Chronicling the steps to creating a SUCCESSFUL life.

Tuesday, June 18, 2013

Count the Cost

I have been thinking a lot about pricing craft items and what is involved in the whole process.

The cost of doing business has to include rent and electricity if you are working from home.  This can be a bit tricky to figure because if you don't have a craft room, you will need to figure in a percentage of your overall square-footage of your house or your apartment that you use for the projects.  Included is not only the area where you work, but the area where your materials are stored.

In my case, I use about 10% of my apartment for my home business. Therefore, the cost of doing business included 10% of the rent, the utilities and the internet expenses.  If you have a studio, make sure to include the rent and/or utilities payments.

You will also want to consider the cost of tools or equipment you use.  You may only buy a crochet hook once, but it is a business expense to be considered.

If you do any kind of advertising--Pay Per Click campaigns, business cards, decals for your car, internet advertising, flyers, direct mail, newspaper ads--include these in your cost of doing business.

Include any fees, such as eBay and Etsy fees.  PayPal fees.  Does your bank account cost anything?  Do you have a postage machine?

This is an easy formula:


Now that you know how much you have to make every month just to cover expenses, figure out how many items you have to make to reach that goal.  If you sell only one item for $2.50 and your cost of doing business is $150 a month, that means you have to sell 60 items at $2.50 to cover your basic cost of doing business.  If the cost of materials for each item is $1.00, then you have to sell 100 items to reach your cost of doing business... and that is to just break even.  If you want a profit, you will need to sell 200 items to make a mere $250.00.  That means, you will have to sell about 9 items a day to make a profit.

Don't let these figures discourage you from plunging forward.  It takes time to build up a business enough to support yourself.

This blog entry is to get you to begin thinking about how to price items without way under-pricing.

People say, "I am only doing this to have a little fun.  I am not looking to make any money."

That is a reasonable statement, but allow me to give you an example of the impact this has on the market.

I made a ruffled scarf for selling and the yarn cost me $6.49 per skein (The cheapest price I could find online).  It took one skein of yarn to make the item.  The shipping for 4 skeins of the same yarn was $3.70. Dividing that by 4, the shipping for one skein was $.92, bringing the cost of goods to $7.41.  I started looking online to see what others were selling the same item for and I found that some people were selling it for as little as $5.99, shipping included.

Obviously, that is someone who is "just having fun" and "not interested in making money."

So, if I were looking for a HAND-MADE RUFFLED SCARF, would I pay $6.00 or the $25.00 I had mine listed for?  A reasonable person is going to pay $6.00.

From a business point of view, the $6 person made absolutely certain that no legitimate sales person can ever make a dime. I compare them to the trolls who do nothing all day beyond visiting blogs and articles to dis and insult everyone who writes anything on any topic. They think it is "fun to get a response from others," even if the response is totally negative.  Small children acting out to get a moment of attention.  That kind of action doesn't really benefit anyone, including the troll or the $6 person.

In fact, I could almost come out ahead by buying items from that $6 individual and save myself a lot of expense by simply re-selling the items.  However, I could not guarantee the quality of the piece or that it had NEVER been used, or that it was REALLY from a smoke-free environment.  To ensure absolute quality, I will still make the items and sell them at the higher price and offer a guarantee that the items is definitely hand-made, definitely never worn, definitely from a smoke-free environment from all brand new materials and not from something else that was ripped apart.

No comments:

Post a Comment