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Etsy Pricing Formulas – Reader Q&A

pricing for profit series on lazy owlAs part of our articles series on pricing your handmade products, we’ve discussed formulas to price for profit and how to tweak the formula to fit your business. In our final segment, we’ll answer reader questions.

If you’re new to all this, how do you figure out how much you will sell in a year? 

This question relates to how to calculate your overhead rate, part of your pricing formula equation, which requires an estimated number of items sold in one year. If you’re a new business, I’d come up with a very conservative (on the low side) estimate and go from there. After a month or two of business you can always adjust up or down.

Another option that I think is more appropriate for a new business (since sales usually take a while to get going) would be to base your overhead rate on an estimated number of products MADE in one year, rather than sold, since you have more control over that number and it’s easier to estimate. This concept still works because over time, all the products you make will eventually (ideally) sell and that cost will be recouped.

Your overhead rate calculation will always be a work in progress and should be continuously monitored. Remember, the goal is simply to make sure your pricing formula calculates a price that allows you to recover all the expenses your business faces.

“My crocheted items take some time to make and it kills my profit margin, so I’m not sure if there’s a realistic solution for my business other than to try a different craft or only make quick and easy items. For example, I have some small stuffed bears in my shop. They take about 45 minutes each to make and the yarn is $1. Let’s say I’m paying myself $10 an hour. ([$1+$7.50 labor]x2)+$4 overhead=$21 wholesale, $42 retail. No one would pay that much for a little stuffed bear, so it definitely gets discouraging trying to price for profit. It seems easy to use this pricing model on jewelry items and other quicker crafts but difficult on the more time consuming. Do you have any suggestions?”

This is a great question because I’m sure it’s a scenario that a lot of artists face. Certainly don’t give up on a craft or product you feel passionate about and enjoy making just because you aren’t sure how to price it. That being said, you should always strive to price for a profit if your goal is to have a successful business. You want your craft to be both profitable and enjoyable. I have several thoughts and ideas about tackling this.

yarn

striped wool yarn by SixSkeins on etsy

Here are some questions you can ask yourself about labor-intensive products that seem to be highly priced for your comfort.

    1. Can I make it more efficiently? First, let’s examine our labor element. $10 an hour seems reasonable; I wouldn’t suggest paying yourself any less for your skilled crocheting. Is there anyway we can improve on 45 minutes per bear? Could we create the product in an “assembly line” way to make several at once in stages? Or will we possibly become more efficient over time, and maybe as we become more experienced we’re able to crochet one bear in 30 minutes? Basically, are there any systems we can implement to reduce our labor time for this product?
    2. Do I need to re-evaluate my overhead rate? In my original post I discussed defining different categories of overhead. You surely have general business expenses (advertising, website fees, etc.). But do you have any expenses lumped into your overhead rate calculation that maybe apply to one group of products but not all of them? Make that a separate “category” of overhead, with its own rate, and only include it in the pricing formulas for those products. More refined overhead rates can help you more accurately price your products by more accurately knowing how much they truly cost you. Another idea is to compare calculating your overhead rate based on your estimated annual products sold verses your estimated annual products made (as discussed above) and use the rate that makes more sense to you.
    3. Should I change my profit multiplier? The profit multiplier I recommend in my previous post is x4 for retail and x2 for wholesale. If you feel like this number is consistently over-pricing your items, you could try 3.8 or 3.5, whatever feels comfortable to you. Just make sure you are still leaving plenty of cushion for profit and covering your costs. You might try using different multipliers for different product lines, which leads me to #4…
    4. Could I shift my costs to other products? If your crocheted bears are your best seller, or your “hook” product bringing viewers into your shop and peaking interest, maybe you should price them a little lower and shift some of that missing cost to another product set that can handle a price increase and still sell. Maybe you’d price your bears at $32 and give a price bump to your crocheted baby blankets. This gets tricky, because depending on how many of each product type you sell, you might still lose out, but it’s another way to think about the issue.
    5. Tweak and re-think your formula. Remember that this is the formula I suggested in our first post:

[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
Wholesale Price x 2 = Retail Price

If you really think about this, for your wholesale price, you’re doubling the supplies and labor, and not your overhead, but for the retail price, you are quadrupling your supplies and labor, and doubling your overhead. If it makes more sense to you, and you want more leeway, you could not double your overhead for your retail price. 

Have I lost you yet cause I’m losing myself with that statement! What I’m saying is, your formulas would look like this:
[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price  (the same as above)
[(Supplies + Labor) x 4] + Overhead Rate = Retail Price 

Both of the methods make sense. Both cover your costs, and both give you cushion for profit. One just gives you a bit more than the other, and is quicker and easier to figure out for retail purposes. If I used this new formula, the crocheted bear would then sell for [$1+$7.50 labor]x4)+$4 overhead = $38, rather than $42.

Finally, you know it’s worth mentioning…are you completely sure $42 is not a reasonable price for your item? When I look at crocheted animals on Etsy, I see prices ranging anywhere from $15 to $100. Just because it feels like it’s priced too high to you doesn’t mean your target audience will feel that way. Remember you are offering more than just a crocheted bear. You’re selling your brand, your awesome customer service, the story behind your amazing little bear, and the whole handcrafted experience, which has emotion and value all on it’s own

Remind yourself of this – if your pricing formula determines what price you really need to sell this bear at to make a livable, decent profit, then that is what you need to sell it at. It’s better to sell fewer bears at a good profit and have a sustainable business, than to sell tons of bears at a loss, and eventually have to shutter your business.

Do you sell an item for the same price both on Etsy and at a craft show?

My answer here depends a lot on your products and your tolerance for tedious tasks.

First, I’ll tell you what I personally do for craft shows. As you may know, I sell handcrafted jewelry. I have a lot of items; I generally end up bringing about 250 or so items to a show with me. Online, I have the luxury of using my pricing formula spreadsheet to individually calculate the price for every item I list for sale. I have a lot of different prices there! A craft show requires physically displaying all my jewelry on one or two tables, and thus I’m faced with the decision to either individually label 250 items with their already-calculated Etsy prices, or group them and make price signs for each group. It’s a lot less time consuming to just make signage to the effect of “all crystal earrings – $24” rather than tying tiny taggies with individual prices on 50 pairs of crystal earrings.

craft show display earrings

my early days of practicing my craft show set up. I gathered all my crystal earrings on one tray and labeled them with a single sign, rather than individually tagging each pair.

This “grouping” method requires a little bit of math work upfront to calculate the different pricing levels I want to use. I usually categorize my jewelry into different groups – studs, crystal earrings, pendant necklaces, painted earrings, adjustable rings, wire-wrapped rings, etc. I’ll have a list of what those items are priced on on Etsy, then I’ll decide on the best price point for each category. If I have a wide price range in one category, I might make 2 or 3 levels. For example, let’s say I sell crystal earrings on Etsy ranging from $15-$30. If I price all of them at a craft show for $25, my customers might shy away from buying the ones that seem to be way overpriced. So I might break out price points of $18, $22, and $28, or something like that. That helps me make more of the profit I need, encourages sales because things seem fairly priced, and makes the labeling situation a bit less time-consuming.

Spring Craft Show Display

different price levels of earrings are grouped on different displays, with simple signage to label them

It takes some time for me to determine my price points, and then I make the signage and set up my display accordingly. But I find this to be a lot less work than keeping the same prices as on Etsy and having to individually label every piece. Plus, it’s a lot easier when I sell something because I’m likely to know the price off the top of my head.

And don’t forget about sales tax. I like to include sales taxes in the price of my goods already (this is ok to do in Texas as long as you have signage stating that you are doing this). This way customers can pay me a flat amount (I don’t like dealing with coins), and there are no additional surprises for them when they pay. This is another reason I don’t price the same at a show as on Etsy.

Finally (again just speaking about what I personally do), jewelry (and many products probably) sells differently at a show than online. I like to offer deals at shows, like buy 2 rings get a 3rd ring free, or buy 2 pairs of studs and get the third pair half off, to encourage people to buy more. These sort of promos are harder to do on Etsy, but are very successful at a show in person.

So, that’s the methodology I use. Your system really depends on your product and how much work you want to put into it. It also depends a lot on how easy your products are to label and tag. Jewelry is difficult, things like prints or cards that just require a sticker are much easier.

If you had fewer products to sell, especially ones that are easier to tag or label, it might be less work for you to just use your Etsy prices, without having to re-invent the wheel and recalculate all your prices or group your products into pricing levels.

That being said, remember what goes into your pricing formula. Do you have costs going into your Etsy pricing formula that don’t apply anymore for craft show items (for example, packaging costs that only apply if you’re shipping your products)? Might you have costs you should include in your formula that apply only to items you sell at the craft show (like the fee to participate)? Remember to price your items to recover all your costs.

As you can see, my answer is pretty complex and pricing is a complex topic. I hope my thought process makes sense to you.

Do you have anymore questions about pricing your handmade goodies? We’d love to hear them! We also want to thank everyone for participating in our pricing series and hope it was helpful to you.

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Etsy Pricing Series – Don’t Sell Yourself Short

pricing for profit series on lazy owl This post is a continuation of our series on pricing your handcrafted goods. You can see our first post on this topic, including a thorough review of a profitable pricing formula, here. Please feel free to comment with whatever questions or feedback you might have! Our final post on this series will be a Q&A segment with answers to your questions.

Tweaking the Formula to Fit You

To refresh, here’s the formula we discussed last time: lazy owl guide to pricing handmade products This pricing formula is just a suggestion and can be tailored to meet your business needs, as long as you are leaving room for profit. Remember, you want those profit multipliers to be cushioning for profit, not covering the expenses you forgot to include.

If your price seems too high…

  • If the price seems too high there are several pieces of the equation you can examine, and then decide to tweak one, some, or all of the parts.
  • Look at your current supply costs. Is there a way to find less expensive supplies? Can you buy at a discount in bulk? Can you only shop sales or use discount codes? Is there a less expensive supplier around? Have you compared suppliers online vs. locally? Finding the cheapest source of quality supplies is one of the most challenging parts of being a creative entrepreneur, but once you’ve found one, it’s a gold mine that can help you keep costs under control and your prices at a reasonable level.
  • You can also try refining your overhead rates. Recall that your overhead rate is a little chunk of all the business expenses that aren’t directly traceable to a specific product. You include this in your price formula so that every time you sell something, you get reimbursed for a tiny chunk of those expenses. Sometimes, depending on the product, using multiple overhead rates can help refine your price. For example, with my products, I have a glue overhead rate and a jump-ring overhead rate. These are for expenses I have that I can’t trace the exact amount used to a specific product. Since I don’t use glue and/or jump rings in every product I make, I only need to use these rates in products that use them. I can leave that overhead amount out of my other products to get a more accurate picture of the expenses used to make that product. Another (perhaps better) example – let’s say I build an advertising campaign around one set of products. I might make an overhead rate for just those ad expenses and only apply them to that product group, rather than spread out that cost over all my products.
  • Think about your pricing in relation to all of the products you sell. You might have different “levels” of products. The market for rosette studs is very saturated. Maybe I want to have a really low price on those earrings to attract viewers and sales, so I am going to adjust by either giving them a lower overhead rate, or using a profit multiplier of 3 instead of 4. To make up for that, I’m going to shift some of those costs to my higher-priced rhinestone necklaces. This might lead to a situation where I’d sell lots of low-priced earrings with a lower profit margin, but also a few necklaces with a higher profit margin to balance it out.
  • Consider changing your profit multiplier for your retail pricing formula to a slightly lower number. Remember that your labor charge means you’re already paying yourself for your skilled work and time, and then your profit multiplier is (obviously) for profit. How much profit do you want and what are you doing with it? Are you saving for a vacation, or are you reinvesting your profits back into your business for an expansion? If you feel comfortable having a little less profit cushion, you can always multiply your wholesale price by 1.5 or 1.75 (or whatever) rather than 2.
  • You might also consider tweaking the retail pricing formula to look like this, to more truly mirror the wholesale formula you used:

[(Supplies + Labor) x 4] + Overhead Rate = Retail Price

This way you are just using the x4 multiplier on your supplies and labor, and not your whole overhead rate as well. Make sense? Clear as mud right. Just another suggestion that you can try out to see if it works better for you.

etsy pricing formula

wooden calculator teether by 3PrincessesStore on Etsy

If your price seems too low…

  • Are you paying yourself enough for your skilled labor and time?
  • Make sure you’re including all your estimated expenses (did you think of everything?) and be conservative when estimating your annual product sales when calculating your overhead rate.
  • Don’t be afraid to use a larger profit multiplier. You are the dictator of your prices. If you believe the market will support a higher price, do it. Don’t price your items lower just because that’s what the equation says. Who DOESN’T want more profit?!

Monitoring Your Pricing Strategy

Don’t hesitate to re-examine and re-tweak your pricing formula from time to time. Periodically re-examine the overhead rate you’re using. As you become a more experienced entrepreneur, you’ll have a better idea of the non-product expenses your business incurs every year. Ideally, you’ll be able to calculate a more refined and accurate rate over time. Your business expenses are going to change over time as well. The overhead rate you calculated 2 years ago probably isn’t still a reliable estimate now.

Always be on the look out for ways to save on supplies. If your supply cost for the same product goes down, you then have the enviable decision of keeping your price the same and bagging more profit, or reducing your price and maybe getting some more sales. Your labor rate might also need tweaking. You might want to pay yourself more per hour as you become more experienced, or you might be able to spend less time making one item now that you’re more experienced.

But What about the Competition?

Your product, brand, and shop are unique to you. A lot of your competition is probably under-pricing themselves; this is a chronic problem in the Etsy marketplace and puts pressure on everyone else. Your under-priced competition might be making lots of sales but still losing money at the end of the day. They might not still be in business next year. Don’t worry so much about competing with everybody else. Even if a higher price means fewer sales, you’d rather fewer sales and more bottom line profit than lots of sales but a negative bank account balance.

You want your business to be sustainable, and that means covering your expenses AND still having some money to put in your bank account at the end of the day. Why are you in business? To be able to quit your day job? To finance your supply purchases? To have extra vacation money? It’s likely that you won’t achieve your goals without making some money from this venture.

Think about pricing for your target market, not for the competition. Pricing is also about value, and value can be defined by the qualitative (your brand, customer service, etc.), not the quantitative. Your ideal customer is someone who values your product at the price you’ve calculated. You don’t need to be the Wal Mart of handmade goods. Don’t feel like you need to have the lowest price in town.

Here’s an honest story from my own experience. I sell rosette studs, which sometimes seems like the most common thing sold on Etsy. I sell mine for about $11-$13, which is what I’ve calculated as a profitable sales price for me. I believe that they are worth this price based on not only the inputs of my pricing formula, but also the quality of the materials, the customer service I provide, and the work put into each piece. But I see other Etsy shops selling them for as low as $3. Three dollars! Does it keep me up at night knowing my potential customer might not buy from me when they could get earrings elsewhere for $3? No. You might think I’m crazy, but my rosette studs are still, by far, my best-selling products. I might not sell as many as my competitor selling them at $3 a pop, but I can sell a lot fewer pairs and make the same amount of profit at the end of the day as a competing shop selling more for less. Make sense?

Pricing Too Low – Working Harder for the Same Amount of Money

Am I beating a dead horse yet? I apologize. Let’s use a lovely hand-lettered calligraphy print as a very, very simplified example.

a pretty handlettered calligraphy print by The Lettering Studio on etsy (please note this lovely item has nothing to do with my totally hypothetical example below)

My high-quality archival paper costs me 75 cents per sheet. It takes me 30 minutes to letter one print and I pay myself $12 an hour. My pretty black ink costs me $10 a jar, and the calligraphy pen costs me $20. I have $600 of other business expenses. I’m estimating that I will sell 250 prints this year, giving me an overhead rate of $2.40 ($630/250).

[(Supplies + Labor) x 2] + Overhead Rate = Wholesale Price
[($.75 + $6) x 2] + $2.40 = $15.19 for my wholesale price, x 2 = $31.80 for my retail price, or $32 flat.

Maybe I feel a bit hesitant to charge $32 for a hand-lettered print. I do an Etsy search and it seems like everybody else is selling their prints for about $20. So, I’m going to try to compete with that and just sell it for my wholesale price of $15, that way I’m even lower than my competition.

What if my goal is to make $1000 in profit this year? Then, this is what I’m going to be dealing with.

Scenario 1– I sell my prints for $15 a pop. After doing a nice little equation ($15x -.75x – $630 = $1000) and solving for x, I’d have to sell about 115 prints this year to make a profit of $1000 (meaning money I get after covering 75 cents of supply expense per item sold, and $630 of overhead expenses).

Scenario 2 – I sell my prints for $32 a pop. To cover same said expenses, I’d have to sell only 53 (that’s less than HALF as many in Scenario 1) prints to make the same $1000 of profit.

[Yes, there are a lot of assumptions and simplifications here (for example, you probably bought your paper in bulk and not by the piece for each sale, so you’d have to cover that bulk purchase regardless of how many items you sold, plus I didn’t include labor in any of this), but the gist of it is still important.]

To sum up that discovery – you can work twice as many hours and make 115 prints that sell for $15 each and make $1000 net income, or you can work for half as many hours and make 53 prints that sell for $32 each, still make $1000 in net income, and have loads more free time to make other products, spend on other business tasks, go the beach, drink tea, whatever. You might be afraid to set your price higher because that might decrease your sales…but you can sell fewer items and still make the same profit as if you had a lower price. You can even sell fewer items and make MORE profit than if you sold more items at a lower price. With the higher price, each piece you sell generates more profit. I’d rather work to make half as many prints, than do twice the work for the same amount of profit, wouldn’t you? 

Another Downfall of Under-Pricing…Wholesale

Yet another problem you might face if you’re under-pricing your goods – selling wholesale and remaining profitable will be nearly impossible. At some point in your creative journey, you will hopefully get the opportunity to sell your goods to other retail businesses at wholesale. These other business owners will expect a lower (wholesale) price in exchange for buying in bulk upfront. You might face a similar price ratio if you sell consignment. Wholesale prices are usually around (give or take) 50% of your retail price. If you’re selling at retail on Etsy for less than what you should be, then making a profit at even lower wholesale prices will be a challenge. This is yet another reason why it’s important to start out with well thought out prices to begin with.

Bottom Line – Be Sensible & Find a Formula That Works for YOU.

Obviously, if this formula is giving you a price that you feel uncomfortable about it, then you should adjust it. If you are hesitant to price your item as high as the formula is calculating, make sure you aren’t selling yourself short. Price your product as close to that number as you’re willing to go, and see how customers respond to that price. You might be surprised.

A lot of us under-price and under-value our goods. Don’t let the fear of not making sales due to a higher price and/or trying to compete with other shops keep your prices too low. Remember the reasons why you started your creative business. Chances are, being financially successful was probably on that list. You will feel so much more energized, encouraged, and productive if, at the end of the day, you see that your business is thriving and making money.

Keeping all this in mind, I challenge you today to take a hard look at your pricing strategy. Your prices will determine whether or not your business is able to make a profit, no matter how many sales you’re making. So it’s really important for you to hunker down, examine your expenses, and make sure you’re pricing yourself for profit. Again, please let us know what questions about pricing we can answer for you in our reader Q&A post.

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What I’m Working on Right Now

2014 has been a busy year thus far! Trying to juggle mamahood with maintaining Lazy Owl and staying productive with work has certainly been a challenge. Add some travel and events to that list, and we’ve been on the go since January 1!

small business productivity

the mess of my desk

I’ve got a lot of irons in the fire right now, and just wanted to give you a little update of what you can expect here at Lazy Owl in the next few months!

  •  A new look for our website! I recently joined Handmade Tickle as a beta member, from the creators of the well-known site Everything Etsy. Thanks to this new community, I’ve moved my blog over from wordpress.com to self-hosted site. Now I’ve got tons more customization options, but the list of new things to learn is quite overwhelming! You can expect a more exciting site soon, but please bear with me as we grow and tweak! (Side note, if you are a blogger/maker like myself, I highly recommend you check out Handmade Tickle!)
  • More new content! Yes, I’m planning a whole new editorial content around the long-dormant Creative Accounting series, with some other topics sprinkled in as well. It’s tax time for your small business again so let’s talk numbers, and let’s make it easy!
  • An e-book! That’s right, I’m working on Lazy Owl’s very first e-book; it will be centered around our first Crafting a Business 101 Series, which was a guided process for creating a business plan as a creative entrepreneur. The e-book is based on that series of articles, but will include many pages of new material, extra printables, and more in-depth guidance and advice. Goodies galore!

What do you want to learn about this year? Let me know in the comments!

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Planning for Positivity in 2014

crafting a business 101

Last time we discussed what we’ve accomplished in 2013. Maybe you even took the time to print out the free printable to note down all the great things you’ve done last year. If not, think about it! Before moving forward, it’s important to reflect on what your goals were in the past, what you checked off the list, and where you fell short. At least for me, it gives me a much needed kick in the pants to jump start my goal planning for the next year.

printable planner by VintPrintShop on Etsy

printable planner by VintPrintShop on Etsy

Thus, it’s time to think about 2014 (yes, I know 2014 started like…a month ago…I guess my kick in the pants wasn’t quite hard enough!). Putting your goals for the year in writing holds you accountable. It’s hard for me to remember whether I successfully met my goals if I can’t even remember them in a few months!

To get the juices flowing, here are some pointers to think about regarding your creative business’ goals:

  • Start with your business’ finances – When we think about business goals, the first thing most of our minds go to is probably the dollar signs. It’s easiest to start b examining the dollar signs from last year and making goals related to your business’ finances, and most likely and specifically, your sales. Think about how much money you’d like to make with your small business in 2014 and go from there (but make it realistic yall!). That being said, don’t forget your expenses. The sales side is important, but if you spend a boatload on supplies, shipping stuff, or advertising, then all that cash outflow is going to negate your cash inflow. Think about how you will control expenses this year, and plan accordingly. Think you can reduce shipping expenses by buying mailers in bulk twice a year instead of running to the post office every week?
  • Next, look at your non-financial numbers  – Facebook fans, repeat customers, Instagram followers, Etsy shop stats, whatever applies to you. How can you boost these numbers?
  • Come up with action items for all these numeric goals. If your plan is to increase revenue, what will you do to increase those sales dollars? Will you advertise in a new venue? Will you offer a new line of products? Create gift sets at a higher price point? If your goal is to encourage repeat customers, how will you entice them? Offer coupon codes with a purchase? Send a personalized note or free gift? Explore all your options. The more doable actionable items you can think of for each goal, the higher your chance of accomplishing it. As I said last year, don’t set yourself up for failure. Examine what you achieved in 2013 and be realistic about 2014. What were your sales, expenses, and profit like last year?  If you plan on tripling revenue this year, you best have a plan to get there! You can’t just make it a goal to triple your sales, your revenue, or your facebook fans (that’s called wishing, not planning) without thinking about how. If those are your goals, come up with some concrete, doable action items that will help you get there.
  • Again, your goals should be specific and measurable. Don’t just say “I want to increase sales”. Come up with an actual benchmark dollar amount (like “I want to make $5000 in sales.” or “I want to average $2000 in sales per month.”). Giving yourself specific benchmarks will increase your motivation to reach them. Plus, they make it easier to measure whether or not you were successful.
  • Don’t forget about business-related goals that might not be apparent right away just because they aren’t related to sales or numbers. Do you need to simplify or get organized? Keep better records? Do you want to acquire a new skill, like take better product photos, learn Photoshop, or write blog articles? For example, my business goals will include sorting through and re-organizing all my jewelry-making supplies and cleaning up my inventory tracking spreadsheets. I also want to get better at continuously and consistently listing new items in my Etsy shop. Meeting these goals will make my life easier and my business more organized, and thus will indirectly improve my sales and boost my business!

Here’s a basic four-page worksheet to record your 2014 goals. Feel free to print and include in your creative business binder. There’s a space at the top to include your business name. I split the worksheet into four categories of business goals, and each table has space for you to write your specific goal, how you will measure your success, the goal’s deadline, and any action items you can do to achieve it. Click here- 2014 Goals Worksheet – My Creative Business or on the pictures to download the free 4-page printable.

business goals planning worksheet  2014 review3

2014 review2

2014 review4Your goals should be very specific to your business needs, but to get the wheels turning, here are some examples of goals (repasting from last year):

Sales goals:

  • Increase sales revenue
  • Increase number of sales
  • Increase sales on particular venues (Etsy, shopify, own website, offline, craft show, local, etc.)
  • Increase average revenue per order
  • Increase orders of multiple items
  • Begin selling in X amount of boutiques or shops
  • Participate in X number of craft shows
  • Financial goals:
    • Increase profit (net income = sales revenue less expenses)
    • Decrease expenses
    • Keep better inventory records
    • Consistently track expenses, sales, inventory, supplies, etc.
    • Improve records for tax purposes
    • Improve pricing formula
    • Boost profit margin
  • Marketing goals:
    • Increase facebook fans or twitter followers
    • Increase Etsy views, hearts, etc.
    • Increase blog/website/e-newsletter subscribers or views
    • Increase number of blog posts/facebook posts/tweets each week or month
    • Develop your own website/blog/e-newsletter/direct mailing list
    • Make the frontpage of Etsy X times
    • Get published in a print or e-magainze
    • Guest post on other blogs
    • Participate more in Etsy teams or other forums
    • Make X amount of Etsy treasuries
    • Get featured on a specific relevant website
    • Leave business materials in X amount of local businesses
  • Other Business Goals:
    • List X amount of new items on Etsy each week/month
    • Develop X amount of new product lines this year
    • Revamp your logo, brand, website, shop, etc.
    • Redesign or develop your business cards, custom catalog, etc.
    • Learn more about specific business topics, like SEO, HTML, product photography, bookkeeping, etc.
    • Complete your creative business plan.

Write your goals down and keep them in a visible place. Throughout the year, you should take time once a month or once a quarter to review your goals, determine your progress, and adjust as needed. Seeing your goals will give you the kick in the pants you might need every now and then to get back on track.

What are some of your goals for your creative business in 2014?

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Related articles

2013: A Year in Review

Happy Holidays! Whew! I apologize for my radio silence for the majority of this year. I promise 2014 will be back on track around here!

I think I had a pretty good excuse for my distraction. You see, in 2013, we had a little baby owlette! Being pregnant and having a newborn kept me pretty busy!

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baby girl hazel

Now, I know this isn’t meant to be a lifestyle blog, so I will keep my gripes about being preggo and gushing about our new little hazelnut to a minimum. I’m now running Lazy Owl Boutique (the business and the blog) as a full-time stay-at-home-mom of a 3-month old (that was a lot of hyphens).

Business aside, 2013 was a great year for Lazy Owl, and I hope it was a record year for your creative business as well. I’ve revisited my blog posts from the end of last year, Planning for Positivity and a Year in Reflection. The lessons from these articles can easily be re-applied to this year. First, let’s review what we’ve accomplished in 2013!

Positive notes for me and my creative venture in 2013:

  • Continued to generate new content for this blog over the first quarter of the year, gaining new followers and ever-increasing stats (even without updates, the hits keep coming! make a website yall!)
  • Maintained steady sales orders and revenue over on Etsy
  • Became a vendor at a new local shop in Houston for handcrafted goods, The Tinderbox
  • Sold for the first time at Pop Shop Houston, a handmade holiday market, and it was AMAZING!
  • Got a new camera, learned to (sort of) use it, and upped my listing photography skills
  • Continued to re-do my branding and imagery (I updated my banner, Facebook look, and business cards so far), and learned how to use Photoshop to do so on my own
  • Experimented with some new product line ideas, and figured out what did and did not work (like I am never going to be good at calligraphy haha)

That was the good stuff. Considering all that happened for me personally in 2013 (mostly baby stuff), I’m glad I was able to accomplish anything business-wise. I will admit that my sales did not increase nearly as much as I had hoped for this year, but the limiting factor in that equation was myself. I just did not have the time or energy to put as much effort into Lazy Owl as I had planned, and without constant effort, you’re not going to get the bigger payoff. However, I think that’s what’s so great about being a creative entrepreneur…you’re in charge of your destiny. The business is here when you need it, and if you need to step back for a while to focus on other things, you have the flexibility to do so.

I’m re-posting the same free printable I posted last year, but with a few new tweaks to really get you thinking about what you accomplished this year and ramp up your planning for the next. I added the “Personal” section, along with a capstone question – What did you learn this year about your business and yourself as an entrepreneur? If you had to sum up 2013 as one big lesson to lend toward your success next year, what would you say? For me, I’d say that in 2013 I learned that Lazy Owl can only be as successful as I’m willing to make it. I can only make so much money and generate a certain level of success by letting it (and myself) coast along. It really is important for me to do a little something to benefit my business everyday if I truly want to reach the goals I have in the near future.

Here’s the downloadable printable in all its glory. Click to download and dig deep into what you’ve accomplished this year. Even if you’re just starting out, it’s important to give yourself a pat on the back for what you’ve gotten done thus far!

free printable

SIDE NOTE! I just have to use this venue as my free plug for shopping Lazy Owl for the holidays. There’s still a few days left to order some fun handcrafted jewelry in time for Christmas! If you use code OWLBLOG you can get $5 off any order $15 or more!

wire-wrapped ring featuring raw pyrite nugget of fun, this year’s most popular Lazy Owl gift!

Up next, we’ll discuss planning for positivity and growth in 2014!

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A Brief Intro to Taxes for your Creative Business

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Cue the happy music…it’s the most wonderful tiiiime of the year…do do do. No, not really. It’s tax season! If you have the pleasure of knowing a tax accountant, you probably won’t see them much between now and April 15th.

That’s right ladies and gents, it’s time to do your taxes! As an entrepreneur, you now have the responsibility to not only report your own personal income and expenses (and possibly your family’s), but also the income and expenses of your business.

First and foremost, you and your business are likely responsible for two types of taxes:

  1. Sales taxes paid to your state
  2. Income taxes paid to the federal government, and possibly also your state

When you first go into business, one of the first things you should do is get a state sales tax permit. This process will depend on your state, but it is usually a relatively painless and luckily, free, process. In Texas, it costs no money and you can easily apply online.

This is the gist of sales taxes – every time you sell an item, even if it’s an online sale, to another person in your state, you are responsible for charging them your state (and possibly city/county) sales tax percentage rate. The customer pays that extra tax money over to you, and you hold onto it until it’s time to pass it on to your state government tax agency. You’ll be responsible for paying your sales taxes on either a monthly, quarterly, or annual basis. They aren’t really an expense to you, more so just a “pass through” in and out amount.

Income taxes are a different beast. These are the taxes you’re charged on all the money you make each year, whether it be your personal wages, investment dividends, or small business income.

Now we could talk about business income taxes for days on end (sounds thrilling right?), but today we’ll just leave it to a brief overview to get the wheels turning. First, I’m going to assume that your business is considered a “sole proprietorship”. This means your business is not a corporation, a partnership, an LLC, or any other separate legal entity. If you’ve never filed separate paperwork to incorporate your business (excluding your sales tax permit and your DBA license), chances are you are a sole proprietorship.

Your business’ legal status matters because it determines on which form you are reporting your income and expenses. For a sole proprietorship, you will report your business stuff on a special form called Schedule C, which is attached to your regular personal 1040 return. Some of the data from your Schedule C will actually end up flowing onto page 1 of your 1040.

Here is the IRS webpage for both the Schedule C AND the all important Schedule C instructions.

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just a little snippet of the Schedule C from 2011

Above is what part of page 1 of the 2011 Schedule C looked like. On the two pages of the Schedule C, you’ll have space to enter your business info, all your sales, and all the expenses and deductions related to your business. At the bottom of page 1, you will get the final number for your business’ taxable net profit or net loss, and this number then travels over to page 1 of your personal 1040. If you have net profit, that money will increase your taxes owed this year. If you have a net loss, it’s possible this money can decrease the amount of taxes you will owe.

So you can see, it’s really important to track all your expenses and deductions over the year. In reality, you of course want your busy to be profitable and have a net profit, but for tax purposes, the lower your net profit, the smaller the amount of taxes you will owe. That’s why having a good handle on your expenses helps.

Go ahead and take some time to get familiar with both the Schedule C and the Schedule C instructions; these instructions are particularly helpful since they go through each item on both pages of the Schedule C line by line with definitions. Even if you use a program like Turbo Tax to do your taxes, these instructions can offer some extra guidance.

I’d love to hear from you! Are you doing the taxes for your small business this year or consulting a tax professional?

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What is overhead and why do I need to know about it for my creative small business?

accounting for small business owners, etsy business

Last time in our Creative Accounting series, we discussed how important it is to keep track of every expense related to your creative small business. Today, we’ll zoom in on a particular category of your expenses, called “overhead”.

No, I’m not talking about you buying an overhead projector. Overhead is a term used in cost or manufacturing accounting (sounds scary? it is!). Your overhead expenses are all the expenses you incur to design, create, or manufacture your product, but they are not directly traceable to an individual product.

If you were running a giant factory and creating widgets, your overhead expenses would be things like the rent, utilities, wages to pay your factory workers, insurance, marketing fees, advertising, tools, machines, and indirect materials. These are all costs that are vital to keeping your business running. Without them, you would not be in operation, but you can’t exactly trace them to your finished products…like how much of your electricity bill helped generate that one widget? I’m sure with some complicated formula we could figure that out, but we don’t have time for that. We’ve got stuff to make!

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expenses_28sept2009_0522 (Photo credit: patrick h. lauke)

Your handcrafted small business has overhead expenses too. You probably spend money on lots of things that keep your business running smoothly, yet these expenses are not directly, easily traceable to every item you create. If you go back to the last post about your business’ expenses, the expense categories like indirect supplies and materials costs, tools, machines and other items used, and all of the non-product costs should be considered overhead expenses for your business.

In my humble opinion, one of the biggest mistakes Etsy entrepreneurs make is not taking these overhead expenses into account when pricing their goods. Like we mentioned in the past post, most of these expenses are deductible for tax purposes, but you should also try to recoup a little piece of your overhead expenses in every sale you make. I’m not going to talk about pricing formulas and those specifics today, but the point is you need to be thinking of the most sensible way to include a tiny portion of your overhead expenses in the price of each and every item you list for sale.

How do you go about doing that? Well, I’d start by tallying your estimated overhead expenses, either on a monthly or annual basis, whatever is easiest for you. That includes the following types of expenses:

accounting help for creative entrepreneurs

just a few examples of the overhead expenses your etsy business may incur

Once you get to an annual estimated total of these expenses, you need to find a way to work backwards to include a piece of this total sum in your pricing formula. There are lots of ways to do this. Here are just a few possibilities:

  • Estimate how many products you will create this year. Take your total overhead expense number and divide it by the number of items. Add that number to the sales price of each item you list for sale. For example, $1000 in annual overhead divided by making 350 items this year means I need to increase the price of each item by $2.85 or so to recoup a chunk of overhead in every sale I make.
  • Same method as above, but instead of estimating your total items produced, estimate the total number of items you hope to sell this year. That way you are getting closer to truly recouping that overhead expense back with each and every sale.
  • Instead of adding a flat “fixed” overhead dollar amount to each sale price, you can use a percentage markup instead. Once you know the cost of direct materials and labor that went into creating a specific product, you might multiply that total by a specific overhead percentage (determined based on what feels sensible to you). For example, if these earrings cost me $6 to create and my overhead percentage is 20%, then I’m saying that product required about $1.20 of overhead expense to make, and really cost me $7.20 in total to create.

All overhead methods have their pros and cons. Using a fixed flat overhead rate is easiest, but using the same rate across the board for every product you make might not be best representing your true overhead costs per product. On the other hand, the percentage method allows you to add more overhead costs to your more expensive or time-consuming products, which probably really do use more overhead expenses. It all depends on what makes sense to you. The important thing is that you try to do something to include these costs somewhere in your pricing formula. If you don’t, you are much less likely to ever recover those expenses, and at the end of the day, your business is making less real profit than you might think. So get cracking on thinking about overhead!

I’d love to hear from you! What do you think is the most challenging part about bookkeeping for your handmade business?

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Financial Records for My Creative Business: Keeping Track of Expenses

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Last week, we talked about how important record-keeping or bookkeeping is for your crafty business.

Today, let’s talk about what sort of information you should be keeping track of in your new “books”. The rule of thumb is that when it comes to recording your financial info, you basically can’t record too much. Everything is important, whether for tax purposes or for your own calculations.

The biggest category of info that you will spend your time recording will be your business’ expenses. You might not realize it, but your business probably has lots and lots of expenses. Let’s divide our expenses into two categories, product-related and non-product-related.

Product-related expenses:

  • Direct supplies and material costs – these are the items that directly go into your sellable products. For a sewist, that’d be fabric, elastic, or ribbon. These are probably the most obvious expenses, and not too difficult to keep track of.
  • Indirect supplies and material costs – these are items that go into making a product, but we can’t necessarily track exactly how much of it goes into each item because it’s either impossible or cost-prohibitive. These are things like glue or thread. I know I used thread to make that purse, but I can’t tell you exactly how many inches or feet went into each one. I know I used glue to make my yarn wreath, but there’s no way for me to be totally sure how many ounces or what-nots of glue went into it.
  • Tools, machines, and other items used to create your sellable products – they aren’t literally a part of your product, but you couldn’t make it without them. Examples are your sewing machine, scissors, pliers, or a cutting mat.
  • Expenses related to putting your products up for sale and selling them – all those little fees and charges you pay to list your products online or accept payment for a sale, like Etsy listing fees, Etsy’s cut of your sale, Paypal charges, credit card fees, etc.
  • Shipping and Packaging costs – including boxes, mailers, labels, envelopes, a postage scale, and decorative packaging items. This also obviously includes the actual price of postage.

Non-Product Expenses:

  • Craft show registration fees
  • Startup and legal fees for licenses, permits, etc.
  • Display expenses, like jewelry stands, tags, earring cards, racks, tables, pop-up tent, etc.
  • Photography expenses, like a light box, new camera, props, editing software
  • Promotional material costs (like printing) for business cards, postcards, stationery, custom stamps, labels, etc.
  • Advertising expenses
  • Design and web development costs for your website, web hosting, logo, banner, etc.
  • Research and development expenses for product research, prototyping, business education classes or e-courses, consulting services, books, etc.
  • The cost of gas for driving to the post office, craft store, craft fair, business meeting, etc., and lodging for staying overnight for any of these reasons.

I divide your expenses into these two categories mainly for pricing reasons, which we’ll discuss in the future. Let’s just sum it up by saying all your product-related expenses (and possibly even some of your non-product-related expenses) should be considered when it comes time to price your product. A lot of beginning crafters make the mistake of only considering direct materials expenses when pricing their product and then end up grossly under-pricing themselves; look how many expenses they’re forgetting about!

The main point is that your business can have a lot of different expenses. And you need to be recording them all! Thorough expense-tracking serves two main purposes:

  1. You’ll get a better picture about whether your business is actually making a profit or not, and
  2. You’ll be able to use most of these expenses as deductions when tax time comes around.

About #1, are you really making money at the end of the day? When you make sales, it might feel like you’re raking in the cash. If you’re only subtracting the cost of your supplies from that revenue, you may feel like you’re really successful, and then wonder why your bank account doesn’t reflect that. If you are truly tracking all of your expenses, you can get a good grasp on whether your business is profitable, how much so, and adjust accordingly. You will also get a better idea of where you’re spending too much money and where you can cut back, and whether your pricing formula needs adjusting or not.

As far as #2 goes, the important thing to remember is that you need to keep proof of all your expenses. Save those receipts, yall! Or star your emails and file them away. Just don’t expect the IRS to be cool with hundreds of dollars of expenses with no support.

Whew! That was a lot of ground to cover. You may be left wondering about the best way to organize all these expense types. That answer all depends on what works best for you. An accounting-based program like Quickbooks or Outright.com will sort your expenses into nifty little accounts for you.

If you use the spreadsheet method (like myself), create a tab for each category or subcategory. For example, I have separate tabs for my main jewelry supply components (crystals, beads, buttons, earwires, etc.), a tab just for shipping costs, one for jewelry tools, and the list goes on. I then have a summary tab where I can use formulas to capture all these different expenses in one place, to see my total spending. The easier your system allows you to capture all your expenses in appropriate categories, the better.

That’s enough left-brain for today. Time to take a break and give yourself a pat on the back for paying attention through this entire post. It wasn’t too painful, was it? Check back next time for more accounting tips for creative businesses!

If you found this post helpful, I recommend you read my post about overhead expenses, which can also help you accurately price your goods for profit, and my post about getting your creative business ready for tax season.

I’d love to hear from you! What do you think is the most challenging part about bookkeeping for your handmade business?

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the etsy seller spreadsheet by paper + spark
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Crafting a Business 101: Creative Accounting

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Welcome to Lazy Owl’s newest article series, Creative Accounting, brought to you as a (hopefully) weekly feature as part of the Crafting a Business 101 series.

You may or may not know, but by day I am a *gasp*…accountant! A certified public accountant, or a CPA, to be exact. I’ve also been the owner/designer/bookkeeper for a little jewelry shop on Etsy called Lazy Owl Boutique since early 2011. So, I feel pretty okay about talking to you about basic accounting concepts, how they relate to your business, and most importantly, WHY they should matter to you.

To some people, “accounting” is considered a four-letter word, but as a small business owner, it’s important to have a grasp on financial concepts and bookkeeping skills. If you ignore your financial responsibilities it will eventually bite you in the proverbial butt! Don’t be intimidated by spreadsheets, numbers, paperwork, or formulas. It’s time to make your business work for you. If you take the time to sit down and educate yourself and then apply your new knowledge to your business, you will learn all sorts of things – how to save on your taxes, how to properly price your items, whether or not you are actually making a profit, how to increase your profit…the list goes on and on! Mastering your creative business’s finances will take you from crafting as a hobby to owning a bonafide small business.

Let’s ease into this. We’re never going to talk about anything super complex or confusing, so you can exhale now. And I promise you will learn some stuff that you can actually use to make your business run a little bit more smoothly.

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I’d like to begin this series by talking about bookkeeping. Call it what you want – record-keeping, tracking expenses, saving receipts. Don’t let the funny term “bookkeeping” confuse you. I’m just talking about recording, in written or electronic form, your expenses (ALL your expenses) and your sales revenue. And I don’t mean stockpiling receipts in a shoebox (of which I may or may not be guilty).

20121121 NCR Class 160 Bookkeeping Machine

20121121 NCR Class 160 Bookkeeping Machine (Photo credit: Degilbo on flickr)

All good finances begin with good bookkeeping. You cannot possibly get a clear picture of your business’s overall expenses, profit, or just plain ole financial success if you are not recording everything. Can you imagine Apple not knowing if they even made any money in 2012? That is basically what you are doing if you aren’t keeping track of these things.

Check it out – we just began a brand new year 2013! The slate of shoddy financial record keeping has officially been wiped clean for you. Do yourself and your business a favor and come up with a bookkeeping system now that you can use for your business all year. Whether it be a software program, like Quickbooks, an internet-based application like Outright.com, a simple spreadsheet, or even a special bookkeeping paper notebook and a trust calculator, you need to find a method that will do what you need AND that you will actually use right now. That means don’t pay out the wazoo for something with so many bells and whistles that you don’t understand how to enter a simple receipt. Start small if you need to and you can expand your system as needed. To me, the best method to begin with (and honestly the method I still use today) is a simple Excel spreadsheet. So if you’re short on funds or time, just open up a new spreadsheet and get started.

Now’s a fun time (if you are a nerd like myself at least) to ask other Etsy entrepreneurs and small business owners what sort of bookkeeping system they use. You’re creative, right? Think of your bookkeeping system as an extension of the creative “fun” of owning your own business. You can “design” your system to be a reflection of you and your brand. Want a color-coded spreadsheet with fun fonts? Go for it. Want a snazzy painted file cabinet system to sort your receipts and paperwork? Do whatever works to keep you motivated to consistently update your financial records.

Next week, we’ll talk about exactly what you should be recording in your new bookkeeping system. So start savings those receipts and I’ll see you then!

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Planning for Positivity in 2013

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Last post of 2012! We’re running out of time to think about our goals for the new year. Like we’ve talked about before here, here and here, it’s time to brainstorm and put in writing a set of measurable, specific goals for your creative business to strive for in 2013.

Here are some guidelines to consider when brainstorming goals for your creative business:

  • Don’t set yourself up for failure. Examine what you achieved in 2012. What were your sales, revenue, and profit-levels like this year? What are some realistic goals for 2013? Your goals should require some challenge and “stretch”, but still be attainable with a bit of hard work.
  • Your goals should be specific and measurable. Don’t just say “I want to increase sales”. Come up with an actual benchmark dollar amount (like “I want to make $5000 in sales.” or “I want to average $2000 in sales per month.”). Giving yourself specific benchmarks will increase your motivation to reach them. Plus, they make it easier to measure whether you were successful or not.
  • Your goals should have deadlines in order to hold yourself accountable. If you’re like me, you work better (and harder!) under a deadline.
  • Think about the path to achieving each goal you set from every angle. I want to increase profit. To do that, I can work on increasing sales revenue and decreasing expenses and overhead.
  • Sometimes it’s about quality and not quantity. One of my goals for Lazy Owl is to increase my sales numbers, but if I make a whole lot of $10 sales, I’m not really boosting my bottom line as much as if I made more $40 sales. Thus, my goals also include increasing items sold per order and to offer more higher-priced popular items.
  • All your goals don’t need to be about sales numbers or dollar amounts. Maybe you need to keep better track of your sales and expenses for tax records. That can be a goal, with a specific measurement of updating your records at least once a week. You might also think about increasing your fan base numbers on your facebook page or other business-related websites. There are many other business areas you can think about improving that indirectly increase sales and profits.

Here’s a basic two-page worksheet to record your 2013 goals on. Feel free to print and include in your creative business binder. There’s a space at the top to include your business name. I split the worksheet into four categories of business goals, and each table has space for you to write your specific goal, how you will measure your success, and that goal’s deadline.

2013 Goal Worksheet pg 1

Your goals should be very specific to your business needs, but to get the wheels turning, here are some examples of goals:

  • Sales goals:
    • Increase sales revenue
    • Increase number of sales
    • Increase sales on particular venues (Etsy, bigcartel, own website, offline, craft show, local, etc.)
    • Increase average revenue per order
    • Increase orders of multiple items
    • Begin selling in X amount of boutiques or shops
    • Participate in X number of craft shows
  • Financial goals:
    • Increase profit (net income = sales revenue less expenses)
    • Decrease expenses
    • Keep better inventory records
    • Consistently track expenses, sales, inventory, supplies, etc.
    • Improve records for tax purposes
    • Improve pricing formula
    • Boost profit margin
  • Marketing goals:
    • Increase facebook fans or twitter followers
    • Increase Etsy views, hearts, etc.
    • Increase blog/website/e-newsletter subscribers or views
    • Increase number of blog posts/facebook posts/tweets each week or month
    • Develop your own website/blog/e-newsletter/direct mailing list
    • Make the frontpage of Etsy X times
    • Get published in a print or e-magainze
    • Guest post on other blogs
    • Participate more in Etsy teams or other forums
    • Make X amount of Etsy treasuries
    • Get featured on a specific relevant website
    • Leave business materials in X amount of local businesses
  • Other Business Goals:
    • List X amount of new items on Etsy each week/month
    • Develop X amount of new product lines this year
    • Revamp your logo, brand, website, shop, etc.
    • Redesign or develop your business cards, custom catalog, etc.
    • Learn more about specific business topics, like SEO, HTML, product photography, bookkeeping, etc.
    • Complete your creative business plan.

    Write your goals down and keep them in a visible place. Throughout the year, you should take some time once a month or at least once a quarter to review your goals, determine your progress, and adjust as necessary. Seeing your goals will give you the kick in the pants you might need every now and then to get back on track.

I hope this helped you to begin thinking about planning for next year. I wish you, your loved ones, and your creative business success and happiness in 2013! See you next year yall!

What are some of your most important goals for your creative business in 2013?

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