Since I’ve become the mockingjay to pricing your handmade, I figured I would add to it. If you haven’t read my post on how to price hand-made: CLICK HERE. So let’s go into the WHY. WHY we are using these formulas? WHY do we need a profit margin? WHY aren’t we selling at our wholesale cost?
Let’s refresh our memories on the formulas I love and hate.
LOVE: Cost + Materials = Wholesale x2 (profit margin) = Retail
LOVE: Cost + Materials + Overhead = Whole sale x profit margin (Minimum 1.6) = Retail
FUCKING HATE: Materials x 3
You’ll notice that the ones I love have a profit margin. That’s for a reason, because there are SO many things outside of your business/craft/money making side thingy (whatever you want to call it) that you need to be paying for outside of your production time (materials and hourly wage). WARNING: I’m going to be upfront with you here and be blunt… I’m sorry, but you do not get to dip into your own bank account or your spouses and then tottle around saying “I’m making so much money!” after you get a sale, when you actually AREN’T. If your profit margin (or little to none of one) isn’t covering these things in the list below and paying for your company to survive, your business is flopping because you don’t know how to price accurately and you aren’t paying for the other things in your business. There is more to running a business than making your product. You’re business is not actually making money if you aren’t taking these into account. You’re probably taking a loss – and who wants that!?
So if that’s not a big enough reason, here’s a list of what you’re probably forgetting about or are trying to sweep under the rug to pretend like you’re actually making money. I’m talking to you little subconscious!
What does that profit margin actually cover? If you’re like any other crafter, chances are as soon as you added that profit margin in the formulas above, you went straight into sticker shock. It almost (if not did!) DOUBLE your rate. You’re thinking “This cannot be right? This math is clearly wrong”. That number is not wrong. You’re conceptions of pricing are. That number is correct – you’re just scared of it. So what is that profit margin for? Is it extra money you get to put in your pocket at the end of the day? Yes and no. We can’t reaaaaaally say it’s play money, because it’s going first to paying for other aspects of your business, and trust me – there’s a LOT of them. Here’s a checklist of what it’s going towards. How many are you checking off that your profit margin is actually paying for?
- Did you put up a social media post?
- How long did it take you to write and post?
- Did you send an email blast to your subscribers?
- Product photography
- Did you pay for it to be done?
- Did you take time out of your day to snap some shots?
- Website/ Etsy
- Do you pay a monthly subscription?
- Do you pay credit card fees associated with sales?
- Did you write a blog post, edit it and publish it?
- Did you make any listings?
- Update your titles and tags?
- Did you take any time to answer client questions?
- How long did it take?
- Did you pay a booth fee?
- How many hours were you there standing to sell your product?
- Did you create a nice set up to attract customers (What items were needed to furnish it?)
- Did you hand out bags?
- Did you have price tags on your items that you paid for?
- Did you have business cards made to give out?
- Did you boost any posts or pay for traditional media advertising?
- Do you rent a studio space to work from?
- Rent on your house if you work from home
- Shipping Materials
- Have you purchased polymailers or shipping materials?
- personalized thank you cards
- Extra’s to add “Umph” to your package (Ribbons, paper tissue etc)
- Banking + Bookkeeping
- Do you pay for a software system to help with bookkeeping?
- Do you hire an accountant?
- Are there banking fees associated with your business account if you have one?
- Have you paid for a course to learn more about owning your biz?
- Did you have any mileage or fuel costs to get materials?
- Any conferences that you paid to go to?
This doesn’t even encompass them all and it’s looking mighty scary. Now that profit margin is starting to dwindle right? If you’re scarf retails for $60, but your materials and hourly wage cost $50, now your profit margin is a measly $10. You’re profit margin is only a tiiiiny 17% of that retail rate. How fast is that going to last in the list above?
It’s a sobering thought – but that’s why we need to remember that profit margins are there to make a profit. Making money is NOT. DIRTY. It’s what you’re trying to achieve if you’ve created a business. So let’s cut the pity party, let’s give ourselves a pat on the back for doing as well as we did before now, and let’s take that extra leap into profitability. We all have to start from somewhere.