A price list works when the product holds still. A custom product does not hold still, and the first time you quote two buyers for what you thought was the same piece and the work comes out different, the price list stops being a list and becomes a guess. I have priced custom work myself, so this post is about the problem at the root: not the number, but the number of ways an order can differ.

How To Price Your Products: Handmade Business Pricing Formula That Works, Creative Hive on YouTube

The arithmetic comes before the custom part

Calculator, notebook and leather pieces on a table

Every pricing method starts from cost. The Shopify guide to pricing a product gives the plain version: cost per unit is total variable costs plus total fixed costs, divided by the units produced. Cost-plus pricing adds a markup to that cost per unit. The guide calls cost-plus the easiest method and a useful baseline, and it also says what the method ignores: what customers are willing to pay, and what competitors charge.

Two other methods sit beside it. Competitive pricing sets a price near what similar products sell for. Value-based pricing sets it by what customers believe the product is worth to them. The guide notes that competitive pricing works in crowded markets but can lead to price wars, and that value-based pricing can support higher margins if you can justify the value.

For a custom product, the competitive method is the weakest of the three, since there is often nothing identical to compare against. That leaves cost as the floor and value as the ceiling, with the work of the business being the space between them.

Markup and margin are different numbers

The same guide warns that a 30 percent markup and a 30 percent margin produce different prices, so you need to know which one you are using. Markup is the percentage added to cost. Margin is the percentage of the selling price that is left after subtracting cost.

This sounds like a classroom point and it is a counter point. Plenty of small shops quote with one in their head and talk about the other with their accountant. If you say “I want thirty percent” and mean it two different ways in the same week, the books will not match the quotes, and you will not know why.

What a custom order does to the cost side

The Small Business Administration separates costs into fixed and variable, and adds a third group in between. Fixed costs stay the same for a set period regardless of volume: rent or lease payments, salaries, property taxes, insurance, interest and depreciation. The SBA also describes semi-variable costs, which mix fixed and variable parts and are fixed up to a certain level of production and then become variable. Its examples include monthly telephone service, repairs, indirect materials, indirect labor, fuel and power.

Custom work pushes more of your costs toward the semi-variable group than most owners expect. Materials are variable. Your own time is the hard one. A standard product has a known number of hours in it, and a custom product has a number you find out afterward. The SBA suggests separating the fixed and variable portions where you can, because it gives a more accurate break-even analysis. The break-even formula it gives is fixed costs divided by the difference between price and variable cost per unit, and the page adds that you can put roughly 10 percent on top of the analysis to cover miscellaneous expenses you cannot predict.

The Shopify guide lists the same ingredients from another side. Labor and overhead go in the fixed group, materials and packaging are variable, and shipping and credit card processing fees are other variable costs. It also says to use the same time period for all of your cost figures so the calculations stay consistent, and to review costs regularly, since rising costs shrink margins if prices stay put.

None of that tells you a price. It tells you what has to be in the number, and a custom order tempts you to leave things out because they look small on one piece.

Too many choices made every piece different

Row of similar leather briefcases with small differences

Here is the lesson I took from my own shop. Marcellino NY, which I have run on my own since 2010, makes handmade English bridle leather briefcases and offers bespoke customization. I disclose that because it is a financial interest of mine, and because the lesson comes from it.

When I offered a lot of customizations, every piece came out different. That made each one hard to track, and hard to remake. The options multiplied: a handful of choices in each of several categories gives you a very large number of possible pieces, and few of them are likely to be made twice.

That has a pricing consequence. A price built for a product you make again and again can use averages. A price for a piece nobody will ever make a second time has no average to draw on, so it has to be built from scratch every time, and each rebuild is a chance to leave something out.

It also has a record-keeping consequence, and this one catches people out. I am on social media, and customers have asked me for exact remakes of pieces they saw there. If you did not write down what was in the piece, an exact remake is a reconstruction from photographs. You can tell a customer the price of something you cannot precisely describe, but you cannot honestly promise it.

Narrowing the choices without narrowing the work

The remedy I would give is to limit what can change, not to refuse customization. There are a few ways a small shop can do it, and none of them is a secret.

  • Offer a short list of fixed options per category and say no to the rest, or send the rest to a separate quote.
  • Give each combination a name or a number, so a remake means finding a record and not rebuilding one.
  • Price the base piece and the options separately, so the customer can see what each choice adds, and so you can see it too.
  • Keep a written spec for every custom piece you finish, with the same fields each time.
  • Photograph the finished work next to its spec, which is also how you protect yourself from a customer who remembers a different color than the one they chose.

The last two are the cheap ones, and the ones most often skipped on a busy week. A spec sheet is a form with blanks. It costs nothing but the habit of filling it in while the piece is still on the bench.

I covered a related decision in a post about selling wholesale or retail as a small maker, where the question of what you can repeat comes up again.

Cost-plus for the floor, value for the ceiling

Blank order spec form beside a finished briefcase

Once the options are limited, the pricing method has something to work with. Cost-plus gives you the floor: below it, the order loses money. The Shopify guide gives the formula for a margin-based target price, which is cost per unit divided by one minus the desired margin as a decimal. That is how you get a price that leaves a set share of the sale after cost, as opposed to a markup that only looks like one.

Value gives you the ceiling, and here the customer’s reasons matter. A piece made to a person’s own specifications, to carry what they carry, is worth something that a catalogue item is not. The guide says value-based pricing can support higher margins if you can justify the value. Justifying it is a matter of showing the work, and showing that no one else can sell them this piece.

One more cost sits in custom pricing that does not appear on any formula: your own attention. Every extra option is another conversation. If a customer asks for a change after the work has started, the change has a cost, and so does the interruption. A quote that states what is included, and what a change costs once work has started, saves you from negotiating this in the middle of a job.

Where this breaks

A limited menu does not suit everyone. Some customers come to you precisely because you will do the unusual thing, and a shop that never says yes to it is a different shop. If the unusual work is the business, then price it as a project with its own quote, and accept that it will not scale. That is a legitimate way to run a small shop, but it should be a decision and not an accident.

I have given no dollar figures in this post, because none would hold from one trade to the next. The formulas above are the same for a leather shop, a cabinet shop or a bakery; the inputs are yours.

For informational purposes only. Pricing, tax treatment of costs and sales tax collection vary by business, so consult a licensed attorney, accountant or financial advisor before setting prices or contract terms.

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