I hear this exact statement time and time again.
"I know how many sales I make each month but I am not sure how much profit I am making".
Ladies, you must love your craft so much that profits are not part of the equation!! The truth is, you can have your cake and eat it too, without a lot of extra work.
Why is it so important to know your profits? I mean, you can spend the money just the same, either way!
Let me share my eye opening story:
Savvy Nester has not been my first business venture. My very first business was a little, home business that made diaper cakes for baby showers and barefoot sandals for little babies that I ran with my best friend. It was such a fun idea and our customers were so excited about the products we made for them!
We were having a blast just creating, hanging out and thinking up new ideas. Then, things got hectic. We were working so hard for months on end but never really saw a profit.
Shortly in to the business, my best friend's husband lost his job and we wanted to make their family a little extra money but there was never any to give.
Everything we made off our sales had to go directly back in to our supplies. There was never even a dollar to split between us at the end of the day.
Fortunately, we broke up our little business before it could ruin a friendship. We knew money couldn't come between us and it was starting to take its hold.
From every failure, you have to walk away and ask yourself "What did I learn from this"?
I am going to share my failures and how I would change things if I could go back in time. I want to emphasize why profits are important and why the number of sales you make means very little if you aren't pricing well.
Picking the right customers
Our only advertisement, besides word of mouth, was the Facebook Sellers groups for baby items. This brought in a slew of customers but not all were so ideal for our business.
They generally wanted cheaper prices, to meet somewhere 30 minutes away and completely indecisive on the phone as to whether they even wanted to purchase.
This was absolutely not how you do business well and when you are selling an item for $5 and making deliveries, there is no profit to be made.
Today, I would reach out through social media to find my ideal client, locally. I would create relationships with upscale baby boutiques and event coordinators so I could provide products for their particular needs.
Charging handmade prices
I am still in shock that thought I could maintain a business strategy of having crazy low prices, even competing with big box stores!
For those of you who have ever made a diaper cake for a baby shower, you know it takes time and a ton of supplies to create. Charging $20 for a small cake left us with $5 profit, if you aren't factoring any delivery or your actual labor costs.
The real problem was we were marketing to the DIY crowd. The ones that see something and instantly think "I can make that myself". So they aren't willing to pay the price that comes with handmade craftsmanship.
Today, I would double or maybe even triple our prices! My hands were busy getting pinched under rubber bands and cramping from tightly rolling up diapers for hours. My ideal client would be absolutely willing to pay the asking price for a beautiful centerpiece that is also practical.
I never counted supply costs
Please listen up! Here is the meat of this article!
One of the biggest reasons my business failed was I never took the time to actually calculate my supply costs per product. I never actually knew I wasn't making any money!!
If I could have seen on paper (or in a spreadsheet) my supplies and profits, I would have stopped production and made big business changes.
Instead, my accounting was a big bag of receipts and hoping I have only spent as much as I had made.
Today, I would get create a product cost analysis for each individual product. Then, I would find ways to cut costs by buying in bulk and changing my design to cost less. Shopping at Hobby Lobby for supplies was not a practical choice.
Once I knew my true cost of creating an product, I would add labor, delivery and whatever else on top of the price, ensuring I was paid for my work.
In the months after shutting down our little business, we still had no clue why things had failed. We thought maybe we weren't working hard enough or maybe our product just wasn't good enough.
Just a few short months after these thoughts, barefoot baby sandals took off like wildfire! If we would have stuck it out, learned from our mistakes and make improvements we could have been on the front end of a profitable fad!! You live and you learn.
I am so grateful for this small business experience because it has taught me lessons that can only come with living and learning. Failure really is just finding out what not to do.
Now that you have seen the absolutely error in my ways, I want you to start analyzing your own products. Breakdown what it costs to create each item (including packaging), how much time you put in to it and any other costs associated with your business.
Once you have a good idea what it truly costs to make something, change your prices accordingly. Don't short change yourself just to be the cheapest seller around. It is never a good business strategy.
Finally, start tracking each sale and the customers associated with them (for non Etsy sales).
My formula for tracking a sale is date, product name, price, fees, supply costs, shipping and handling, sales tax and location of sale.
Then, at the end of the month, I add up all the additional costs my business needs including advertising, subscriptions etc. subtract it all from my sales dollars. This is your TRUE profit.
Also, word to the wise, set aside at least 25% of your profits for improving your business, tax time and unexpected business expenses. You will thank me later.
That is it, ladies! My words of wisdom on WHY you must track your profits (*failed business over here*) and why you must change accordingly.
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