How to cost your handmade products: a guide for small producers

One of the most common problems for small makers is underpricing. A chocolatier who sells a bar for £4.50 may feel it’s priced about right — until they sit down and work out what it actually costs to make. The ingredients alone might come to £1.80, but by the time you add packaging, labels, your time and a share of the monthly costs of running the business, the true cost can be £3.20 or more. At £4.50 the margin barely covers a bad batch or a slow month.

The good news is that working out your true cost per unit is not complicated — it just requires being thorough. There are four components.

1. Ingredients and raw materials

Start with your recipe. For each ingredient, divide the pack cost by the pack size to get a cost per gram, millilitre or unit. Then multiply by the quantity your recipe uses.

A few things people miss:

• Wastage. Chocolate that sticks to the bowl, wax that stays in the pour jug, essential oil that evaporates. Add a small percentage for realistic wastage.
• Use your actual purchase price, not a notional one. Ingredient prices change. The olive oil you bought this month may cost more than last quarter. Costing on outdated prices gives you a false picture.
• Include everything in the recipe, even the small quantities of expensive ingredients like vanilla paste or fragrance oil — these add up fast.

2. Packaging

This is where many small makers get a surprise. Packaging costs are often close to, or even higher than, raw material costs for finished consumer goods. Include everything that goes out with the product:

• Primary packaging (jar, tin, box, pouch, wrapper)
• Labels (front, back, ingredients label if separate)
• Inserts, tissue paper, ribbon, seal sticker
• Outer carton or postal packaging if you sell online

Work out the cost per unit for each element and add them up. If you buy packaging in bulk, use the per-unit price at the quantity you actually buy, not the cheapest bulk tier you might reach someday.

3. Labour

Your time has a value — and it’s one of the most commonly forgotten costs in small-maker pricing. The question to ask is: what would I pay a skilled person to do this work?

Time your production properly — including preparation (weighing, melting, mixing), the making itself, cooling or setting time you’re attending, and finishing (labelling, wrapping, boxing). Divide total time by the number of units in the batch to get a time-per-unit figure. Multiply by your hourly rate.

If you’re uncomfortable putting a value on your own time, try this: if you couldn’t make it yourself and had to pay someone else to do so, what would you pay them? Start there.

4. Fixed costs (overheads)

These are the costs of running your business regardless of how much you make in a given month:

• Workshop rent or a proportion of your home energy bills
• Equipment (amortised over its useful life)
• Insurance
• Software, website, marketplace fees
• Accreditations, testing costs (especially for cosmetics)

Add up your monthly fixed costs and divide by the total number of units you typically produce in a month. That gives you an overhead cost per unit.

Putting it together

Common mistakes to avoid

• Calculating ingredient costs but forgetting packaging and labels
• Not counting your own time at all, or counting only making time and forgetting prep and finishing
• Using old ingredient prices that no longer reflect what you actually pay
• Forgetting that when ingredient prices rise, your costs rise — and prices may need to follow
• Setting a price and never revisiting it even as costs change

Costing is not a one-off exercise. Ideally you recalculate whenever a significant ingredient price changes, and review all products at least once a year.