Category: Starting Your Business

Do you want to start a craft business? Great! Today, let’s talk about how to set goals for your craft business – the SMART way.

Before you start writing down goals, you have to understand how to set them.

Wondering how to price crafts for sale? Before you start a craft business, you must know how to price your handmade items. There is nothing worse than designing an item, creating it, packaging it, selling it, and then realizing you made no profit – or worse – you lost money selling an item!

Craft Pricing Formula

There are a number of pricing formulas out there, but this is the one I like the most. It takes into account supplies, labor, and overhead costs.

Generally, a handmade item is priced using a formula similar to this:

Cost of Supplies + Labor + Portion of Overhead = Total Costs
Total Costs x 2 = Wholesale Price
Wholesale Price x 2 = Retail Price

Let’s break down the parts of the formula.

How to Figure Out the Cost of Supplies

The cost of your supplies is how much you paid for the supplies. This is straightforward. However, it can get tricky if you use a portion of a supply in a project for sale.

For example, if you make a tshirt using a half a sheet of vinyl, you’d only use half of the cost of the sheet of vinyl in your formula. Similarly, if you use a third of a container of glitter in your product – you’d only use 1/3rd the total cost of the glitter in your formula.

How to Figure Out Labor Costs

The labor costs are how much you want to pay yourself. There are too many times where I have seen crafters selling products, and not paying themselves. Sadly, you are not going to be in business long if you aren’t making any money.

So how much should you pay yourself? I talk in length about how much to pay yourself in another post.

How to Figure Out Overhead Costs

Don’t forget: When figuring out your overhead costs, you’ll need to take into account everything you used to create your item. From the software costs, machine costs, actual supplies used, packaging (box or envelope, packing supplies, tape, the label paper you used), the cost of the scale you used, the amount of electricity used, the space in your home or studio, even a portion of your advertising costs or store fees.

How to Price Crafts for Sale Example

Example: I’m selling a personalized glitter tumbler sealed with epoxy. After creating the tumbler, the customer will pick up.

Supplies and costs:

• Stainless steel tumbler. $1.39.
• Glitter. I use one quarter of a container that cost $5.99. One quarter of $5.99 is roughly $1.50.
• Epoxy. I purchase epoxy by the gallon for $50.00 and can make 35 tumblers with one gallon. 1/35th of a gallon costs $1.42.
• Vinyl. I use one quarter of a sheet of adhesive vinyl to add personalization to the tumbler. One sheet of adhesive vinyl costs $1.42. One quarter of a sheet is $0.36.

• Total supply costs: $5.56.

Labor:

• I pay myself $10 an hour to make tumblers, based on my experience and expertise. It takes me one hour to make the tumbler.

Overhead: Things like electricity, space in my home studio, online store fees, legal fees, and more all go into the overhead of your business. You can think of your business overhead as the amount it costs you each month to keep your business running – or your break even point.

Here’s how to figure out your monthly overhead:

1. List out all expenses in your business for the previous month.
2. Add these expenses together. This was your total overhead for the month.
3. Divide by 744 (the total number of hours per month in a month with 31 days).

Let’s do it: $450 (total expenses)/744 = .60

What does .60 mean? This figure is your monthly overhead cost by hour. Simply add it to your labor rate in the formula and the overhead costs are accounted for.

My adjusted labor rate is $10.60 an hour.

Put the numbers into the formula:

Cost of Supplies + Labor + Portion of Overhead = Total Costs
Total Costs x 2 = Wholesale Price
Wholesale Price x 2 = Retail Price

$5.56 + $10.00 + (which includes my overhead) = $16.16

$16.16 x 2 = $32.32

$32.32 x 2 = $64.64.

This gives us a selling price of $33 wholesale and $65 retail.

Online Craft Calculators

There are a number of online craft calculators available, as well as a handful of apps. Honestly, they will all use a different variation of one of the popular pricing formulas. If you find one you love, use it. If not, just grab your calculator and the formula above to price crafts for sale.

One more thing: Have you ever heard of dynamic pricing? You may not have, but you see it every day. Your prices should be dynamic, not static. Read more about dynamic and static pricing.

Yesterday, I compared credit card readers to help you decide which credit card reader worked best of your small business. But, how can you accept payments from customers that are not ordering through an online marketplace and they are not local? Besides having the customer mail you a check, you can also use online invoicing. Online invoicing means that a customer is emailed an invoice with links for them to pay with their credit card. After paying the invoice, they will be emailed a receipt and you will be notified. Depending on which invoicing system you use, the money is either deposited to your bank account or into your account.

If you are using an accounting program like Quickbooks, Xero, or Wave, an online invoicing tool is usually built into the program. Similarly, if you are using a credit card reader, many of those services also have online invoicing available.

If you already use Paypal to accept payments, you can also use it to send customer invoices. Your customer does not have to have a Paypal account to pay the invoice.

How to Send a Paypal Invoice

1) Log into your Paypal account.

2) Click “Send & Request” from the choices across the top.

3) Choose “Create and manage invoices” from the next screen.

4) Click “Create an Invoice”.

5) Enter your business information and your customer information. You can give your invoice any number you want, and set the due date for whenever. I chose to leave mine, “Due on Receipt”.

6) Pay close attention to the description of the item, and be as specific as possible when writing the description. In this example my customer is buying a pink shirt with a white monogram on the chest area. My description states “Size Medium Adult Dark Pink Shirt with Circle Monogram CSA, Monogram color: White, Monogram placement: left chest area”. In the event there is a problem with the transaction, a thorough description may prevent you from having to refund a customer.

Near the bottom of the Paypal invoice, you can also attach a file. This is a great place to attach a mockup of the item or a sample photo of the item if you have one available. I attached a simple mockup of the shirt design.

7) Once you are satisfied with the invoice, click “Preview” to see it. If you will be selling a similar item, you can also choose to save the invoice as a template. Here is what my completed invoice looks like when it is sent to my customer:

8) After previewing the invoice, click “Send” to email it to your customer. Once the customer pays, you will receive a notification that payment has been made, and you’ll be ready to start creating!

Again, it is a wise business move to always get your customer to pay for your item before you begin making it. No seller ever wants to put the supplies and time into an item, especially a custom item that you might not be able to resell, and then have the customer not follow through with the sale.

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Do you want to start a craft business? Congratulations! I’m excited for you!

Did you know that Bloomberg estimates that 8 out of 10 entrepreneurs that start a business fail in the first 18 months?

And, starting a craft business is like getting a new job, or having a baby. A business must be nurtured. You’ll need time to make products, create a website, maintain your online shop, photograph your products, ship your products, handle customer service inquiries, shop for supplies, maintain social media profiles, research your business, and so much more.

I promise I am not here to ‘rain on your parade’. I’ve been working with online craft business owners since 2015, so I have some experience with craft businesses.

I’ve made a list of 6 things to consider before your start a craft business.

What to Ask Yourself Before You Start a Craft Business

1) Do I really know how to use my machine and troubleshoot problems that might come up? 

Unfortunately, I see this all the time. A new Silhouette or Cricut owner gets their machine, makes a thing or two and a friend asks them to make a product for them – and they will pay for it! Suddenly, the new machine owner is ready to set up shop. Then, the new machine owner runs into a problem with their machine that they don’t know how to fix – or commits to create an item for a customer that they don’t have the experience to make. The problems and frustrations just start snowballing from there, and the business never gets going. So, please, get to know your machine well before going into business.

2) Do I have enough money to pay for start up costs? 

Starting a business costs money. Make sure you have ample funding for items you’ll need including: Supplies, advertising materials, packaging materials, website registration, logo design, and website hosting. Here’s a list of common start up expenses.

3) Do I have the time to invest in a business? 

Have you considered when you will create items? Ask yourself these questions: Are you available during the day to make items? Will you be working a part time or full time job and creating in your free time? Do you have small children and will be creating items when they are sleeping? Do you usually spend time with a significant other in the time that you will now be creating products? How will your significant other feel about you using this time for something else? Don’t forget, in addition to creating items – you’ll also need time to advertise yourself, complete paperwork, answer customer questions, photograph and list items (if selling online), and ship the finished items.

4) Do I have space to store my supplies and work? 

Where will you create? Is there space in your garage, basement, office, kitchen table? Where will you keep your supplies? Need some creative storage solutions? Check our these tips.

5) Is there a demand for the types of products I want to sell? 

Let’s take an example: I’m starting a new business and I mainly make personalized tumbler cups and cutting boards. I’ve made several personalized tumbler cups locally and landed a large order with a local cheer team. But, I also plan to sell online through Etsy. After researching online, I’ve found that there are eight other local cheer teams that I plan to contact about personalized tumbler team orders. When I typed “personalized tumbler” and “vinyl cutting board” into Etsy, I found over 14,000 personalized tumblers already listed, but only about 1000 personalized cutting boards and many were a style that I don’t create. Based on my quick research, I’m likely to get more sales if I promote personalized tumbler cups locally and focus on personalized cutting board designs on Etsy.

6) Do I enjoy working with people? 

In my opinion, customer service is what keeps small businesses running. Customers expect prompt, courteous communication on everything from getting details for a custom order to handling a lost package. Expect to dedicate time each day to handling customer inquiries and problems that arise.

What if You Can’t Answer These Questions with a “Yes”?

Honestly, this article isn’t an end all for your dreams if you can’t answer the above questions with a “yes”. However, you need to put some thought into why you can’t answer each question with a “Yes”. What changes can you make in your lifestyle to fit in a craft business? What other things haven’t you thought of? My goal is just to get you thinking about if now is a good time to take on the responsibility of a new craft business. I’d hate for you to get down the proverbial road in three months – and be unhappy.

What to Do Next?

If you think you are ready, get some tips on naming your business: 8 Tips for Naming Your Craft Business.