Pricing & Margins · 6 min read
How to Calculate the True Cost of a Handmade Product
Short answer
The true cost of a product = materials (from the bill of materials) + labor (hours × hourly rate) + energy (kWh × price) + a share of overhead. Most small makers underprice because they skip labor and energy.
Why most makers underprice
Small producers usually count only the materials they can see on the bench. Time spent cutting, finishing and packing, plus the electricity used by machines, quietly eats the margin.
The four cost layers
Break every product into four layers and add them up:
- Materials: every part and raw material listed in a bill of materials (BOM), multiplied by its unit price.
- Labor: production time in hours multiplied by your hourly rate — including your own time.
- Energy: machine time in kWh multiplied by your electricity price.
- Overhead: rent, tools and software spread across the units you make per month.
Worked example
A walnut desk organizer uses $48 of materials, 3.5 hours of work at $22/h ($77) and 2.4 kWh of energy at $0.18 ($0.43). Direct cost is about $125. Sold at $210, the gross margin is roughly 40% before overhead.
Keep the cost up to date
Material prices change. Keeping the BOM in a tool such as robeen means the product cost recalculates automatically when a part price changes, so quotes stay profitable.
FAQ
Should I include my own labor in product cost?
Yes. If you leave out your own time, the price only covers materials and you are working for free.
What is a good margin for handmade products?
Many small makers aim for at least 50% gross margin on direct cost to cover overhead, mistakes and growth.
Track product cost, BOM and stock automatically with robeen.
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