One of the most difficult questions makers find themselves asking is “How do I know what to pay myself?”
The answer to the question is both simple and complicated.
If you’re struggling to know how to pay yourself, you may actually be wrestling with how to value your craft.
Have you ever found yourself wondering who would spend $100 on your product? Or relating the time it takes to product with value? Or asking who would want to buy this from me?
Valuing yourself, your talents and your time is essential.
You’re talented! You’re making something ridiculously cool!
Trust me, somewhere in the world someone is looking for exactly what you’re crafting. That is worth something.
It's essential that you price your products smartly and that you value your talents.
Here are the steps to take to demystify the process and get yourself a nice pay check.
Price your products correctly
Pricing your products can be tricky. It's can be as emotional as it is practical.
I don’t want to take away from the many considerations you have but let’s keep it simple.
Your price formula should be
Material costs + Your time = Item cost
Yeah, that simple!
This is a baseline formula you can keep coming back to.
“But it takes me ages to make the thing!”
“The thing is worth more than that!”
I’m going to be a little bit contrary here and agree with you here. This formula is a little too simple.
This formula is something you can refer to when you’re feeling stuck.
What I really want you to do is sit quietly for a minute, think about your product. Take a deep breath and then relax.
What does your gut tell you to charge?
That’s your price.
You can charge $1000 for a product that takes 10 minutes to make or $10 for a product that takes 100 hours.
It doesn’t matter as long as you are valuing yourself, your talents, your time AND your expenses.
Pay your dues
They say two things in life are certain, death and taxes.
And right now, you can bank on the taxes.
Tax laws are different in each country, state and region but either way, you gotta pay ‘em.
Set aside approximately 20% of your product retail value for taxes.
In Australia, you can pay your tax in advance, but if you can’t do that where you live in the world, that’s no problem.
Open up a separate bank account or PayPal and put your tax money in there right away and don’t touch it again.
You’ll high five yourself for doing this at the end of the financial year.
Invest in yourself
If growing your business is something you want to do, you have to invest in yourself.
Each time you make a sale, set aside no less than 10% to put back into your business.
How you define investment, is up to you.
You could invest in doing a class to help your marketing, build a new website, hire a copywriter or getting an extra set of hands in your studio.
There's something to be said for spending money to make money.
I know it's something Elliot and I struggle with in Maker Academy but we're doing it more and more.
Make it rain
You don't have to be a regular Good Will Hunting to know I've asked you to set aside 30% of your profits. These go to paying the tax man and to reinvesting in your business.
That means you have 70% let over.
Guess what that 70% is for?
It’s for you!
In your business, your salary should be approximately 70% of your profit.
You work hard and you deserve it!
Sure, at times you might take on projects that don’t have immediate financial gains. That’s fine if they’re going to pay off in experience or exposure, but most of the time, you should be paying yourself.
Be smart with your 70%; save some for a rainy day, but also splurge on something you love.
Running your own business is hard work so make sure that money brings you joy.
It all sounds pretty simple, huh?
Paying yourself can be complicated for any business but following this formula will help you value yourself and your work.
How do you currently pay yourself? Let us know in the comments below!