Demonstrating Your Market Knowledge
No one questions that has coming online comes from danielle villain core, but lots of people voted on this. How do you suggest figuring out profitability when some of the individual material items you use fluctuating costs? And I think she must be a jewelry maker because she's, citing things like sterling, silver gold except for something like this toy, the materials pretty much static in terms of cost, but things like precious metals do very considerably. That's true? Yeah, that's a really good question, so that that goes a little bit back. Uh, to the gross profit I would start with that if you have very expensive materials, like if you're a jewelry maker before you're even considering your other business expenses, you need to make sure that that gross profit is high enough, that the cost of your goods on the cost of goods sold, including those materials, is, um, low enough to get you a price, uh, to get you a profit on the price that you're currently holding most jewelry makers that ...
I know and talked to build in huge profit margins, enormous, because they need to account for that. Um, so you need to make sure that you're not making just a bare minimum profit off of those things, um, you know, your wholesale price. Very often people will think okay, way retail prices doubled my wholesale price and that should be at least, you know, double what I'm paying out or what I need to get, um and that's fine that's one way to do it but uh typically with jewelry makers especially they give themselves a lot more wiggle room between that wholesale price and that sort of break even point that they need just to stay in business um, because there is no way to predict the cost of precious metals that market, you know, it has to do with supply and demand it also just has to do with, you know, international markets in general in the whole financial system um there really is no way to predict that. So, uh, I would say, first of all, start with the highest price the point that you've seen in recent memory and used that as the basis uh, for your materials cost and then I would still build in wiggle room on top of that because who the heck knows where the ceiling is going to be on gold or silver? Um, I certainly don't or gemstones for that matter uh, so there's unfortunately, no good way to go about that, but I would start with the highest price possible and then still build yourself some wiggle room after that now another area of some of our viewers is struggling with his digital products they're saying that they're really struggling to calculate cost and profitability on digital products yes and actually I'm going to address digital products specifically in a later segment um so I'm not gonna get into that too much right now um but in general full digital for diddle in general for digital products there's too many jeez undies in that phrase uh I will say that you don't have material costs generally you just have the cost of your time um so you'll need to figure out you need to back into that a little more and figure out sort of how many you expect to sell of those as opposed to doing it on a per piece basis and then sort of get to a per piece from that total number um but like I said, we're gonna cover exactly that digital product profitability and pricing in later segments so stick around for that ifyou've questions about digital products um and now I want toe just look att one of size products um this is a beautiful dodecahedron lamp I really like this I'm obviously a little bit of a numbers geek so I like the math here um and so let's let's work through and figure out the product profitability of this alright let's figure this out live and on air way air going to figure out the profitability of zais dodecahedron go deca he clamped I spell that right oh, I spilled dodecahedron break all right uh so let's get the cost of your first material what is it? Steel steel how much has that cost you? So this was a year ago and I wasn't tracking expenses and I'm estimating from memory that's fine you can estimate is probably around eighty dollars. Okay, you can always obviously change these numbers is you get more accurate with um uh what else? Anything else in there? Um uh uh wiring hardware okay in the light ball wiring hardware um so including the light ball was probably fifty dollars okay, forty dollars play for you let's say forty okay forty dollars um and you could obviously pull out the lightbulb separately if you wanted to um and then the finishing materials that's a patina and a wax good. Well, we'll just leave it is finishing materials and what does that get you? So I'm trying to stay excite only use a fraction of the bottle so you see, I think total beam out wass think around twenty five for both of them and I probably only used less than a quarter of each okay, so what's a five bucks sure, sure alright, um that's the total for materials yes ok, great one hundred twenty five dollars for total materials er and what do you have to do to make this lamp um measure out the pieces okay whoops uh how many minutes does that take you? Mmm twenty minutes okay twenty so third of an hour um what else cutting can I steal downsize how long's that take um that was probably her thirty of those pieces so um it's a lot of little lines in that lamp yeah probably about an hour and a half two hours me two hours ok two hours sure yeah um and then this should be minutes actually I'm putting this service it's minutes yeah ii this should be labeled actually minutes and then I've calculated the hours I apologize I will fix that and we will re upload that um next task was um grinding the ends that they're prepared for welding ok grinding the ends before welding not grading grand ng how long's that take that was probably another hour another hour and then welding okay that took forever because there are a million versus used to weld yes a lot of money and look like I'm doing so many so many connections with uh nothing eats up your time like connection point this took a long time for the first time I feel like the second time I would be able to bring this part down a lot but it probably took me like ten hours. How long do you think you could get it down to? Yeah I think I could probably get it down to do it now much better wilder than it was then um I think maybe like four hours okay someone to split the difference okay and we'll say we'll say six hours so three hundred sixty minutes okay it's good anything else? Another finishing finding more grand seems like a really clean and invisible so nice nice I'm granted to was pulled another hour okay um and then finishing and then finishing and how long does that take? That was probably our another hour. Okay what's your hourly rate um seems way to hide away it came out to eighty but that's partly x I need to switch to a cheaper health insurance well um you know health insurance is expensive if you live in san francisco that's what? The most expensive city in the country right now eighty dollars an hour uh, rate does not seem weird to me. Okay, good. Okay, so here's how much it costs they made that lou cost a thousand dollars and I would not be surprised you know at that price frankly, if I look at, you know stores like uh restoration hardware design within reach or too modern are all modern or any of those, you know, modern furnishing places designer lamps like this costs thousands of dollars and that's why um so you had mentioned that someone had offered you a price for this what did they offer you? The offered a retail price of twelve hundred a retail price of twelve hundred means I would get the wholesale amount of around six hundred uh okay so if you sold it retail you would make one hundred and sixty eight dollars worth of profit if you sell it wholesale you're losing four hundred thirty two dollars so in that case you either need thio price it higher right um or you need to actually become a much better welder ground or whatever grind or whatever. Um most of this obviously again is labor and I think with crafting that's very often the case it's bulk of the cost of your product is how long it takes you to make them um unless you're a jewelry designer using precious metals and gemstones your material costs probably not super high uh at least in comparison to everything else so uh or you could only sell retail you could not do wholesale sales and that's an option there plenty of people who do that um but here you go here's the hard numbers yep. That's brutal it's kinda what I thought yeah yeah I mean it's I think it's a little less brutal than losing like two hundred twenty dollars on every one of these plush meets but but yeah, I know it's kind of a rude awakening but you know that's the road to a sustainable business um I was at a crafts fair just this past december um I haven't done one in years and years I didn't recognize anybody that was there uh maybe one or two other crafters and when I walk around craft fairs I don't know anybody who's there at all anymore um because all the people who started crafting when I did have either changed their business to not do everything themselves and sell only a craft fairs and in retail stores or they burned out basically um people either figured out what was happening here like you guys were doing like everybody who's watching was able to dio or they just worked and worked and worked and worked making no money not really knowing why and then eventually just gave up because they were too tired and they just couldn't do it anymore um so it's great to know this stuff right out of the gate because then you can price appropriately or figure out your appropriate market right out of the right out of the gate you could figure out whether you can do wholesale or have to do just retail right out of the gate um you can see exactly where your costs are um you know you can see that you're the welding is what's really driving up this price so you could either outsource that part if that's way less expensive let's figure out like what just a welding costs just the welding is six hours times your hourly rate it's four hundred eighty dollars so almost half of this entire cost is due to welding if you could get someone else to do the welding for less than four hundred eighty dollars, great unless you love doing the welding radio that's, the hard part and it's a pretty specialized form of welding that I do, so I'm not sure how cheaply it would be any idea to invest, so I don't know, I mean it's, it's, something that you could look into right, um, and maybe there, maybe for really fussy products like this one, you outsource the welding, but for things that have fewer vergis ease and fewer joins, you still do the welding, so you still get to do the welding during the day. You still get to make that part of your business and part of what you work on during the day, maybe you just don't do it for every single product, right? Maybe it's cheaper for some products to outsource just that part of your production, but then you can still do the production on the ones that you really love and where it makes sense for you to do that. Who knows? I have a question for you might be outside of the scope of the class, but one of the factors I'm considering is that the store that offered teo tell this lamp is an amazing brand it would be awesome exposure beyond my top choices in terms of their aesthetic and the fit and the visibility that would get me so when do you say I'm going to accept a product that's not profitable for the marketing and exposure like do you have any advice for howto make that trade off decision? So when we get to the pricing section, we're going to talk about uh free the return on investment of free um and when it makes sense to work for exposure, I would say in this particular instance it does not make sense to work for exposure because what happens if you get this product in the store and you lose money and it's wildly popular right now you're going to start losing four hundred thirty two dollars every time you sell it right? Well, we lose four hundred thirty two dollars on every lamp we sell, but we make it up in volume like ultimately you want to be associated with this storing with this brand because you want to be able to be profitable, but if selling this lamp to that brand at a huge loss does not make you profitable than the end goal is not being reached here um so I would say that there are alternatives here you can say like, I'm figuring out how to get accost down um here's what it costs currently you know I could get back to you like if you are in fact a way better welder or you can find someone to help you with the welding and you could get the cost and you could say well I can make it happen for eight hundred dollars you know if they're willing to find out from you in another month or a few weeks whatever um what that price you know if you guys can agree on a price together great um if not maybe you have similar products clearly they like your aesthetic so maybe you have similar products that they would go for where you have a higher profit margin or where it's already um easy to make that within their price range um and if not that maybe you just work with another retailer um or you come back to them later when things have you know, gotten a little further down the road um the good news is you already have a contact there and they already like what you're doing right? So you've already solved those two things right now now you just need to work together on a product that has a price that both of you feel good with makes sense yeah, thank you. Yeah you're welcome um okay, so I'm just going to go through uh if we could go back to the power point please uh awesome. I'm just going to go through a couple of the points that I mentioned in a little more deliberate order uh so if you're finding that your product is not profitable there are basically four reasons for this uh either the materials are too expensive right? Um like we talked about in terms of, uh, jewelry makers so you would either need to use fewer of those materials can you make that same necklace just is beautiful by using three gem stones as opposed to five uh you need to buy cheaper or by and bigger book so that it's cheaper per piece um or you need to use a different material um would that you know, necklace and silver look just is beautiful in um stainless steel or in pewter or in a metal that's not quite so expensive. Um production time this is probably the biggest one for crafters in particular but for a lot of creative professionals um you know if you do painting um if you do illustration there's a lot of time that goes into that stuff to um in that case you would need to make the process more efficient or uh, you would need to invest in capital equipment like uh that die cutter that we talked about um or you would need to hire help or outsource part or all of the production um where they're better set up to do things like that in in bulk and big quantities um or it's the wrong product choice slash balance of product choice is um you know where you would where you need to be spending more time on the more profitable products and less time on the less profitable products you know it's it's totally fine if you want teo have both could tour quilts and um you know, quilting fabric um but if you're spending ninety percent of your time on the couture quilts and they're only making you ten percent of the of your profit um you need to you know, switch that around a little bit you need to you can still make those couture quilts but in order to maintain a profitable business um you would need to do that less often and really shore up the sides of your business like maybe the patterns or the fabric printing or the outsource quilt designs that are making you the bulk of your revenue and we sort of touched on that a little bit in regards to your lamp like you can still spend that time welding and doing what you love to do but maybe you spend less time on the like really fussy parts that have a million vergis ease and spend more of your welding time on the products with the higher profit margin um and then as far as your company goes if you're finding that you're not profitable just because your products themselves are not profitable that's the a number one problem that you've gotta solve right um maybe it's an inventory problem either you have too much and you're paying for warehousing like I had with my giant container of meats and you're not selling out fast enough um in which case you have a sales problem and you need to find help without you need to find a distributor or a sales rep for you need to start going door to door for whatever um or you don't have enough inventory more likely if you're a crafter you get to that craft show you sell out halfway through the first day and then you've got nothing left to sell the second day um and in that case again you need to either make your process more efficient or hire some help to help you out um in order to get this is assuming already that your product is profitable to make in the first place right um or you need toe outsource the other parts of your business you need to outsource the marketing and the bookkeeping and the web the web uh maintenance so that you can spend more time making those products right um and then last but not least ifyou're general business expenses are too high you need to start looking at your spending and cut back on things that you know maybe you're too expensive if you started uh renting your own studio space to go and paint do illustrations so your plush maybe you need to rent a shared space instead or maybe need to start working from home um things like this um and then I'm just going to mention briefly before we wrap up this segment um that you need to get paid there are plenty of companies who don't profit because they don't chase down the money that they're owed er and we talked about this a little bit in the first half of the class but um I'm just going to reiterate it you always need to have a contract um for any new accounts especially from if they're paying you for a product for products that you make uh I recommend that you get that payment up front because you don't know them from adam you have no idea what their their credit is like um even the bigger cos um I used to sell hundreds of these teo mod cloth at a time they were fabulous account they were really great I loved working with them um and they said you know, we expect to have net thirty terms or net sixty terms or however many days it was that they took to pay the bills and I said, you know that's great and for reorders that's perfectly fine but for this first order I'm really going to need like credit card payment up front before I send you hundreds of these things and they said ok, that was it I just asked and they were fine with it and then I you know they paid their bill on time it was easy peasy um like I said they're great to work with and then they had the net thirty terms for the next time they reordered and that was fine with me but then there was also that night where nightmare case of that woman with the coffee can full of money in the east bay that I had to go and chase down for you know, a delinquent payment you don't want to be in that situation always require a deposit if you are working with a client so that they're always paying at least you know, twenty five to fifty per cent of that cost up front so that a you don't lose money if they cancel the job and b they're committed to it they've already laid down the money so now they're actually going to be serious about it and work with you to get that job finished um and then last but not least have a foolproof billing system in place that's why we talked about that calendar as part of your bookkeeping system you want to make sure that you're putting when everything is due in there and sending reminders to people even before the bill becomes overdue you haven't gotten paid yet it's a few days away just ping them and say hey just wanted to remind you you've got a payment coming up on you know july fifteenth for this invoice um and there's plenty of software out there that will do that for you too there are a million and one apse that you can get um that will just send reminders that will ping you when things or do um you can use pretty much any calendar app to do this but then there are also like more specialized apse where you can also like put in an invoice template and it'll just like generate the invoice when it's due to be paid and then it will email it to the client for you and technology is fabulous um and then as part of the bonus materials for this class I have a sample contract for services um it's actually for that invitation job that we went through in the income section um I took out all the client information and whatnot but you can see a sample invoice that I use with clients and I also have a sample order form that I use for, um retail stores when they want to order for me and it says, you know, these are the payments that I accept for new customers I need payment up front after that we can discuss terms um you know whose responsibility it is if something arrives damaged? Eso, it's, that's, free, that's, uh, part of the bonus materials and that's, something you guys are free to look at on your own time. I'm not gonna pull it up and go through what a contract looks like. That's, not really what we're covering here today. But, um, if you need to see what one of those looks like and you want to model it after something, I've put those up there as part of the bonus materials as well.