Tag Archives: planning

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.

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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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Coming Soon! Your Creative Business Plan e-course & workbook

Exciting news! Lazy Owl will soon be releasing our very first Crafting a Business 101 e-book and e-course, Creating a Business Plan. The e-book will be a thorough expansion of our popular Business Plan blog series, with lots more printable worksheets and valuable content added. It’ll also include some inspirational info and links to other resources and goodies. Since this will be the first release of our first e-course ever, for a limited time, we’ll be offering it for a very special rate to our email subscribers. Enter your email address below to be added to our subscription list, and be the very first to know as soon as the Creating a Business Plan e-book is released (and get it for a very special low price)!

crafting a creative business plan lazy owl boutique

coming soon!

We’re offering so much more than just a simple, boring, static business plan! Completing our e-course will help you…

  • Hone in on why you became a creative entrepreneur in the first place, and inspire you to keep on trucking through any bumps in the road
  • Research and define your ideal customer and your target audience
  • Determine the best outlets to both sell and promote your creative business
  • Spend your marketing time more effectively
  • Craft the best message and language to sell and market your products across all platforms
  • Stand out from your competition
  • Build a solid foundation for your creative business
  • Create a simple, usable business plan that you can use and get inspiration from both now and as your business grows

Our Crafting a Business Plan e-course and workbook will include:

  • An in-depth guide on how to create a usable and effective business plan for your creative business, whether you’re new to being an entrepreneur or just want to re-tool your current plan (or lack thereof!)
  • Printable worksheets and prompts for each step of your new business plan
  • Over 50+ pages of helpful content, printable worksheets, inspirational quotes, and other resources

As they say, those that don’t plan, plan to fail. A solid business plan is essential to succeeding in today’s competitive handmade industry. Enter your email address below to receive our newsletter and learn more about our upcoming e-course!

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UPDATE: It’s here! Check out the link by clicking on this banner:

crafting a business plan

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Are You Using the Right Keywords? Interpreting & Utilizing Your Etsy Shop Stats, part 2

free marketing tips for creative small businessesOur latest series of Marketing Magic articles discusses how to analyze your Etsy Shop Stats to help increase your views and boost sales. Read the intro to the series here to get started.

Let’s move on now to a few quick and simple tests or processes you can perform every so often while checking out your shop stats. I try to give you some procedures to perform and things to think about that might not be as blatantly obvious as just glancing at your stats chart every few weeks.

#1. Review Your Most Popular Keywordshow to use your etsy stats tutorial

The Thought Process 

Most of your listings are probably found via search, whether on Etsy or another search engine like Google. Using smart keywords, tags, titles, and descriptions and making your shop SEO-friendly will go a long way in boosting your search page rank and thus your views. A thorough review of the keywords section of your stats will help you spot weaknesses and opportunites in your listings’ tags.

The Testing Procedure 

To make things more manageable and effective, I suggest looking at your stats in chunks of at least 1 month’s time (like “last month”’s view for example) for this analysis. Take a look at your top 10 or so keywords in the “Keywords” box in your shop stats. It might even be helpful to start a spreadsheet or Word file where you make note of which keywords seem to be drawing in the most traffic over time.

Questions to Ask Yourself

  • What are my most effective keywords? Which keywords are showing up time after time?
  • Can I apply these popular keywords to more of my listings?
  • Do I have any keywords or phrases showing up here that I’m not already using as listing tags?
  • Do I have any keywords or phrases showing up that I’m not using in my titles or the beginning paragraph of my descriptions?
  • Are there any tags I’m using a lot in my listings that are rarely showing up here?

Lessons Learned

First, make sure that all applicable listings have your most popular keywords and phrases as a tag, part of the title, and somewhere in the first few sentences of your description. This ensures max SEO-ability. When I talk about tags, I mean those 13 special words you enter in the tag section when you create a listing. Tags influence where and how your items show up in an Etsy search. Good keyword usage in your title and description helps you for offsite searches, like on Google.

Second, see what keywords might be listed in your top 10 that you aren’t already using as a tag. Start using these more often in your tags, titles, and descriptions.

Finally, look at this as a sort of round-about way to figure out what tags and keywords are not working. Sometimes, using keywords that are too “generic” can be a waste of important tag space. You will likely show up on results page 100 for the keyword “purse”, but you might show up on page 2 of “leather crossbody purse”. Being more specific will also bring you viewers that are more likely to buy your product, since it’s exactly what they are looking for.

Don’t be afraid to experiment with your tags and keyword usage, especially if you are just starting out. If you have two similar listings and you’re debating how to tag them, you can use them as a testing ground. For example, if I have two pairs of crystal earrings, I might use “estate sale” type tags on one, and bridal & wedding-related tags on the other, to see which type of keywords are being searched more often.

Paying attention to your keyword stats will help you improve your listings and boost your views. Tune in for our next Marketing Magic segment for test #2 on how to effectively analyze your Etsy shop stats.

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Marketing Magic – Interpreting & Utilizing Your Etsy Shop Stats, an intro

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In this Marketing Magic segment, we’ll discuss how you can easily utilize your Etsy stats to fine-tune your keyword and tag usage and thus boost your views, favorites, and hopefully sales.

If you have an Etsy shop, you have a wealth of easily accessible and free data at your fingertips…your Etsy Shop Stats! Maybe you are a stat-junkie like myself (I check them multiple times a day), or maybe you are like, “What the heck are my shop stats”?

how to use your etsy shop stats

You can access your shop stats either via the drop down menu, as shown here (please ignore the 46 items in my cart, I’m a virtual hoarder you see) or on the left side bar under “Stats” if you are already in your shop view. A summarized version is also now available on your shop dashboard.

You can view your stats in a variety of ways…daily, weekly, monthly, yearly, or any specific set of dates…all on a handy line graph. There’s one set of datapoints that represents your shop (shown in blue) and another for your listings (shown in purple).

Your stats will include numbers for views, favorites, orders, and revenue (sales dollars, excluding shipping). There’s also a map tab that will show you where your viewers and customers are coming from geographically.

This is a lot of info to digest! If used correctly, your Etsy stats can be a great tool. There is a lot of data that can be mined from just this one page of info. On a broad scale, this data tells you what you’re doing right and what’s not working. We can find clues to make listing titles, descriptions, tags, and keywords more effective. Your Etsy stats can also help you refine your marketing and promoting efforts.

Over the next few Marketing Magic posts, I’m going to suggest a few quick and relatively painless processes you can do every so often that will help you take full advantage of the great information hidden within this data. In the meantime (if you haven’t already), I encourage you to start checking your Shop Stats regularly and get familiar with the info available to you.

UPDATE links to the rest of this series:

How do you use your Etsy Shop Stats? What questions do you have about them?

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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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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!

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

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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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Crafting a Business 101: Marketing Magic

marketing for small businessesSince it’s the beginning of the year, we’re rolling out all our newest series for Crafting a Business 101. Last week we debuted Creative Accounting, and today we’re revealing Marketing Magic!

The term “marketing” might seem very specific or conversely very vague to you. Or maybe you think that if you have no marketing background you can’t do it. To me, marketing involves all the many ways a potential customer can find out about your business. In the most obvious sense, marketing is advertising, but if you look at marketing like I do, then marketing relates to all the following:

  • Advertising (duh, I already said that)
  • Social media and networking (twitter, facebook, Etsy forums, teams, etc.)
  • Blogging
  • Printed materials
  • Your brand and your logo
  • The look and feel of your shop/website
  • Product photography
  • Listing tags, titles, and descriptions
  • SEO
  • Offline word-of-mouth
  • Customer service
  • Defining your target audience
  • Utilizing key stats to your advantage

Some of these things might not immediately fall under the marketing umbrella in your opinion. I like to look at it this way – if I’m working on bettering the appearance or appeal of my products, brand, or logo; improving my tags, SEO rankings, or product photos; spreading the word about my business via whatever method; or even just researching and learning about ways to increase my business efficiencies or better connect to my target customer, then I am marketing. It’s anything that either a) let’s someone find out my business or product exists, or b) encourages a potential or existing customer to make a purchase. That’s what marketing means to me!

If you haven’t already, take some time to look over the Creating a Business Plan series from last year. Several components of the creative business plan relate to marketing your business, including #2, Where can people find my product?, #4, Who will buy my product?, #7, How do I differentiate my product from the competition?, and #8, How do I successfully reach my target customer?

Through this series, we’ll discuss all the many ways you can make marketing magic for your business. As a creative small business owner, you’re probably working on a small (or non-existent) marketing budget. Luckily for us, we work in an age where there are hundreds of free marketing opportunities at our fingertips! So get excited because it’s time to improve your marketing!

What marketing tactics do you swear by? What marketing concepts do you think I left off the list above?

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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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