How to Calculate Prices, Costs, and Sales Tax for a Sewing Business
To ensure you're paying yourself enough to make running your sewn products business worthwhile, you need to price your items in a way that takes into account your time and the true cost of producing the goods. You must also keep track of the sales tax you've charged on your sewing projects, if applicable in your state, and properly remit it to the appropriate state government office.
Setting Your Hourly Wage
There are a few commonly used methods to calculate what you should charge for a product you've sewn. To start, you can figure out how much you feel your hourly labor is worth.
That amount should vary depending on the cost of living in your area. If you live in a place where it's more expensive to live and wages are generally higher, you should pay yourself more. If you live in an area where the cost of living is lower, you should take that into consideration when determining your wage, because that will ultimately affect the cost of your products. If your customers think the prices of your products are too high, your sales will suffer.
Let's say you settle on $20 an hour. If a project takes a half hour to complete, your time will contribute $10 to the sewn item's cost.
Calculating the Project's Costs
The other component of the total cost for a single sewing project is the combined cost of the materials used to make the product plus other business-related expenses. You would add up the cost of the fabric, thread, fasteners, interfacing, and other components of the finished item. You should also take into account the cost of marketing and selling the item, perhaps on Etsy or your own website or at a craft fair or bazaar, and shipping it, if needed.
Once you've tabulated that figure, add it to your time cost to arrive at the total cost for the project. Let's say these other costs amounted to $7.25, bringing the total cost to $17.25.
Some people who make a living from their sewing skills simply stop there and would charge $17.25. But, ideally, you should add a markup: a multiple of your costs that will give you a profit, some money above and beyond your hourly wage.
You may charge 1.5 or 2 times the cost figure for a usually theoretical wholesale price (unless you're actually in the business of producing large numbers of goods for a wholesaler). You might then multiply the wholesale price by 1.5 or 2 to arrive at your retail price. As a result, you would charge (with a bit of rounding) $39, $52, or $69.
Collecting Sales Tax
If your state requires you to collect a certain percentage of sales tax, you will need to keep records of how much you took in from each piece sold. Different state agencies have differing rules on whether you need to remit sales tax to them monthly, quarterly, or yearly.
You should look into your own state's sales tax rules on the applicable agency's website—for example, the Idaho State Tax Commission's Sales/Use Tax Hub or the Texas Comptroller of Public Accounts' Sales and Use Tax page.
Getting Accounting Help
If you want additional advice on any of those aspects of your business, it might be worth the money to hire an accountant or bookkeeper. They may be able to make suggestions that would help you increase your profits in the long run.