If you make products from fabric bought years ago, inherited supplies, donated materials, clearance finds, scrap, or components you happened to get for almost nothing, it can be tempting to enter that old purchase price into your pricing math—or enter zero.
That can make a product look much cheaper to produce than it will be when you need to make the next batch.
Use current delivered replacement cost
The practical question is not only, “What did I pay for this material?” It is also, “What will it reasonably cost my business to replace this material today?”
That means looking at the current cost of the material plus the normal cost to get it into your hands. Depending on the purchase, that can include shipping, delivery charges, or other costs attached to acquiring it.
If $66 of delivered material is used in a batch, the batch carries $66 of material cost even if an older batch of the same material happened to be purchased for less.
Why free material is not automatically zero-cost material
Suppose someone gives you a box of high-quality blanks and you turn them into products. The gift helped your cash flow. That is great. But if those products sell and you want to make more, the next box may not be free.
Entering zero can create a price that only works while the gift lasts. The same issue applies to inherited material, unusual clearance purchases, remnants, or supplies bought years ago at prices you can no longer reproduce.
The goal is not to erase the benefit of a bargain. The goal is to avoid building a price that depends on a bargain you cannot reliably repeat.
What if replacement cost changes?
Pricing is not a one-time calculation. Use the best reasonable current number you have, mark estimates when necessary, and update the number when your actual replacement cost changes.
An unknown cost does not become zero simply because you have not researched it yet.
Replacement cost is only one part of product cost
Materials are the beginning. A product may also need to carry production loss, consumables, utilities or machine use, packaging attached to the product, equipment allowances, and active labor.
For the bigger framework, read How to Price Handmade Products for Festivals: What Your Price Has to Carry. If some of the items you start never become sellable inventory, see Does a Bad Product Still Count as a Cost?.
Work through your own numbers
The free Know Your Number™ Pricing Workshop walks through materials and the other costs your price may need to carry. It does not tell you what to charge. It helps you see the numbers before you make the pricing decision.
This topic is covered in Episode 5 of Festival Geeks.