Friday, August 26, 2011

Making Crafting Profitable - Part 6

Okay we haven't really discussed this, but its important for your bottom line.  When your making your items for sale and you catch the materials on sale which cost do you use when figuring out the cost of materials.  Most of you are going to say the cost you paid.  Not necessarily.  If the materials your using go on sale periodically, say every 3 to 4 months, and you are able to buy in bulk at that time, then okay, use the cost you paid.  But what if they go on sale only once or twice a year.  Then you're better off using the regular retail price.  

Let me give you an example:

Sally and Sue both create a cute scarf set.  Each set takes two skeins of yarn that regular cost $6.00 a skein.  The local yarn store runs a sale at $3.00 per skein, and both stock up on enough yarn to make 20 sets.  They both use the same pricing formula for their of 3.5 times the cost of materials, plus $5.00   Sally prices her scarf sets at $26.00 (3.5 x 6 (sale cost of 2 skeins) + $5.00).   Sue prices her scarf sets at $47.00 (3.5 x 12 (reg cost of 2 skeins) + $5.00).    Both Sally and Sue sell out.  Sue immediately heads toward her local yarn store to purchase enough yarn to make 20 more scarf sets.  Sally  is only able to purchase enough to make 10 scarf sets because the yarn is no longer on sale.  And because it is no longer on sale she has to raise her prices to cover the new costs of materials.  This raise in cost upsets her customers who are expecting to get the scarf sets for the same price as they paid before.   Because they are upset, many go elsewhere to purchase the scarf sets, while complaining about her "unethical practice of raising prices".  

Of course, when you are very successful it will be time to look into buying wholesale. When you reach that point, you can contact the supplier (check the labels of the items you purchase) and see what their minimum purchase is, and what you need to purchase from them.  If you're lucky, you know others who craft similar items and use the same basic raw materials you do, then see about going in together and splitting the cost of an order. If its not feasible to purchase from the supplier or manufacturer, then check with your local distributor.  Some (not all) will be glad to purchase extra for you when they send in their orders, and in many cases give you a discount on the purchase (especially if your order allows them to purchase and the next price break level).  Not all will do this so please check first. 

Does your craft lend itself to recycling.  I have a friend who makes good money making crocheted rugs from old t-shirts.  She gets many of the shirts she uses from friends and relatives.  She also has a deal worked out with a local thrift shop to purchase all the t-shirts they get in that are torn, or have stains that won't come out when washed for a flat rate per pound.  She also hits yard sales, and swap meets to look for t-shirts.  When she tells people what she wants them for, many will bag up those that "were not good enough to sell" and give her a call to come pick them up (she usually arranges the meetings in the parking lot of a local store or library).  She washes and dries all the t-shirts, then cuts them out of strips and attaches the strips together.  She then crochets the strips into rugs that look a lot like the old braided rugs that most homes had years ago. The best part, is that stains are not really noticeable when the strips are crocheted, instead lending character to the rug.

If you use a lot of beads in your work, check at thrift shops, yard sales, estate sales.  Look at the jewelry for sale.  What you want to be on the look out for are bags and boxes of broken jewelry.  My 17 year old niece makes some nice pocket change, taking about old broken beaded necklaces and bracelets and restringing them to make all new designs out of them.

Even broken pottery and porcelain dishes can be used to make beautiful mosaic tiles.

Do you have some ugly sweaters in your closet?  Take them apart at the seams and unwind the yarn to reuse in other projects.

A local Goodwill in our area often has unfinished craft projects that have been donated.  These are usually cheap enough that even if your not going to make the suggested craft, the materials can be used for other crafts that you are going to make.

Thursday, August 25, 2011

Making Crafting Profitable - Part 5b

This post is just to give you an example of why you need to worry about pricing. We will follow 3 different people selling the same craft item (lets assume a fancy beaded Christmas ornament) at the same outdoor festival.  First lets assume the following

  1. All three have the same overhead for this show $25.00 booth rent.
  2. Cost of materials to make 100 items is $50.00
  3. Time to make each item is 1 hour.
  4. Additional expenses (tissue paper, receipt books, bags, etc) is $25.00
Now lets introduce you to our crafters.  Mary, Sue, and Dory

Mary is excited, this is her first show.  She has paid her booth rent, and created her items and is ready to go.  She has decided to price her items at $3.00, just below the cost of similar mass produced items in a local discount store.  At the end of the day she has sold out and has $300.00 to show for it.  After taking out her expenses and cost of materials she has $200 left.

Sue has done a few shows and is still working out the kinks in her pricing system.  She has settled on 3.5 times the cost of materials plus $2.00 to cover cost of additional expenses.  This gives her a selling price of $3.75. At the end of the day she has also sold out and has $375.00  after taking out expenses she has $275 left.

Dory considers herself to be an professional craft artist.  She charges $10.00 per hour, plus 3.5 times the cost of materials, plus $2.00 overhead.  Her selling price is $13.75 per unit.   She only sells 50 of the units, leaving stock of 50 units toward her next festival.  Her gross take home is $687.50 with a net of $587.50.

As you can see a wide range of prices from the above totals.  And while someone who considers themselves a hobbyist might be happy with and extra $200 dollars when its all said and done, someone who considers themselves to be self-employed would more than likely be upset at such a low profit.

Don't sell yourself short.  If you think your worth $10.00 or more per hour, and you carry yourself with confidence you'll inspire the confidence in your customers.  More than once I have seen people at craft shows pass over a lower priced item, to purchase an almost identical item that is 2 to 3 times higher in price.

Another thing, just because its getting late does not mean you should reduce your prices.  You can always take extra stock home and build on that for your next show.  You can always have a box of seconds at a reduced price stuck back under your table. (these can be things that didn't turn out as  good as you expected, or maybe you realized you didn't enjoy making them, or perhaps the color just doesn't work and you really want to get rid of them.)

The best piece of advice I every received when I first started and couldn't figure out why I wasn't making enough, was when an established crafter told be to triple my prices.  To say I was shocked at the difference in sales would be an understatement.  Lets face it when faced with two items one priced at $3.00 and once priced at $12.00, most people are going to assume that the $3.00 is lower quality than the $12.00.  And lets face it, human nature being what it is, when we can afford it we're going to buy the item we perceive to be the better quality item.

Wednesday, August 24, 2011

Making Crafting Profitable - Part 5

Okay, now that you have all the dreary business stuff out of the way its time to talk pricing. Wait, what about what to sell, you may ask.  Well you if need to ask what to sell, then this business is not for you.  If  you've even considered a crafting business, then you already know what your going to sell, whether its the baby blankets everyone raves about and begs you to make for soon to be born children, jewelry, Christmas ornaments, or a combination of craft items that fuel your passion.   And you should always work with the items that give you pleasure to create.  Don't jump on a craft bandwagon just because its popular and "everyone else" is making tons of money off it.  (would you jump out of an airplane without a parachute just because everyone else is doing it?).  Okay off my soap box now, (although the added height is nice) and back to our regularly scheduled post.

Pricing.

There are several different ways to come up with a price.  Not all of them are viable, and different methods work better or worse for different items.  You can do a cost plus a percentage for overhead.  You can do an hourly wage plus cost of materials.  You can do 2.5 times the cost of material.  You can do 3.5 times the cost of materials (this seems to be a pretty popular one). You can do so much times the square footage of the item made.  Or any combination that works.  For small items that take me less than an hour to create I use 3.5 times the cost of materials, plus $1.00 toward overhead.  (these are all items that sell for $10.00 or less).  For  large items such as afghans, wall hangings, pillows  etc. I use the formula of cost of material, plus 5 cents per square foot, plus $10.00 toward overhead.  For things like scarfs, hats, etc I charge 10.00 per hour (something that takes 1.5 hours would be $15.00) plus cost of materials, plus $3.00 toward overhead.

Okay I keep mentioning overhead, and I bet your wandering what that is.  Overhead is the cost of  fixed materials (sewing machines, knitting needles, crochet hooks, patterns, storage containers).  If selling from a brick and mortar local, the cost of rent, electricity, help, city / county / state licenses, packing supplies for sold items, sales slips, display shelf's, racks, etc. Basically anything you need to run a successful store.

If selling at craft shows, festivals, farmers markets, etc... in addition to the cost of fixed materials you will have booth rental, cost of sales slips, packing supplies, wear and tear on your vehicle, storage containers, display tables, racks, shelf's, etc, and unless it is indoors an outdoor canopy.

If selling online, there will be a portion of ISP, the cost of fixed materials, cost of a good digital camera, a display rack, (mannequin, shelf, table, whatever you need to display your items to their best advantage when taking pictures), lighting for your display, printer, printer ink, printer paper, computer (can't sell online without one), packing supplies, wear and tear on your vehicle from taking packages to and from the post office, a good quality digital scale for weight packages.  ( you don't want to send something off that you assume weighed 1 pound only to have your customer receive it postage due because it weighed 1 pound 1 ounce and should have been shipped at a 2 pound rate.

And don't forget you should have business cards as well.  You can have them printed for you or print them yourself if you have a decent printer.

So take some time, and sit down with pencil and paper and work out what your overhead will be.  And you thought you'd never need all those math classes you took in school :)

Next time will discuss how a good pricing plan can make or break your business.

Tuesday, August 23, 2011

Making Crafting Profitable - Part 4

You've done a business plan of sorts, picked out a name, now its time to start talking licenses.  The one piece of paper you will definitely need if your state charges sell sales tax is a resale number.  In California you can get one by going to the Board of Equalization and filling out a small form.  Depending upon where you plan to sell and how much there may or may not be a deposit required.  I didn't have to put one up when I got mine, but that was so long ago, that I can't guarantee that is still the policy.  Don't of a BOE in your state.  Go to your states website in California it would be CA.gov, for other states it would be the 2 letter state abbreviation dot gov.  There are usually links you can click on that will take you to information for starting a small business in your state.

But wait, there is more.  Will you have employees or will you be the only employee.  If you don't plan to hire anyone then you don't have to have a Employee Identification Number from the IRS, you can use your social security number.  If you do plan to hire employees you will need an EIN.  You may also need a State EIN (different states call it different names so check with your state).

Now you  need to check with the city and county you live in. You may need any or all of the following: a city / county business license, an okay from the city / county to run a home based business, proof of filing a fictitious business name statement in a local paper (most banks require this in order to open a business checking account.) a business checking account, agreements signed by any close neighbors stating they do not oppose your operating a business out of your home.  Some of these will not be necessary if you are planning to run a  brick and mortar store front.

If your full name is part of your business name you probably won't need to file a fictitious business name statement. (ex:  Jan Smith's Crafts).  And in most locations if you are running an internet business with no customers coming to your home to pick up merchandise you may not need a city / county business license.  If your local bank won't let you open a business account without the fictitious name filing, you can always open a second checking account dedicated strictly to your business.

Every state, city, county has different rules and regulations so you will need to check with yours to decide what you will need or not need as the case may be.  Also rules will vary with the type of business you are running.  Will people be coming to your home, will you be selling at shows, festivals, swap meets, will you have a brick and mortar store front, will you be selling exclusively online, or will you have a combination of some or all of these.  You need to decide now so that your not blindsided down the road with the need for a license you did not get.

Monday, August 22, 2011

Making Crafting Profitable - Part 3

Whats in a name.

Okay you've done your business plan now you ready to come up with your business name.  You need to decide should it be related to the craft your doing, crafts in general, or something completely unrelated.  Lets say your nick name is Miss Goody Too Shoes, and you really like that nickname and want to use it.  Why.  Would it come up if someone typed the craft your selling into a search engine.  What if you have a brick and mortar store, would some one looking for crafts stop in your store or would they walk next door to Suzies Hand Crafts.

Do you do one craft to the exclusion of everything else.  If the answer is yes, then using something like Jane's Crochet Creations, Kelly's Knifty Knits  would most probably work for you.  If you do several crafts, would someone looking for Cross-stitch bookmarks look for Jane's Crochet Creations.  Or would they more likely to check out The Craft Room.

If you only knit, crochet, sew etc, then by all means use a name that utilizes knit, crochet, sewing, etc.  If you do several crafts then try for a name that would work for more than one crafting media.  Something along the lines Kelly Creations, or Unique Handicrafts.  When you have come up with two or three names that you like type them into a couple of different search engines and see what comes up.  You may be surprised to find out there is already a Candy's Craft Creations (or possibly more than one) in different cities and states.  You can also go to a place like godaddy.com, type in the name you want and see if the .com, .net, etc are available.  If so you may want to grab them while you can.

While memorable names are great, they aren't always your best choice.  Try to pick something that is closely related to your business.  In the end, you'll be glad you did.

Sunday, August 21, 2011

Making Crafting Profitable - Part 2

In part 2 we'll discuss your business plan.  What? you ask, no talks about business names, licences, what to sell or where to sell.  Nope.  Before you can start on those you really need a business plan.  Just a simple bare bones plan will do to start.  You can add detail later as your business grows and expands, or needs and desires take on new directions. (trust me my business plan is very different from the plan I started with way back when)

To start you want to state who you are.  Basically your name, and how you see yourself.

ex:   Jane Smith
A talented fiber artist.

Then you need to state your mission statement.  Or why your business exists (or should exist)

ex:  I am in business to provide quality hand crafted items to the general public, and support myself and my family.

Next, where will you being conducting this business, online, through craft shows, out of your home, at local farmer's markets, out of a brick and mortar store front, or some combination these.

ex:  I will selling my crafts physically at local craft shows, and online through various craft websites.

Finally your goals for your business

ex:  I plan to create and sell enough hand crafts to supplement my current income, and eventually to allow me to quit my job and devote myself to my crafts business full time.

As I said this is just the bare bones of a business plan.  There are several good books on the market, most of which should be available through your local libraries, that can walk you through a more detailed business plan.  Keep in mind, with the exception of your name, none of these are set in stone.  They can, and most probably will change over time.  I myself revisit my business plan on an annual basis.  Sometimes there are minor changes, sometimes major changes, but there are always changes.

Next time coming up with a name

Saturday, August 20, 2011

Making Crafting Profitable - Part 1

So I have had several people ask me how they can make a living with their crafts.  The answer I don't know that you can.  At least not with crafts alone.  There is a great deal of time and effort that is required to make a living at any non traditional 9 to 5 job.  To help those who are considering a job working with crafts (and this can apply to almost any non traditional vocation) I thought I would offer a series of blog posts to help you along.

Now on to part one........

A quick questionnaire.

  1. Why do you want to be your own boss?
  2. Can you afford to be your own boss?
  3. Are you a self starter?
If you want to be your own boss simply because you don't like your current job, then self employment may not be for you.  When you are your own boss you will be not only head of the accounting department, secretarial pool, marketing department, production line, customer service, and distribution department, but also; in most cases; the only employee.  In others words you are responsible for all successes and failures of your business.  If you are afraid to fail, and there will be failures in this venture, then you should keep your day job and look for employment in a field you enjoy.
    How much money do you have in savings.  If you plan to start a business on the side and keep your current job until your business is successful (the definition of which will vary with each individual), you should still have at a minimum enough in savings that would allow to pay all expenses for housing, food, clothing, insurance, and basic transportation, for three months.  If you plan to quit your day job and jump in feet first into the deep end, you need to have a minimum savings to cover 12 months of the above expenses.  And even that may not be enough, especially if there is an unexpected illness, or your vehicle needs major repairs.

    If you still want to be a successful craft-entreprenur, you need to be a self starter.  Any successful business person will tell you their day starts from the minute they wake up in the morning until they go to bed at night, 7 days a week.  There is no 8 hour days.  14 - 18 hour days are more common when getting a business up and running, and 12 - 18 hour days are the norm after that.  Vacations, few and far between.  You can't put things off, because there is no one else to pick up your slack.  If you aren't prepared for eating on the run, if at all, forgoing a social life, turning off the emails, facebook, twitter, (at least the socializing aspect of them, they do work for promotions), going for hours if not days without human interaction, then self employment is not for you.

    If you have read this far and decided that you can handle the long hours, you've got plenty of money in savings for the time of business your planing to start (part time on the side, or full time), and you are prepared to work you behind off, then good luck. Tune in for the next blog post, that will discuss your next step in preparing to open you business and with luck and hard work succeed.  

    Wednesday, August 17, 2011

    Another Year Older

    Well its official I am now another year older.  Although the running joke in my family is that my Baby Brother is only 18, so that makes me 28, and it shall remain that way until the day I die, then he can have all his missing birthdays back. LOL

    But its not all bad, 17 years ago today my Baby Sister gave me the neatest birthday gift, a cute little niece to spoil rotten.  Like I told her when my nephew was born a few years earlier, I will be the baby's favorite aunt, but I won't do diapers, spit up, puke, other bodily fluids, or windows, just not going to happen.  The weird thing is that my niece and nephew are within 10 days of being the exact same age difference as my Sister and I.  The only difference I was born in August 17, and my Sister was born in January 4th, a little over 2 years later, and my Nephew was born January 14th (my Mothers birthday) and my Niece was born August 17, a little over 2 years later.

    I am not planning anything special for this birthday, other than spending a quiet evening at home with family and friends.  But then I have never been one for loud parties, so its all good.