How much are you really making from selling your handmade products?
How much profit do you make from each sale of your handmade item?
The easy path is guessing - I know because I did it for years. But guessing can be costly when you really want to grow your business.
You may think you can afford to sell wholesale, or run ads, when in fact, doing so will lose money.
You need to know to the penny what it costs you and how much you bring in from each order. Do you have a tool yet? If not, use a profit calculator like the one linked to near the end of this article.
I'm revisiting the profit margin topic because last week I was calculating an ad spend budget and needed to know exactly how much I could afford to invest to gain a new customer (cost per sale.)
I created a spreadsheet listing all of my costs, from materials to labor to shipping. I applied tough-love honesty, even adding in the time to drive to the post office to mail orders out.
I should have been more exact in calculating my costs years ago, but, like I said, I was guessing, thinking that was good enough.
When I plugged in my retail price of $20, I quickly discovered I wasn't making the profit I thought I was. I didn't have a sufficient margin to pay for more ads. I could have put the brakes on my expansion plans right then, but.....
instead, I raised my price from $20 to $24. The next day, three (organic) sales came through at the new price, with no customer complaints, so I figured the increase was okay.
I'm no stranger to raising my prices, but I always sweat it until I learn how shoppers will react.
With the increased retail price, I find I can spend up to $7 in ads for each new sale and still pay myself $30 per hour.
The math on calculating cost per sale has to be figured out after running enough ads to get data like impressions, click-throughs, and sales. We'll do that in another article.
Another benefit of seeing all my costs on the spreadsheet got me thinking about where I could cut and trim spending. I could....
replace my Vistaprint Thank You cards that cost $.65 each with paper from my printer at $.10 each.
lower my material costs by buying in bulk or looking for new sources.
Pennies add up to dollars saved. If you are serious about growing your handmade business, every penny counts.
Suppose I wanted to wholesale my item? I added another column to the spreadsheet, but made a few changes.
The price for stores would be $10 and they would mark the item up to $24.
When I sell directly to shoppers, I give free shipping. But stores will pay for shipping so I can add that in.
Stores won't want my business card, as they use their own, so I take that cost out.
Like I said, pennies add up.
Even with the lower price (to stores), I could still earn my $30 per hour selling wholesale.
Your numbers won't be the same as mine, so before you get too excited about running ads or selling to stores, plug in your figures and see what your profit margin is.
Get the profit calculator spreadsheet:
https://docs.google.com/spreadsheets/d/1DwH93aUKhkzqaCQguvUNXXiqleY8auqpxfUAKfCxSTA/edit?usp=sharing
Choose "File" then "Make a copy" and then you have it on your own Google Drive.
Hope this helps,
James
PS. Google spreadsheet user tips:
Note that the - sign indicates a cost and is deducted from your price. If you add more costs, be sure to include the - sign before them.
You can change any of the numbers and descriptions of costs, but if you change the "Gross Profit" total cell, you may break the embedded formula. If that happens, go back to the original link above and start over.