Craft business tips – how to make more profit
If you want to earn a living from your craft, you need to be sure you’re making a profit on the items you’re making and selling. To help, we’ve created a Profit Calculator you can download for free and use to figure out the profit margins on your own products.
Use our free spreadsheet template to work out your profit margins, make sure your pricing is right, identity the products which are making you the most (and the least) profit, and help your creative business generate more money.
You can download the spreadsheet and adapt the formula to suit your own business – just follow the guide below. Once you’ve figured out your margins, read our tips on how to boost your profit.
Image credit: Blue Leaves Purse by Nutmeg and Sage
The fundamentals of making more profit
There are only three ways to increase your profit:
1) sell more
2) sell items at a higher price or
3) decrease costs.
If you can manage all three, you’ll have a very successful year!
But if your profits are too low, you won’t have a sustainable business. Without growth in profits, your business won’t keep up with increases in the cost of materials, so it’s important to factor this in when planning for the year ahead.
In Our Year in Review post we talked about at the importance of knowing your profit margins for each of your products. To be able to make more profit, you first need to know all your costs and current profit margins, so that’s step number one – and we’re here to help!
Step 1: Calculate your profit margins for each product
To enable you to calculate the profit margins for your items, both when selling your craft online through Folksy and when selling your products wholesale to shops, we’ve created a handy Profit Calculator you can use to work out the profit margin for each of your items. It’s a simple spreadsheet that you can download and edit with your own figures.
List all your items on your spreadsheet and work out the profit margin for each one (if you don’t want to use our spreadsheet, list them in a notebook instead).
How to use the Profit Calculator spreadsheet…
Input the cost of your materials for each product (including packaging) and the fixed amount you have allowed for your additional costs and overheads (this is a set amount you add on to each item to cover annual or monthly costs related to your business, eg mobile phone bills, studio rent, Facebook advertising, business cards, web hosting). Read our tips on how to price your handmade products to see what you should be including here http://blog.folksy.com/2013/11/14/pricing-your-handmade-products
The cost of materials plus your additional costs and overheads will give you the total material cost of each item. The spreadsheet will do the calculation for you and display the making cost in Column D.*
To keep it simple, we have not included postage in these calculations as some sellers charge separately for postage while others prefer to include the cost in their product price (RRP).
Next add the price you are selling the item at (the RRP) and let the spreadsheet work its magic by calculating the listing fees and related selling costs for you. We have added in formulas that will automatically estimate the cost of selling the item through Folksy. The payment processing fee is set to the current charges for selling an item via Stripe (where a customer pays using a European bank or credit card). It will also estimate the cost of selling the same item via Paypal. Please bear in mind that these fees may vary, and if you are a Paypal Micropayment user, you will need to adjust the formula. If you wish to calculate the profit on Paypal sales rather than Stripe sales, replace the formula in cell J2 with the following formula: =F2+H2+I2 and apply it to the following rows.
If you have a Folksy Plus account, you can remove the 15p + VAT listing fee and include the cost of your Folksy Plus membership within your fixed overheads instead.
Labour Costs / Salary
Next, input the time it takes you to make, package and post each item, and then add in your hourly rate. In our example we have used £10, which is the average hourly rate for a jewellery designer in the UK. When setting your hourly rate, consider your experience and the time and training it has taken you to learn your craft. There is a handy guide on this website which gives hourly rates for various jobs in the UK – https://www.payscale.com/research/UK/Job=Jewellery_Designer/Salary
You should now have your profit margin for each item, with and without your own labour costs. It’s useful to compare the two, as a product that at first glance might seem profitable may not be once you consider the time it takes you to make it.
If you currently sell your products wholesale to shops or plan to in the future, we have created a second sheet on the profit calculator which takes into account a shop or gallery’s commission, rather than giving the profit when selling direct through Folksy. We have set the commission here at 50% of the retail price but commission does vary – just adjust the percentage accordingly in Column F. Read more about pricing your work for retail here >
Note: the profit calculator does not include VAT or tax. If you pay VAT or tax on your sales, remember to include these in your calculations. Find out what your responsibilities are when it comes to tax in the UK in this blog post > Everything you need to know about tax if you sell craft online.
Once you have entered all your products into the Profit Calculator spreadsheet, you will be able to see which items are the most profitable and if there are any that could actually be losing you money.
The next step is to analyse these figures and see how you can increase the profit margins on your products.
1. Decrease your costs
Sourcing cheaper materials is usually the first thing to look at when trying to increase profit margins. There are ways of doing this without reducing the quality of your supplies: you may be able to get a trade account with your suppliers and you can usually secure discounts by buying in bulk. Just make sure you’re not lumbered with lots of materials you won’t use.
It’s worth noting here that cheaper materials aren’t always the way forward. You may find that you can actually increase your profit margins by creating products with higher quality materials that you can ultimately sell for a higher price.
Are there ways to use your materials more efficiently and reduce waste?
Are there ways you can reduce those fixed overhead costs? Could you recycle your ink cartridges? Switch to a cheaper phone contract? Find a different Public & Product Liability policy?
Time vs profit
Products that take a long time to make with a little profit margin are not good for business. Look at your profit calculations. What are your true profit margins once you have taken into account the cost of your labour?
Sometimes it’s worth having some low-profit items if these bring a lot of traffic to your shop, especially if you can turn a one-off purchase into a loyal customer who buys from you again and again. But as a general rule, every item in your shop must be making you a profit, otherwise your business will eventually fail.
If there are products that are not profitable in terms of the time it takes you to make them, look again at the design. Are there ways you can alter the product so it’s quicker to make? Can you simplify the design without losing what people love about it? Can you make it in batches?
You might love the making process, but time is precious and if you’re spending hours crafting something that doesn’t make you a profit or even leaves you out of pocket, you won’t have a viable business.
2. Increase your prices
The other (obvious) way to increase your profit margin is to increase your prices. Perhaps you’ve been selling your products cheap and a price increase is long overdue? There’s no point working for pennies.
Having more expensive prices won’t necessarily mean fewer sales either. If people want what you make, they will usually pay for it. It could be that they really love your style, that you are the only person making that particular product, that your products are the best made on the market or that they absolutely have to have a piece of yours to feature in an Instagram flatlay :) In most of these cases, a small price rise won’t lose you the sale, especially if the quality and uniqueness is still there.
Conversely, it can even be that increasing your prices makes people value your work more highly, and actually you end up selling more! For many makers, this quite often proves to be the case.
Have a look at similar products and designers working in the same field. How do your prices compared with theirs? Are your products considerably cheaper? Where do you want to place yourself? How much could you raise your prices and remain competitive? Is there much competition? Are you often undercut by cheaper mass-produced versions on the High Street? How much do people expect to pay for a product like yours? Do some research online and in bricks and mortar shops and galleries – what is the sweet spot for the type of product you make?
Can you add value to your product? Is there something that customers would be willing to pay more for that would boost your profit margin on that product? Could you offer personalisation and charge more without it significantly increasing your time or material costs?
3. Sell more!
This is probably the ultimate goal, but it’s worth reiterating that it only makes sense to sell more if what you’re selling is profitable. Otherwise every sale is actually costing you money! So check your profit margins before embarking on a big sales drive.
There is no magic recipe to selling more, but we’d recommend reading this post and going through each step, one by one > http://blog.folksy.com/2017/07/11/how-to-sell-craft-online-beginners-guide.
Keep reviewing your traffic as you implement changes – you can do this on the Stats page of your Folksy shop dashboard. What’s working? Which items are selling and where are those sales coming from? If, for example, lots of views or sales are coming from a particular blog post you’ve written or a from a blog that has featured you, then you know that it’s worth spending time writing more blog posts or developing relationships with influential bloggers. If you are seeing lots of traffic from Instagram or Pinterest, then focus on those areas.
If you’re seeing lots of views and impressions but no sales, take some time to review those listings – does the description tell the customer everything they need to know? Are the postage costs too high? How quickly can you ship the order? Is your listing giving your customer confidence in buying from you or is it littered with spelling mistakes, poor photos and incomplete information?
We have lots more tips in the Seller Tips section of this blog > http://blog.folksy.com/category/seller-tips
Let us know if the Profit Calculator is helpful, and if you have any of your own top tips for making more profit.