Turn your hobby into a business - part 3

Today we have the final part of a three part series running last week and today on the blog entitled "Turn your hobby into a business".  This was brought to the blog by Fiona Pullen from The Sewing Directory who is also the author of Craft a Creative Business which came out last week in the US and is already out in the UK (UK readers click here, US readers find it here) and you can find my review of the book here.

Part 3 – Pricing 

This is the tricky bit, get this wrong and you could be working very long hours for very little money or struggling to sell your products because they are priced too high. Before I discuss my pricing formula I want to warn you that there is no guarantee that one set formula will work for all industries or all products, use a pricing formula as a starting point but use common sense too. 

Take a look at your competitors’ prices, and how well their products sell at that price. Most markets have a natural price bracket where most products sell, that’s not to say you can’t sell higher than that price but you may need a justification as to why to help convince buyers to buy your more expensive product rather than a cheaper version. Something like using only organic or fair trade materials could help justify a higher price for example. 

Do bear in mind that there are some ‘hobby’ sellers out there who sell at a low price to just cover materials so they can buy more supplies and carry on sewing. They don’t run as a business or factor in the time taken to make their products. Don’t attempt to compete with them price wise or you will find your business unsustainable. 

So onto the formula: 

Production costs + time + profit = your retail price 

Production costs - You need to know what it costs you to make your product to get your production costs. So for a quilt for example don’t just count the fabric and wadding for your quilts but the thread, quilt label and binding too. You also need to account for the electric you use, items you have to replace on a regular basis like sewing machine needles and rotary cutter blades. Your website, any payment processing fees or other selling costs and the packaging too. You may add postage and packing as an extra cost, but if offering it for free it needs to be factored into your production costs. 

Time – You need to time yourself to make sure you are paying yourself for all time spent making the item. Not just the actual sewing but the cutting out, time spent discussing the design with the customer or designing/researching ideas, time spent packaging and shipping the item etc. You also need to know what you expect to be paid for each hour’s work. Are you happy with minimum wage? Do you want a skilled worker wage? 

You also need to weigh up the hourly rate you want to earn v the realistic sale price of your product. We’d all love to earn £50 an hour but most of us would struggle to sell any item costed on that basis! 

Profit – This like the hourly wage will vary from person to person. It will also help if you have done your competition research at this point as you’ll then have an idea of what overall price you can charge, so once you have your costs & time figure you’ll be able to see how much profit you can add on top. From what I’ve seen most crafters seem to add 15-30% profit on but this will depend upon your market. 

Now you can see why selling a quilt leads to a rather high retail price. By the time you take in account all the materials used, time spent and then add a profit on top you are generally into the hundreds. 

If you plan to craft as a business you want to set wholesale accounts up as soon as possible, buying your supplies at around 50% of the retail price will make a huge difference to your profit. I have a list of fabric wholesalers on my site plus a guide to finding craft wholesale suppliers. 

You may also want to see if you could produce your products in batches to help save time. There’s a useful post on that topic on Sew Mama Sew. 

There are also some interesting posts on selling quilts here and here. 

There is also a lot more information on setting up a handmade business, pricing your products and reaching your target audience in my book. You can find the book on Amazon UK here and Amazon UK here. Plus Lynne did a lovely review of the book here. 

I really hope you’ve enjoyed this series of posts, you can find more free business guides on Fiona's website: www.craftacreativebusiness.co.uk or find her on Twitter @craftabiz or @sewingdirectory. 

Best of luck with your creative enterprise.