The Value of Your Materials and Outsourcing


Bookkeeping for Crafters


Lesson Info

The Value of Your Materials and Outsourcing

And now we're going to get teo uh what I was talking about in segment one this section that I'm so excited about, uh, which is individual product profitability? Um, may I have that hand back, please? J k o thank you. Because we're gonna continue using this guy as an example here in general, your product profit is the selling price of that product minus your materials minus the cost of your time, which is the number of hours it took you times the freelance rate that we calculated yesterday. Um, if you missed that section in part one of the course, um well, firstly, I encourage you to buy the class so that you could go back and watch it. But secondly, there is ah, free enrollment bonus. Uh, which is the freelance rate calculator that you can download just by clicking the r s v p button for this class? Uh, I will help you calculate your freelance rate so you can find out what your time is actually worth, uh and what you need to be making on an hourly basis in order to pay for all of your ...

living expenses and your business expenses. Eso for those of us who were already here for segment one and have already done that, hopefully you have that freelance rate with you somewhere, um maybe some of you actually took that freelance rate calculator last night and really went through it and filled it all out it's got a lot of boxes it really accounts for everything ah and came up with a really accurate number in which case that's great encourage youto follow along with this part uh and I have also included as um part of the bonus materials for this class a product profit calculator which will help you do these calculations er in a nice organize spreadsheet and you can have a separate page for every product that you have and you can just do it over and over and over again and figure out the profit for each of your products uh so I'm going to excuse me I'm going to show you the one that I put together for this ham I don't know if anybody remembers slide for from uh the first section of this class uh excuse me where I was backing into my hourly wage based on how much the materials cost how long it took me to make this little ham and back down to I think seven dollars and forty five cents um but that didn't think that was not my take home pay that also had to cover all of the uh expenses for running my business is well so my take home pay worked out two more like two dollars an hour. I like this method even better for calculating the prophet for a particular product um because it shows you exactly how much your product should cost right out of the gate so I don't know how well you can see this but basically, uh the total materials for this hand came out to five dollars and twenty cents all together and the total time and this time I've included that delhi wrapping time where I had the aluminum tray and the hand cut felt leaves and I had the saran wrap in the deli sticker um so including all of that product packaging because that is part of your cost of goods sold so that should be in here. Um my total time was five hours uh five point two out but sorry my materials for five dollars and twenty cents and uh my total production time was four point for two hours um at my hourly rate that brings the total cost to make one of these in this current incarnation to two hundred and fifty four dollars and sixty five cents I was selling this for thirty five dollars. So when I actually sat down and did the math uh in two thousand six I found out that I was actually losing nearly two hundred and twenty dollars off of every one of these right it's like that old used car salesman joke well, we lose money on every car we sell but we make it up in volume that is exactly how you end up making no money even though you're selling out right even though you're selling out of all of your inventory excuse me uh this is how you end up with no money to work with this is why at the end of the year when I was looking at my bank account I was thinking I don't understand I feel like I'm pricing these correctly people are buying them like crazy why do I have no money? This is why cause I'm losing two hundred and twenty dollars on every product that's insane I mean okay my hourly rate back that my expenses were a little lower so maybe I was losing a little bit less money but still it was hundreds of dollars not okay not sustainable so what could I tackle first? Right uh that ridiculous packaging I decided nobody really needs this aluminum tray and these hand cut felt leaves and the saran wrap in this deli sticker as soon as they get what are they going to do? They're going to take it right up package and then what? They're not going to save the saran wrap and the like cheap aluminum tray they're probably not going to save the felt leaves either it's all just gonna go right in the garbage anyway so what could I do instead? I mean I didn't feel like I could mail these out to people just as is um so I started looking around it like how people actually packaged food and if you look at a deli or even a real butcher shop because I was thinking supermarket right you've got the meat in the package and it's got the saran wrap it's got the little tray but if you actually go to a butcher shop or a deli they're just throwing that thing in a piece of paper wrapping it up and putting a sticker on it and I thought, well I could do that that's easy so then I just bought a big roll of butcher paper instead and put a sticker on that et voila fantastic I've eliminated almost all of my packaging cost and almost all of my packaging labor all of a sudden all I had to pay for was ten cents for the butcher paper um I still had the thirty five cent delhi sticker and then the deli wrapping was five minutes no hand cutting, no wrapping of saran wrap none of that nonsense and by doing that I saved a whopping twenty dollars out of two hundred and twenty dollars so I'm still losing two hundred bucks on every one of these things. Okay, so next what we tackle next the twine twine on this guy uh this was the first step in the process of making this tiny ham this is embroidery thread this is full thickness embroidery thread uh sewn by hand so this, uh tan piece here which when it's flat is a sort of semi circle I would have to trace out where all the lines were mark where all the intersection points where with a you know, disappearing ink fabric marking pen uh and then go through and start sewing these by hand which took forever. And then of course, because it took forever, the invisible ink would start to disappear and then I'd have to market all over again and it was just sort of a disaster, so I thought, okay, what if I just so these lines uh, on a machine, which I did, um, and then I only had to pay for the cost of that machine sewing thread, which is a lot less than embroidery floss because this would take I don't know like a full skein and a half or something. Um, I wouldn't lose the ink while I was sewing because I could do it a lot faster. I could just do all of these lines at a time going up and down and then the semi circles going across, they didn't have to stitch at every single intersection point. Um, what would that get me? Well, I could eliminate the cost of the embroidery thread the embroidery floss that's off there now, um and I was able to reduce by a lot the time that it took me to sew the lines on this thing it went from like an hour and a half I think so embroider lines ninety minutes hour and a half down to sewing the lines took only twenty minutes so I actually saved a significant amount of money just in my own time by doing that now I'm only losing one hundred twenty three dollars on every piece still losing an enormous amount of money on this tiny ham but now it's only one hundred twenty three dollars it's not two hundred dollars so I've managed to save seventy seven dollars on each one of these just by changing how I saw these lines okay but I'm still losing an enormous amount of money right so now what so now I thought well what if I get somebody else to do some of these things because clearly the huge expense here is how much time it's taking me so I did a lot of research and I found locally a machine cutting shop where they have uh a sort of computerized like teeny tiny uh camera if they used a hot wire if it was basically like a tiny little band saw and you would program in the shape of the pieces and then they would go through when they would cut you know, hundreds of these for you um and it ended up costing it was three dollars per toy for all of the pieces to be cut um but it's save me some time cutting things by hand um I also found a guy in l a just some random guy who happened to have a stuffing gun and if you've ever seen them they look kind of like an airbrush it's like this huge handle on a big tube that goes to a canister that's full of stuffing and then you you know turn it on and you squeeze the handle in like shoots uh it's pretty amazing actually it shoots these teeny tiny little pieces of stuffing into the toy like a really wrap today so instead of me sitting there taking little tufts hand full by handful and uh putting it in and getting it all in the right place and making sure that everything's even um stuff for the gun and just so he offered to help me out but he was in l a which meant that I had to ship all of the unfinished toys to him and then pay for shipping for all of the finnish toys which are suddenly bulkier and heavier back up here before I could sell that so that saved me you know the machine stuffing would end up saving me about seven dollars per toy not super great the machine cutting uh saved another twenty dollars um so now I'm down to net losing ninety six dollars per toy uh still losing almost a hundred bucks on every toy and I'm outsourcing parts of this what was there left to dio? Uh, well, I concluded that I just could not be profitable sewing my own plush at the prices I was commanding in the market at a craft fair at stores nobody's going to pay like if it's one hundred dollars that this thing costs. So if it costs one hundred and thirty one dollars to make one of these by hand no one at a craft fair or at a retail store where a novelty item like a plush ham would be appropriate is going to pay, you know that in order for me to make even one dollar profit, it would have had to have been one hundred and thirty two dollars um nobody's going to pay that certainly nobody is going to pay that for wholesale and then double that for retail like that's just that's not possible. My time was too expensive to make this kind of plush by hand and run a sustainable business. Um and that was really hard fact for me to live with, right? I was making these things they were selling well, I was proud of them, I felt really good about the design um I started getting really good at making them, but I just couldn't do it and have a living I couldn't pay my rent I couldn't buy groceries doing this um and sometimes it's a really difficult fact toe look in the face and we I would prefer to do a sort of ostrich in the sand approach what we think well as long as I'm selling and you know money is coming in like it doesn't matter if I'm not making a sustainable way gits you know I do what I love I would do it anyway I would sew these things anyway in my free time so you know any money I make off of that his bonus it is not bonus because you need to pay her rent and you need to buy groceries um unfortunately you know I'm not going to be able to walk in to safeway with one of these and demand one hundred and forty two dollars worth of groceries hundred thirty two dollars worth of groceries in return it just doesn't happen um and one cannot eat flush ham sadly so uh as faras the sweetmeats go I decided to outsource everything I outsourced all the production um and currently there is not a way to so plush toys not by hand I mean the's air made by uh well the sweetmeats were made by multiple people in a factory in china um I happen to find a really good factory and for folks who are in the toy business that are looking for responsible manufacturers there's an organization called um the ct I believe is the international consortium for the toy industry and they have what's called a care database c a r e um and if you look at that data base they have uh all the manufacturers that are listed as care certified and care is an international certification which goes around they have independent auditors that go around to the facilities make sure that everybody is making a living wage nobody's working under terrible conditions there's no underage labor you know, everything is clean and healthy and good uh those manufacturers obviously are more expensive then shadier uncertified manufacturers but it was really important to me that if I was going to continue having this product uh out in the world with my name on it on sale that if it wasn't going to be made by me what did you first of all look exactly like it was going like it was made by me and they did they did an amazing job um and also that it wasn't contributing to the downgrade of our environment of broader society you know, these air all values that we is handmade people um very often have uh you know, we don't we don't live in in a world where, uh we're in support of like all mass produced goods with no concern for who made them or what it does to the planet um and I still have those values and I had them even then uh so is really important to me to find responsible manufacturing but, um I felt good about my decision and then I was able teo uh finally make a little bit of a profit um I found this facility they did a fantastic job and um I was able to continue selling my toys for, uh the same price that they were uh feel good about my decision um and actually the toys that I was uh selling after they were manufactured were even more environmentally friendly than the ones that I was making by hand. Um I don't know anybody's ever seen a sewing factory? But it looks exactly like what I was doing in my closet at home. Um they're cutting out the pieces and then somebody is sitting there and pinning them and tracing a pattern and somebody's sitting there at the sewing machine and sewing them together then they have they have the stuffing gun. I did not have a stuffing a but they have the stuffing and then somebody is filling them up with a stuffing gun and then somebody sitting there with a needle and thread and closing it by hand with stitches um exactly the same way that I make them um I think some people, when they think of like sewing factories they first of all, it's a dirty word manufactured right? But they think that it's like one of those cartoon rube goldberg machines where you like put in a design and like outcomes a finished toy like it's you know a bunch of computers and robot arms like a car manufacturer it's not what it is. It's it's people it's human being's hand making these sewing these just like I did um but there was you able to see the product as it was going through production where you you're reassured and assure that it was going to come out the way you want it particular outsourcing overseas? Uh well I mean, I did I was able to see several samples of all of the products before I had them uh manufactured um I did have photos of the facility and I did have a friend who did a lot of business in china who was able to visit it for me. Um I did not have the budget to take a trip to china myself, but luckily I was able to have someone go and see the factory for me and let me know like yes, this is a totally legit, well lit place of business um everything seems kosher and fine and then when they did send me the samples I was able to see like yes, this is actually really good product quality um the factory had other certifications they had um some s o certifications uh like the nine thousand one certification that among other things uh guarantees a certain level of product quality just right off the bat um and I got a lot of comments from people uh over the years about how high quality my toys were and that was really important to me and like I said, that costs more than if I had gone to another manufacturer for sure um I was probably paying double what uh to have these made then then and then someone would pay for, um, uncertified manufacturer but it was important to me and I was willing to do it and more importantly I could still make it work. It was still profitable so I went ahead with that but that's not to say that that's what everybody should ooh, this is not a missive on how handmade business across the board is not sustainable. I am not here to tell you that even if you're a plush artists that you cannot make a living as a plush artist absolutely can and they're absolutely people who do that um they just do it in different ways uh I have a couple of friends uh in l a who make a living off of plush and they have done it um by both hiring people to do piece work for them in l a to help them make the toys um they also have their own uh cutting machine their own die cutting machine so that they invested in that capital equipment so that instead of me going to that cutter and asking them can you please cut me all of these things per piece? Um they just bought a machine with the custom dies and they crank out the pieces they can cut I don't know like five at a time I think just with one pole of that cutter um and they're not making a huge profit it's going to be very difficult for them to grow beyond that point but as long as they're satisfied with where they are in their business that's working for them um there are other people who do hand make every plush themselves and they do sell it for hundreds of dollars per piece um and I do some of that now as part of my prop work um I made recently a couple of enormous burritos for the bold italic magazine one of them was actually a costume and the other one was like a giant body size uh pillow and um those sold for hundreds or even thousands of dollars per piece because they were for a client and because that was the appropriate market um and you could do that uh, there are people who make plush as soft sculpture as fine art and they sell it in galleries or they sell it you know, in similar venues where the buyers are used to paying those prices um and where what they're looking for is a piece of art um that they can take home and treat us such and you know, this is not really that this is not really the product for a two hundred fifty dollars um price tag although I will say that I have made meat shaped pillows for art shows at museums and art galleries and I do charge hundreds of dollars per piece and they sell because that's the right market um a craft fair is not the right market for that. You know, a gift store is not the right market for that kind of pricing, so you either need to figure out and we'll cover this in a few slides you either need to figure out um how to get your costs down or how to make your production more efficient or find a different market that will sustain the price for what you want to make or you have to figure out a different product. Um maybe you can still do the kind of work that you like to dio uh without making that same product if you look at someone like um denise schmidt the quilter quilts take hundreds of hours to make one right um and there are probably a handful of people who sell purely handmade quilts for thousands of dollars apiece to you know, very specific buyers and very specific markets. Uh but if you have trouble doing that, um you could do what? Ah lot of colter's I know have done and what donny schmit has done and you can dio you can have a line she's a line of, uh could tour quilts, which are those thousands of dollar quilts that are all made by hand. Um, she has a line of quilts below that that she has designed, but she has manufactured elsewhere, right? She has manufactured outside the country like I did with thes she also has a line of fabric designs for quilting fabrics, right? So if you actually like working with the colors and working with the patterns that are on the fabrics you can start um, you know, they're on demand printing services like spoon flower, for example, where you can do digital fabric printing of any design you want. Um, you can start silk screening the fabrics so you can still be a quilter and be a handmade designer and still appeal to customers a different price points just by having different lines um so again, yet not everybody needs to go the manufacturing route there are ways to be a handmade business

Class Description

It is common to be intimidated by math and money, but managing your business’s finances doesn’t have to feel overwhelming. Bookkeeping for Crafters with Lauren Venell will give you the confidence and skills you need to start and maintain your own small business ledger.

Lauren is an artist and educator committed to making financial solvency accessible to independent entrepreneurs. In Bookkeeping for Crafters you’ll learn the basics of managing your money and how doing it yourself can reveal important opportunities for your business.

You’ll learn about managing different types of income and expense accounts and how to painlessly prepare for tax time. Lauren will make predicting fluctuations in your cash flow straightforward and easy while helping you develop a system that is right for you – even if you prefer pen and paper over spreadsheets.

If you are ready to change your relationship to money and manage a ledger that is customized to the way you do business – this is the class for you.

Be sure to check out Lauren's other course Bookkeeping for Etsy Sellers.