Wednesday, November 28, 2012

Selling Wholesale: Thinking about Costing and Pricing

One of the first challenges with any business is determining your pricing structure, and many businesses go under because they are not charging enough. If your marketing strategy is to be a low cost leader (think Walmart) this may work for you as the volume of sales will drive your revenue. But when starting a business, we're often think about any sales, not yet volume of sales.

The first step in determining pricing is to be knowledgeable of your costs. Be sure you have a clear knowledge of cost per unit when calculating your product costs.

For example, assume I make a necklace comprised of three simple pieces.  Piece A is available in units of 10 for $1. Piece B is available in units of 12 for $1. Piece C is available in single units for $1.  Your units costs are:

Piece A = $1/10 = $0.10
Piece B = $1/12 = $0.08
Piece C = $1/1 = $1.00

Now, assume the necklace needs 7 units of Piece A, 5 units of Piece B, and 3 units of Piece C.  Your products costs are:

Piece A = $0.10 x 7 = $0.70
Piece B = $0.08 x 5 = $0.40
Piece C = $1.00 x 3 = $3.00

Total cost = $4.10

But don't forget about labor and overhead costs.  Yes! You need to pay yourself! This example is going to assume $10 per hour labor, although I know your time is valued at much more than this!  Assume it takes 15 minutes to make one necklace. Total labor cost for one necklace is:

Labor = $10.00/4 = $2.50
Add product costs = $4.10
Total cost so far = $6.60

Then the dreaded overhead costs: rent, marketing, insurance, utilities, machinery.  For easy math, let's assume these costs equal $10.00 per day.  Total overhead cost to make one necklace per day is:

Overhead = $10.00
Add labor costs = $2.50
Add product costs = $4.10
Total cost so far = $16.60

Your wholesale price should be at least twice your costs.  Therefore:

Wholesale price = $16.60 x 2 = $33.20

Whoa!!!!! That's what I'm selling my necklace for as retail!!!! It is so easy to fall into this trap, because we know what a similar product may sell for in similar online shops, and even in our local department store. The online competitor may sell for $25.00 and the local department store for $15.00.  But, you say, mine is hand crafted with better quality items. Cost is not always a deciding factor with the customer, sometimes quality is.  But you still need to be competitive.  That's where selling wholesale can help you break even and become profitable.

Let's use the same example. You know you can make a single necklace in 15 minutes, but because of working in larger quantities, you can make 6 necklaces in one hour.  Now, your costs looks like this:

Product costs = $4.10 x 6 = $24.60
Labor costs = $10.00
Overhead costs = $10.00

Total costs = $44.60
Per unit cost = $44.60/6 = $7.43
Wholesale price = $7.43 x 2 = $14.86

Now you're competitive! The necklace can be sold for retail price of wholesale x 2 = $29.72, which I would round up to $30.00.

This is truly a contrived example, but it demonstrates what I like to call Economies of Time. We're familiar with Economies of Scale, in which buying larger quantities drives down the cost per unit.  With Economies of Time, doing repetitive tasks successively can help you to build speed, allowing your to accomplish more per units of time.

But I also use this example intentionally, as it's the model on which I base my pricing.  I sell my candles wholesale for $10 each, and cases of 12 for $120.  Pretty simple math.  But it takes just as long to make 12 candles as it does to make 1.  (Think preparing a batch of cookies then putting only one into the oven). I use Economies of Time to provide a 10% savings to the buyer if each case is one fragrance only.  I'm willing to pass my savings in time on to the buyer and sell one fragrance case for only $108.00.

Now, as someone just beginning to gain wholesale orders, I realize it will take some time for a buyer to want to buy an entire case of one fragrance. But I believe they will see this as an incentive as as they become more comfortable and intrigued with my product!

What also goes unsaid in this example, is the extra costs of supply inventory for unmade product. Using my batch of cookies example, when I only bake one cookie, I have not only excess flour, sugar, and butter (supply inventory) but excess unbaked cookie dough (product inventory). This carries a cost as well as the excess flour, sugar and butter are opened and will only be used when I make another batch (sunk costs), and I can't sell the dough until I bake again (inventory).

This week I encourage you to think about you can maximize your time by producing in larger quantities. Even in the example above, each necklace will be slightly different due to the natural variance in hand crafted items. But if our goal is to make money from our craft, we need to analyze the costs associated with our business.

I welcome your thoughts, feedback, and questions. Until then, happy sales!


Sunday, November 25, 2012

Etsy shop review - Katya of Katrinmania

Today I'm pleased to introduce to you Ekaterina Pavlolva (also known as Katya) of Katrinmaina. Please read more about her wonderful work here:

My name is Ekaterina, but all my friends call me Katya - it is shorter and everyone understands the spelling :)
I felt I could create something all my life, but I found myself as an artisan only two years ago when I attended felting workshop. We were going to "draw" the picture using the colorful wool. I took a piece of wool and....I fell in love deeply, completely and forever :)

Felted wall hanging - The Owl

Since that time I always "roll" something, because felting (wet felting) is a process including rolling the wool many-many times.

Felted brooch - Chysanthemum

It is difficult to say what exactly gives me creativity. I think it is something inside my mind -feelings... or an idea... 
It comes and sweeps you out of your feet suddenly and later you just see the result of it in your hands.. It can be a scarf or wall hanging or...both :)

There are a lot of examples in my etsy shop :)

My favorite item is this picture

Felted Still Art

You can find my products among my friends, relatives and since I`m on Etsy - my customers :)

Also some you can find in my web album:

Outside of Etsy I`m a housewife right now. I`m bringing up my daughter (she is 5), my son (he is 4 months) and my husband :)

You can also "like" me on facebook :)

Thank you so much for your time to read my Hamlet monologue and have a nice day :)

Wednesday, November 21, 2012

Selling Wholesale: Being Prepared

I began thinking about selling wholesale in early last summer. How I made that decision was based upon my desire, not only to get more product into stores, but to increase my revenue. Yet, for as much as I write about being prepared and making sound business decisions, once I entered the wholesale market, I found I was not as prepared for selling wholesale as I thought I was.

Here's how it started: I knew I needed more revenue. I know it's just as easy and no less time consuming to pour five candles as it is to pour one. So my logic at the time told me that if I could sell more candles, I could make more money! And working full time, I did not have the time to market my product, so why not find someone to do that for me?

But here are some issues I was struggling with:

  • Branding - I wasn't happy with my branding. Like most entrepreneurs, I did not have a lot of revenue to invest in graphic design. But in my for me, much of my product line needs to be sold with graphic design. Until you can smell through your computer, I needed something else to help me sell my product.
  • Inventory or financial management - I didn't have an inventory or financial management system. Yes, I promote the fact that I create my product at the time of order. And yes, I was keeping track of my revenue and expenses. But I did have a small inventory that I kept for craft shows and farmer's markets.
  • Promotional materials - If you followed my newsletter series, you know how much I enjoy marketing. I didn't think developing promotional materials would be too big of a task.
  • Policies - I had a vague thought in my head of $100 minimum orders and payment upon order, but that was it. I hadn't thought about policies for samples, shipping, order processing, returns....the list goes on and on.
I had approached some local stores before about selling my products. I had even sent sample tea lights and basic information. But I wasn't getting anywhere. When I found a site to place a free listing for representation, I decided, why not? 

So, imagine my surprise when two days later, a representative did in fact contact me about repping my line!

My wisdom to you today is to be prepared.  If you're struggling with an aspect or two of your business as it exists now, the problem will only magnify when your sales become larger. Take time out of your busy schedule now to identify a problem. Maybe you know you have an issue but can't identify exactly its cause. Or identify where you have an opportunity to do better. Then take time to think through how to resolve it. Reach out to other business owners if you need to. Ask for help from friends. But don't think that by waiting "until you get that large order" means you should avoid dealing with it now.

With Thanksgiving and the holiday shopping weekend ahead of us, I know many of you won't have as much time for my weekly business lessons. The next few weeks, we'll address each of the issues I listed and how they were resolved. If you have struggles with any of these problems or other issues and concerns, please let me know.  Let's work on them together over the next few weeks and start 2013 with a bang!

Sunday, November 18, 2012

Treasury Sunday - November 18th

Every other Sunday I give thanks to those curators who have featured me in their gorgeous treasuries, shopping collections on Etsy. I hope you enjoy these wonderful collections, visit the curators, and shop the stores!

Wednesday, November 14, 2012

Wholesale vs. Craft Shows

Last week I introduced the next topic in my business series as Selling Wholesale.  I had been debating about how to move forward and which topic to broach first, when, lo and behold! Yesterday I received an email from Arts Business Institute with their thoughts on this very subject!

The theory of their blog post compared the risk and potential of craft sales to the risk and potential of selling wholesale.  At a craft show, it can be difficult to predict what your sales will be.  If you have products remaining, you know what your sales potential of that product is.  But if you sell out, you have no basis upon which to calculate your potential future sales. Using an 80/20 rule (80% of your sales come from 20% of your products),  knowing your potential can help you plan how much product to make with a level of accuracy an unknown cannot.  Because you may never know if you could have sold more, you will never know how much money you could have made.

Also, you have no potential of unsold product as well as the cost of additional inventory.

Selling wholesale, particularly at wholesale trade shows in their example, you only have to make one item to showcase as sample inventory, from which you will sell.  If you get orders, great! Your return on investment (ROI) is great.  For example, your sample costs $10 to make. You receive an order for 100 units. Your ROI is as follows:

1 (sample) x $10 (cost) = $10
100 (units) x $10 = $1,000
ROI = Sales divided by cost
ROI = $1,000/$10
ROI = 100

In other words, for every unit made, you receive 100 in return.

If you make no sales from an item, you're only out the cost of one item, compared to the cost of all unsold items you would have from a craft show.

In essence, it's much easier and less expensive to change your product line when selling wholesale. Because you can gauge if something doesn't sell, you only need to product one item to replace it in your inventory.  And you don't have excess inventory left to sell.

Another point that I like is: every product is sold before it is made. Every dollar spent on supply inventory for an order will become a return on that investment.

The last point made in the article refers to repeat sellers.  Happy customers will return again and again. And what better customers than those that make purchases in bulk!!!

Many of us hope to make money while producing art. But if we're serious about making money in addition to making art, we need to spend a proportional amount of time running our business. Why not run the numbers and give wholesale a try?

Until next time,


Sunday, November 11, 2012

Etsy shop review - Spiritually Sewn

Today I'm pleased to introduce to you Spiritually Sewn. Read more about her wonderful work here:

I recently started an Etsy business in which I sell notebooks that I cover with novelty fabrics. I don’t really see myself as being creative but I like to improve on other ideas.

Journal composition notebook journal wih matching Kanzashi flower fountain pen
Spiritually Sewn fabric journal ensembles make great gifts from mom to daughter; teacher to nurse; church to organization; and everyone in between. 

Journal with -Kanzashi- Fabric Flower Fountian pen notebook composition

Spirtually Sewn was my vision in 2011 but due to circumstances I was unable to open my Etsy shop. Disappointed, I packed away my sewing machine and all of my lovely fabrics knowing that next year would be another chance to start. I had almost given up on my vision but with faith on, August 22, 2012 I was able to open my shop.

Fast forward to 2012, I pulled out the yards of fabric that I had packed away the previous year along with my sewing machine and decided to try it again. I have operated a homebased business before and I loved being an entrepreneur. The timing was right and here I am the proprietor of Spiritually Sewn.

Journal notebook covered Fabric journal with -Kanzashi- Fabric Flower Fountian pen

I love to write so crafting journals are more than a craft it's and enjoyment and I use them alot. From jotting down my bills to writing poetry. The journals that I make are simple but chic; utilitarian but ornamental. I think the kanzashi flower and fabric covered foutain pen makes them stand out along with the various type and patterns of fabric

I am most proud of the matching fountain pens as it took much trial and error to produce them.

Kanzashi flower fountain pen

In addition to running my Etsy shop, I work and additional full-time job and I’m earning my first college degree.

You can also find me here:

Wednesday, November 7, 2012

Reflections on selling wholesale

A few months ago I entered into the world of wholesale. And yes, it is a whole new world. It's been a learning experience for me, and as my business continues to grow, I'm sure I'll continue to learn more along the way.

Many artists approach wholesale as if it were a four letter word. Why? They fear losing the integrity of creating a unique piece with every artistic effort. Now, I realize there is a difference between the business of selling jewelry, photography, or ceramics and selling candles, but there is also a strong similarity: the word BUSINESS.

If you're not in business to make money, why are you in business? It's certainly ok to have a hobby and a talent from which you can earn additional revenue. But if your goal is to earn a living from your craft, you need to approach your work as a job, and as a business.

And to do so, all business models should be considered, from online selling, to craft shows, to consignment, and to wholesale.

As each of your items is handmade, each item will be slightly different from the next, even if using the same style and materials. You lose no artistic integrity in the process! In fact, you can gain from quantities of time as you mind becomes trained in repetitive tasks, and more importantly, quantities of scale as you are able to purchase supplies in greater quantities and lower costs.

Another fear artists vocalize is pricing. An elementary formula for your pricing should be Cost x 2 = Wholesale Price, and Cost x 4 = Retail Price. The fear here is that you're only earning twice your costs in wholeselling, versus the perceived "100%" in retailing. But the part that is overlooked is volume. Not only can you buy in larger quantities and reduce the per item cost, but you're able to generate more sales. And more sales begets more sales. And more sales drives people to your website, perhaps to place a custom order. And more sales begets more sales.

And if you're not trying to generate sales, why are you in business? I'm not trying to discourage anyone, but I am trying to suggest we all review why we spend the time doing what we do.

A good friend and mentor asked me, "Are you in business to make candles or to make money?" It's a question I've repeated to myself many times. If my answer, if your answer is, "to make _____", that's ok!!!! If this is the answer, I encourage you to reflect on how you are using your time and what the return on that investment of time is. If my answer, if your answer is, "to make money," then I encourage you to review what you are doing to make money. Ask yourself, what is the return on my time?

Selling wholesale may help answer this question. My next series of blog postings will address my experiences of selling wholesale. While not an expert, I've learned many lessons, which I hope to share with you and help you grow.

Please leave some comments. Please ask some questions. Please share some experiences and lessons you've learned. I truly enjoyed the dialogue we shared in my newsletter series and hope we can have the same with the topic of selling wholesale.

So until next week,

Happy sales!


Sunday, November 4, 2012

Treasury Sunday! November 4, 2012

Every other Sunday I give thanks to those curators who have featured my products in their gorgeous treasuries.  I hope you enjoy these wonderful collections, visit the curators and their featured finds!

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