This week seems to be the week where I focus intently on the business aspects of crafting. So far this week I have written about better blogging and creating a press kit, which are 2 things I chose to write about because I have been working them so hard my self. I’m feeling a little exhausted today because there seems to be so much to work on! I can’t do much more with the press kit until I meet with the graphic designer on Friday, and every day I’m working on becoming a better blogger (p.s. I found a lot more info I want to share about blogging, but I’m going to save that for next week!).
So, if I’m not blogging and I’m not working on a press kit, and I’m not at work, and not making jewelry, and I have a night to sit on the couch, I choose to do what? Lounge? Relax? Nap? Nope- I spent the night working on a budget for my business.
Now, let me lead into this blog again today by adding a little disclaimer that I am not, by any means, a budgeting pro. I wish I were, but numbers just aren’t my thing. I avoid them like a vegan avoids marshmallows. In fact, I really detest numbers. They make my head hurt! The information I am sharing with you is simply based on hours of reading books and blogs and actually trying to make a budget myself!
But alas, as I read yet again through my copy of the Craft Inc. Business Planner, I realize that I can’t do what I want if I don’t know where I’m going to end up. Wow, does that sound vague or what? Well, let me give you a couple of examples of what I mean: If you or I want to have a successful craft business, we have to have an idea of how much money we can make selling our crafts. You don’t want to run the business like a hobby. You want to make certain that at the end of the day you have money left over in your little vendor apron pocket.
So, where do you start when making a craft business budget? The first thing I suggest you do is figure out how much it costs to make what ever it is you make. Whether you make knitted socks, jewelry, silk screen tee-shirts, or hand embroidered panties, you need to know the material cost of goods PLUS what you want to charge for labor. Now, once you have your base price you have to decide what you are going to charge for your retail price. This may be the hardest things for crafters to do.
Take this pair of knitted socks as and example. The seller has figured for us her realistic price. But is it a realistic price in the market place? There is no easy answer, in my opinion, to figuring out the exact MSRP you should be asking for your particular hand crafted good. If you have a suggestion for how you figure your retail price, I’d love to know! It does seem that every single person in the craft world arrives at this number in a different way.
Moving on, you next have to figure out how many of your items you think you can sell in a year. This is really hard, too if you ask me. Are you selling wholesale or retail? Are you attending a craft fair every weekend? Selling in boutiques or consignment-type shops? On Etsy or Artfire? Make sure you include every place you might be selling into your budget. It’s surprisingly easy to forget all your options for making money.
Once you have figured the base cost of your item, make sure you remember to subtract the base cost total from the educated guess you’ve made of how much you can sell. For easy example sake, let’s say you think you can make $5,000. Minus that by base cost of goods, say $500 and that means you have an estimated gross profit of $4,500 for the year. Sounds great doesn’t it?
Well, we’ve come to the part that I consider the hardest when making a budget: other expenses. I am a very bad expense guesser, just to be honest. I never think something as simple as a tank of gas will cost what it actually does. I’m working on this though, and more importantly, I’m keeping better track of expenses this year. What qualifies as a business expense? Some examples include your fees for printing business cards , as well as things like travel costs, booth rental fees, insurance, marketing costs, Etsy seller fees, the half-caf grande mocha you bought you graphic designer at your last meeting… the list seems seriously exponential! Try to include every possible thing you can think of for a very accurate budget. Also, make sure you keep receipts and records to help you track your expenses as the year goes on.
After you have figured your expenses, you subtract that from your gross profit and that will provide you with your net income and there it is, the elusive number we’ve been looking for! So, from my previous example, the gross profit was $4,500. If your expenses are $1,200, then your net income is $3,300. That’s it! That is how much you can expect to make in your budgeted year. Hopefully you have a positive number at this point. If you don’t, your going to have to realistically tweak all those factors we’ve discussed to get you there. Hopefully you get to celebrate the fact that if you stay on budget and sell as expected, you should have money in your pocket at the end of the year!
So, now we have covered very basic budgeting for your business. I know I could be more specific, and give more examples, but I want to leave that to the pros yet again. I know I’ve been touting the Craft Inc planner a lot, and it is a true must have, but there are other places you can look for budgeting information as well. Crafting an MBA has a great recommended reading list I highly suggest you refer to for books on running a craft business. Crafting an MBA is itself a great source. There’s also a really great article on the Etsy blog The Storque about separating your personal finances from your business finances. I think this is a must read if you are not already keeping things separate. Besides these sources, what do you use to help you figure your yearly budget? Have you ever even made a budget for your business? Might you consider making a budget now? I’d love to hear back from you on budget making as well as on how you figure the price for the goods you sell. Both of these things are very interesting to me right now! Please share your knowledge!