So, you’ve been making jewelry and getting compliments
from family and friends. All their sweet words are turning your head
a little and you are starting to think “hmm...maybe I can do
this for money?”
Find your motivation
The first thing to ask yourself is WHY do you want to turn your hobby
into a business? Is it to support your habit? Make enough to live
on? Retire to a tropical island? Running a small business is work.
You may be able to sell a few pieces a year and pay for your hobby,
but making all that jewelry may cause you to loose some of your love
of beading. Then again, you may find that beading more makes you want
to bead more. It is important to evaluate your reasons for wanting
to sell your work.
Knowing your craft
Another thing to consider before you let those compliments fill your
eyes with stars is whether or not your work is READY to sell. How
long have you been working at your craft? You don’t always have
to spend years before you can sell a single bracelet, but you do need
to know that you are making pieces that will hold up and won’t
fall apart on your customers. Make sure you have perfected your techniques.
Test out any new construction methods you use and test any new products.
Make a bracelet with that new stringing material and wear it for a
week. I used to test coatings on beads by either wearing it for a
week, or wearing it for a few days and then tossing it in the washer.
I figured if it survived the spin cycle it would probably wear o.k.
Remember that if a customer purchases something from you and it doesn't
hold up, they probably won’t be back.
Money, money, money
So you have decided that you do want to make your hobby into a business.
Don’t plan on making a profit right away. In fact, plan on putting
money into the business for at least two years. Any profits you make
will probably need to go towards inventory or enhancing your set-up.
Since you can’t be certain of a profit, you will need some other
income to rely on and you should avoid borrowing money if at all possible.
When you have a few slow shows that bank loan will be a heavy burden
to carry. Do you you have the time and energy to devote to a business
that won’t pay you back for a while? Perhaps selling on a smaller
scale, maybe doing some home shows, would be better for your schedule
than trying to sell to several retail stores or galleries.
You will also want to make sure you are doing everything
legally and above board. Selling one or two pieces to a neighbor won’t
attract the attention of the tax department, but creating a bigger
business will. Contact your state and local tax departments to find
out what kind of permits you need. Be certain to fill out all forms
accurately and keep copies in your office. If you go to craft fairs
or shows be sure to bring a copy of any certificates your local revenue
departments require. Don’t forget to file the correct tax documents
on time. In North Carolina you can visit the tax department on line
at http://www.dor.state.nc.us/
or a web search will find your local tax department in minutes.
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Think again about your goals, why do you want
to sell your jewelry?
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If you aren’t declaring your sales as income,
you can’t deduct your expenses.
Selling prices
Ahh, now the tough part. You’ve made some wonderful earrings
and have customers lined up to buy them. How much should you charge?
I have a formula that is a good guideline, but before we get to that
I want to discuss the basic difference between selling wholesale and
selling retail.
Wholesale sales are sales to anyone who will be reselling
the merchandise. Retail sales are sales to any one who will be the
end user of the merchandise. The prices for wholesale in the accessories
market are generally one-half or less than what the final price will
be to the retail consumer. (A side note here; different types of merchandise
have different mark-ups between wholesale and retail. Cars aren’t
marked up as much as athletic socks.) This is important to remember.
You need to price your work at the correct prices. If you do not,
you will be doing yourself and your work a disservice. If you develop
a market for your work at retail craft shows but have priced your
work too low, you are cutting yourself out of money and will eliminate
the possibility of selling your work to galleries or boutiques. Even
if you don’t want to sell your work to stores to resell, there
is no reason to sell your work at prices that are too low. Beginners
often make the mistake of pricing their items low to attract customers.
After a while of doing this, they realize they aren’t making
much money and now feel as though they cannot raise their prices and
keep their customers.
So how do you determine your prices? You need to consider
the cost of all the “ingredients” in your craft product.
If you are making wire and bead earrings the costs include headpins,
earring findings, beads, and the plastic bag or box you package them
in for customers. This last part, the packaging, is part of what I
call “studio costs” and I will go into
more detail in another article about how to estimate these costs and
how to keep them down. For right now let’s consider the studio
costs to be $0.50 per pair of earrings and the total ingredients cost
to be as follows:
Ingredients |
Quantity |
Cost |
Unit |
Extended
cost |
headpins |
10 |
$0.15 |
ea |
=$1.50 |
beads |
10 |
$0.08 |
ea |
=$0.80 |
ear wires |
2 |
$0.80 |
ea |
=$1.60 |
|
1 |
$0.50 |
|
=$0.50 |
| |
|
|
Total: |
$4.40 |
Ok, so our mythical pair of lovely earrings cost you
$4.40 for ingredients.
Now, what about labor? You should compute labor charges based on how
long it takes to make the item and the rate you want to make per hour.
Now, don’t get crazy. We’d all love to make $100 an hour
beading but then who would buy what we made? Be reasonable. If you
think you want to sell lots to stores and you want to hire employees,
use a basic rate that you might pay someone else to make the earrings
for you. This should be decided based on the labor market in your
area and based on what your time is worth. If you are planning on
making one-of-a-kind work you can use a higher rate. The hands of
the artist are always more valuable! A good, easy to use number is
$10 an hour, so we will use that in our calculation. We are also going
to pretend that our earrings take 30 minutes to make, so the labor
cost for one pair is $5.
Now we are ready to look at the markup multiplier. This
is the fuzzy area of the pricing formula. Large production designers
and manufacturers use a markup multiplier to make sure that all their
items are hitting the stores with a similar price level. As a beginner,
you want to use a relatively low number, say 2.5 or maybe just 2.0.
Big name designers can use much higher numbers because customers will
pay a premium for their work. This is true for arts and crafts as
well as fashion. A white, all cotton Hanes T-shirt and a white, all
cotton, Calvin Klein T-shirt are basically the same with very similar
manufacturing costs. There are subtle differences which may add a
little to the cost, but the fact is Calvin can mark his stuff up a
lot more than the folks at Hanes. That is why his T-shirts are $20
each and Hanes T-shirts are $5.99 for three. Until you are the household
name Calvin is, lets work on keeping that multiplier at around 2.0
- 4.0. There are occasions that call for higher mark-ups, like custom
work and high-demand items and I will discuss those later. One-of-a-kind
work can also use a much higher multiplier because, well, it’s
one-of-a-kind.
So, back to our mythical earrings. We know the ingredient
cost is $4.40, the labor is $5 and the markup multiplier we are using
is 2.5. Let’s look at the formula and plug our numbers in:
(ingredient cost + labor) x markup multiplier
= wholesale price
also:
wholesale price x markup = retail price
So:
($4.40 + $5.00) x 2.5 = $23.50
Well, we have priced out our earrings at $23.50. I always
rounded up, since I felt that it sounded a little more sophisticated.
That would make these earrings $24. Now, that is a great price for
these mythical earrings we are talking about, don’t you think?
They are so lovely, they will match every outfit in your closet.
Pricing psychology
There actually is some psychology to choosing prices. Remember when
I said that I always liked to use round numbers ($24) because it sounded
more sophisticated? Well, that is my opinion, but it is also the general
way prices are structured in U.S. retail stores. If something is priced
at $23.99 or $23.97 it sounds cheaper than $24. O.k., I know it IS
cheaper-by a few cents-but it sounds way cheaper in the shoppers head.
You may be saying “all right! so I will price all my items at
$-.97 or $-.99 so folks think they are a good deal.” Slow down.
It doesn’t work that way. It also seems that folks feel that
items might be MADE cheaper or are of lower quality if they are priced
in the ‘bargain’ way. Test this out; go into a fancy store
and look at some price tags. They will all be round numbers. Now go
to a discounter and examine some tags. They will most likely be all
of the $-.99 variety. You probably don’t want buyers to think
your items are cheaply made or of lower quality, so stick with round
numbers. As an added benefit, round numbers are easier to add in your
head. I always like that one at busy shows!
One of a kinds
How can you price one-of-a-kind items? I mentioned above that one
of a kind items can have a much higher multiplier. That is actually
an understatement. One-of-a-kinds can have a MUCH HIGHER multiplier.
Basically, you can charge whatever the market will bear. If you make
one-of-a-kind items you should start with the above mentioned formula
but use a multiplier of 4-7. As your work sells and you get busier,
you need to raise your multiplier. You will lose some customers each
time, but for a while you will gain some, too. Collectors generally
tend to view themselves as collecting a certain type of item (say,
beaded jewelry) at a certain price point (say, $150-300 per item.)
When you move out of one collectors price range, you may find another
who will value your work.
A note about this pricing. Be realistic. A ‘One-of-a-kind’
item that features mass produced ingredients won’t be worth
as much as one that features handmade beads or pendants. Also, you
will have a ceiling to your prices. If you raise them on some items
and no one buys, or they buy only after haggling a bunch, lower your
multiplier.
No absolute price
I don’t know if you have caught on to this yet but the reality
of pricing a craft vs. a commodity is that there is no absolute price.
No board regulates what you can or cannot charge. You must do the
homework to figure out what your minimum price is, but the ceiling
is determined by a host of variables. One variable is the market the
sales will occur in. Last year one of the biggest trends in our area
was large glass pearls knotted with ribbon. Local designers were selling
them at prices from $25-$400 at boutiques in our area. What was the
difference? Well, some had silk ribbons, and some had plastic pearls,
so that difference was obvious. The less obvious difference was perceived
value. In a fancier store the trendy necklaces were obviously nicer.
New styles tend to show up first in more expensive stores; the customers
are willing to pay more for better ingredients and being first on
the block to knot their pearls. Once the items are available at the
less fancy boutiques or chain stores (at less fancy prices) the trendier,
spendier, stores usually have moved on. If you have a really hot item,
and sell it at trendy stores, you may be able to make more for it.
Keeping accurate records
Don’t forget to keep accurate track of all your purchase prices
for various materials. A simple way to do this is to just write the
purchase price on a plastic bag and store the beads in that bag. You
can also jot down where you got them in case you want to buy more.
The problem with this system is that it gets tedious looking through
all those bags when you are designing a piece. It also doesn't look
very nice. Many beaders like to devote lots of time to organizing
their beads just-so and a beautiful, well organized work space is
inspiring. Another efficient-but not pretty-way to keep track of your
bead prices and suppliers is to get a three ring binder and fill it
with the plastic sheets used to store slides. You can purchase these
at office supply stores or camera supply stores. These sheets have
rows of little pockets with openings on the top only. It is easy to
insert a sample of the bead or finding into the pocket and use clear
tape to seal it up. You can then write the purchase price, supplier
and date on the pocket. You can have different sheets for different
types of items (Bali spacers, turquoise beads, blue Czech glass, etc.)
which allows you to see what you may be low on when you are planning
a shopping trip. I also know one designer who used a small binder
that held 3x5 cards. She glued one of each bead to each card and wrote
all the pertinent info on the card. She would also stitch a row of
smaller beads to a card with the correct info.
Whatever method you decide upon, make sure you are writing
down prices and not keeping them in your head. Also be certain to
save all receipts and use some kind of accounting software or even
old fashioned paper and pencil to keep records of all expenses. Accurate
record keeping will save you time not just when pricing your work
but when you are getting ready for taxes. If you know an accountant
who will work for beaded jewelry, by all means contact them!
Studio costs
Studio costs are everything that you spend to make your craft that
doesn’t get accurately accounted for in the ingredients list.
Do you pay rent for a space? Did you purchase new furniture? Do you
package your work in special boxes or bags for customers? Those things
are all studio costs. Keeping your studio costs down is important,
whether you are selling just to friends or to twenty different stores.
Some costs-like furniture, storage bins and packaging-can be written
off in the year they are purchased. Other costs, like expensive equipment,
may need to be depreciated over several years. If you are selling
only to a few friends in a couple of shows a year and making your
jewelry at your kitchen table or in your family room, you may not
want to worry about deducting those types of studio expenses. If you
just rented a space in a building downtown and furnished it with some
swanky worktables now is the time to investigate that jewelry-loving
accountant...or take a small-business bookkeeping class at your community
college.
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