When browsing around our collection, many might be surprised by the high pricing of our products. Since we care about transparency in all other areas of our business, we also want to give you a deeper insight into this part. In this article, we will show you how we calculate our prices and how everything is based on the time it takes to create.
Money and insights into pricing is still a quite difficult topic to talk about and often there is very little information out there. Somehow there is a stigma around talking about money, even though it is such an integral part of our day to day and sadly also of the way the world works. We want to break the silence, not only for the sake of transparency, but hopefully also to help other small businesses to see an example how a pricing system can look like and what aspects we take into account for our own products.
Before we go deeper into the actual facts and numbers, let's look at our products from a broader view. The main reason why they are as pricey as they are, is because all of them are made by hand in tedious, repetitive and long processes. In some cases machines might make the work faster but you also have to remember, that we work exclusively with waste material, which is often very varied and unpredictable, which in turn is difficult for standardized machines to handle. For us, making by hand is not only the best way to deal with recycled materials, but also a way to ensure a very high quality standard in our products.
This in itself is quite the opposite way of working compared to other home textiles that are made in the fastest, most automated way. There quantity goes over quality and the lowest price point possible is the goal. If you know anything about fast fashion and what goes on behind the scenes, you know that this race for the lowest price is a detriment to peoples health, safety and rights, as well as the environment. If you want to know more about this topic, read our blog post about sustainability and greenwashing, where we explain more in depth about fast fashion production processes and their impacts.
Needless to say, here at Wasteless Wonders, we don't stand for any of this. Our products are ethically made in Finland with as little impact as possible. Producing as a small business in a wealthy western country, while respecting the rights of people and the enviroment takes more effort, time, resources and money than for a giant coorporation to simply outsource labour to lower income countries, where people have little choice whether to work in the given conditions or not. This is why all sustainable products are more expensive, not only ours.
Every business calculates their prices differently, but generally following a quite universal principle of adding up all the costs and adding a certain profit margin. In cases of automated production for example the material cost might be the main expense, while the labour cost is very low. The base for all our price calculations is the number of hours it takes to create a product, thus making the cost of labour one of the biggest parts, while all our materials are recycled and therefore are the smallest part of the final price. We may have a slightly different approach to cost calculation but at this point of our small business journey it makes sense for us. Of course the exact numbers and percentages might change in the future.
There are five big parts that contribute to the price of our products and they are added into the calculation one after each other according to the following formula:
Step 1: Calculate the base price according to the hourly rate and hours used to create the product
Step 2: Add 10% to cover time spent for sourcing and material expenses. (Why this is a percentage? Read on!)
Step 3: Add the price of one more hour to cover taking photos, editing and creating assets and listing the product on the website
Step 4: Add 30% retail margin
Step 5: Add 24% VAT
In the graphic below you can see that the percentual make up of the final price varies slightly with the number of hours spent making a certain product. This of course is because of the type of formula we use. In general, more than a third of the cost of a product is reserved for our retail partners and the local government (not only VAT but also regular income tax) and never ends up in our hands, no matter how long it took to create something. All our profit is integrated into the colorful part of the charts below.
The price per hour is probably the most interesting part of this whole article, for all those who are searching for the juicy details. This number does not come into existance out of thin air, but is based on a variety of its own calculations. At this moment, Wasteless Wonders is a one-person show, so in its core, the hourly price is based on how much money this one person needs to earn per year to survive, plus of course some funds that can stay inside the business and help it grow.
In reality it is a little bit more complicated that that. The making and selling of products is not the only thing that Wasteless Wonders intends to do, but rather offer a wide variety of services all around recycling textiles (You can read more about these services here). While in the manufacturing of products, mainly skilled craftmanship is needed, in other areas, capabilities of a professional designer might be required, which in turn require a much longer education and therefore justify a much higher hourly rate. In short, different areas of our business have different hourly base prices, depending on the skills required and also depending on how the certain area contributes to the business as a whole. This is also important to keep in mind when thinking about the future and how Wasteless Wonders might grow and employ more people that fulfil some of these different tasks. This is quite similar to any other business, where employees of different levels of education will ultimately earn different salaries, based on the "difficulty" of the required skills and their responsibility. The difference is that in our case, only one person fills all these different roles - for now.
Our hourly base price for handcrafting products is at the moment set at 25€ per hour. This price is calculated based on, like mentioned before, on the "yearly salary for survial" (which is also based on our location, including living expenses and tax rates), the hours available to work in a year and the estimated percentage that this area will contribute to our business.
It might seem a bit strange to add material costs to the price as a percentage, but it does make a lot of sense in the context of recycled materials and also the way we operate. In general, the longer one needs to create a piece, the more material is usually needed. Therefore the more hours go into a product and the more material does, the longer it usually takes to source all that material.
The other important point is, that it is often difficult or tedious for us to exactly know the material cost of a product. When we receive or purchase recycled yarns, textiles and other materials, they usually come in a wild mix. Since the main inspiration for our products is often the material itself and different materials are combined during the process in a sometimes very spontaneous way, including sometimes un-doing and redoing things many times, it would be a quite time consuming process to track every single piece of textile or meter of yarn. A second factor is, that most of the material we use is very low cost and the goal of our business is not so much the cost efficiency of the raw material, but rather how to turn all these varied materials into new and useful products in a somewhat timely efficient manner.
The factor of 10% came about through looking at our monthly expenses on materials and time spent sourcing and comparing them with the number of products we have created during the same time. This of course is also something that works really well in small quantities to minimize the time spent weighing and measuring and calculating, but might need to be adjusted as we grow.
What many people often forget, is that a product is not entirely done when it is manufactured. If there are no pictures or listings on the website, no one will ever know that this product even exists. This is why we add an extra hour to our calculation, that covers taking pictures, editing, creating different formats for our website and social media, as well as writing the very detailed descriptions we have for all our products.
We finally made it to the boring part of the price calculation. After the first three steps, we add 30% to the calculated product price, as this is the margin most retailers will take, when selling your products in their stores. In order to avoid confusion, usually this margin is added to all products, whether they are sold with retailers or directly through our own website, so that there is only one price for each product available. On top of that we have to add another 24% to the price to cover our local VAT rate, which is standard for all non-essential physical goods.
We are aware that our prices are simply out of reach for many people, but we hope you can now see why there is really no way around it, if we really want to produce as ethical, hands-on, small scale and sustainable as we do now and survive at the same time. Sadly the system we currently live in is based on money and profits and there really isn't a good way around it, at least in this very product-based side of our business. And even though we don't believe we can truly achive sustinability in our current system, we have to start small and work from within the system to create change.