price, so they have to be removed from the price, not added to the cost.

Step 3: price backwards from the margin you want

Take the fixed fees ($0.20 + $0.25 = $0.45) and add them to your cost. Then divide by the share of the price you keep after the percentage fees and your target margin:

Price = (cost + fixed fees) ÷ (1 − fee % − target margin)

For the candle: ($16.00 + $0.45) ÷ (1 − 0.095 − 0.25) = $16.45 ÷ 0.655 = $25.11, about $25.12 once rounded up. Check it:

• Price$25.12
• Transaction fee, 6.5%− $1.63
• Processing, 3% + $0.25− $1.00
• Listing fee− $0.20
• Your cost− $16.00
• What is left$6.29

$6.29 on $25.12 is 25%. The figures above leave out shipping and Offsite Ads. If a buyer pays your actual postage, shipping is roughly neutral, apart from fees charged on it. If an order comes through Offsite Ads, add 15% to the fee total and the margin shrinks further, as the fees guide shows.

Step 4: before you discount, see what it costs

Etsy makes sales and coupons easy to switch on. Take 20% off the $25.12 candle, which is $20.10. Fees fall a little, but your cost does not:

• Fees at $20.10: $1.31 + $0.85 + $0.20 = $2.36
• Left after cost: $20.10 − $16.00 − $2.36 = $1.74

A 20% price cut removed about 72% of the profit, from $6.29 to $1.74. A discount needs to bring in several extra orders to pay for itself, and it is worth knowing how many before you run one.

What about the competition?

Looking at similar listings is useful, but as information, not as your price. If the going rate is below your calculated number, your options are lower costs, a faster process, or a product that is different enough to justify yours. Matching a price that loses money only makes the shop busier. If the going rate is above your number, you may be underpriced, and that gap is free margin.

Round at the end, not the start, and round up: $25.12 can become $25.50 or $26 without anyone noticing, and the extra cents are yours.

Three common mistakes

1. Paying yourself nothing. It feels like a profit now and becomes a problem the moment you are too busy to make everything yourself.
2. Pricing on the cost of one candle, not a month. Overhead and your time to list and photograph the item belong in the price.
3. Setting a price once and never revisiting it. Material costs and Etsy's fees change. Re-run the numbers a couple of times a year.