Diane,
First, there is no one correct formula for pricing. Secondly, the
writing of the book certainly leaves a lot to be desired! The slash
should only be used when the two items are near equivalents; labor and
materials are not near equivalents so read the slash here as "and."
In Number 1 the slash is used correctly; in the context given, rent
and mortgage are equivalents.
HOWEVER … This is not a very useful pricing formula anyway (my
opinion, of course, but based on lots of experience). It’s too
arbitrary and doesn’t take variables into account.
Pricing needs to be based on four factors: cost of materials,
overhead costs (including labor, rent, electricity, show costs,
business cards, etc., etc., etc.), profit margin and WTMWB (what the
market will bear). One solid approach to pricing (and there are
several) is to determine what ALL your overhead costs are in an
average month (it takes time and effort to do this but it’s worth it;
take educated guesses where you have to) and divide that figure by the
number of hours you spend on business in an average month (business =
studio time plus everything else like travel time, mailing out PR
packets, phoning galleries, etc.). The result will be an average
overhead per hour figure. Then take your cost of materials for a
piece and add it to the number of hours it took you to make it
multiplied by your overhead figure. Your total at this point pays all
your expenses but, if you left it at that, you’d go out of business
because you’d have nothing left to pay for food (let alone a movie)!
So then you add on from 10 to 50% as your profit margin. Just how
much is the tricky part. As a general rule, you can add more for a
simple pair of earrings and less for a major necklace with very
expensive materials. Your reputation is another factor: If you’re
established and your name is known, you can get away with a much
higher profit margin than if you’re an unknown. When I was beginning,
I started with 15% for most items.
At this point you’ve got a provisional wholesale price (the common
convention for retail price is twice wholesale, a.k.a. “keystone”)
and it’s time to look at WTMWB. If you see other jewelry similar to
yours that’s priced much higher, you can raise your wholesale price if
you like (all else being more-or-less equal). If your wholesale price
is relatively too high, however, you may have a problem that will
require figuring out ways to reduce your overhead or material costs.
There have been many Orchid discussions on pricing (check the
Archives) that will give you other perspectives and I suggest you
spend some time there. I meant to refer you there in the first place
but I got carried away :-)! Hope this helps.
Beth