There are several schools of thought when it comes to pricing handmade items. None are wrong; and none are right. It is up to the individual shop to determine what is right for them.
Some people choose to price items using 3x the cost of the materials. This makes it easy for the shop to be competitive and easy to price the items, as determining the cost of the materials is usually easy to do. This also means that if the materials are inexpensive an lower quality, the price will be low, and if the materials are pricey, but high quality, the price will be high. Again many shoppers are okay with paying a higher price for better quality materials.
Other shops determine how long it took them to make the item and multiply it by an hourly rate. This is also an easy way to determine pricing, but what happens when one crafter can make the item in one hour, and another takes 8 hours. There would be a huge gap, and the crafter who can make the item in one hour would be selling the item like hot cakes, and the crafter who takes eight hours would be struggling to sell any.
Some shops determine both above prices and ADD them together and divide by two in order to get an average between the two (if the prices are widely different). This can create balance and allow the shops to be competitive.
Other shops look online to see what other shops are charging for the same item. This can also be a very valid way of pricing; as long as the shop is comparing apples to apples. Is the item you are comparing made out of the same materials:? Is the item the same size and design?
As a pattern designer, I have been asked MANY times, what price can I sell this item at? How would I know? I do not set prices for completed items. And if you are making an item from one of my patterns and NOT using the same materials, my prices would always be way higher than what another shop should sell it for, because as a general rule, I do not use commercial yarn. I use yarns that are considered to be high-end yarns.
This does not mean that if you make something from my patterns you can not use a cheaper yarn, of course you can. My patterns show what weight of yarn is recommended; which allows the crafter to choose what yarn they want to use for that project.
So lets look at a specific example:
The top left two were made using hand-spun yarn. The testers all used commercially available yarns. It would be impractical for these shops to price their hats at the same price as the hats made using hand-spun yarn. So the price I would sell my item would put their price too high to be competitive.
If the materials I used cost me $30 and the materials another person used to make the same exact item cost them $5 the sale price for the items should never be the same price. If I priced mine using the 3x cost of materials; my item would be put up for sale for $90. Would anyone pay $90 for an item made from commercially available acrylic yarn? Probably not. But equally, if the crafter who paid $5 for their materials put the item up for $15, would I even consider pricing the item I made at half the cost of my materials? Not even kind of.
So, what I am "hoping" to explain is that whatever method of pricing you use, ensure you are not overvaluing your work, nor undervaluing it. There is nothing wrong with looking at prices that other shops are charging for similar items. However, if you do so, compare apples to apples. If the shop you are looking at uses yarns that are $10 - $15 per skein, and you are using yarns that are under $4 per skein; you cannot price your items to match theirs and hope to be equitable to your customers.
I do not mean to imply that items cannot be crafted using Red Heart Super Saver, nor Caron Simply Soft or any other easily available inexpensive acrylic yarn. Of course there will always be customers wanting items that are less expensive. They are willing to give up quality for price. There are also customers willing to pay more for a higher quality product.
Question that comes to mind is, "As a crocheter would you be happy if you paid $10 for 170 yards of yarn and then when you get the yarn you realize that you just paid $10 for 170 yards of Red Heart Super Saver?" Just something to ponder!
