Danger Budding Artist – My opinions have been deemed Harsh by people who take everything personal.
REMEMBER ONLY YOU can properly and completely perform the necessary due diligence to determine your costs – this article, like all on this blog, are a starting point, not the last word by any means. While I hope it is worth more, its value is exactly the same as what you paid for it – no dollars.
Maybe it was the reality of that first lemonade stand, the one where my Dad fronted the money for the first day of ingredients and agreed not to charge us rent for space at the foot of the driveway which happened to be a very busy bus stop (we were 5, 7 and 11) but it never ceases to amaze me how many costs those selling their work will over look.
I think it was Ben Franklin who paraphrased an older English proverb,
Look after your pennies and nickels
and your dollars will look after themselves
But is an excellent thing to remember when you are costing out what you will sell.
here are some of the pennies over looked. It might be useful to know the reference to my formula are for “things I have done before”. New Product development is different.
You bought a bag of 10 charms for $10 – so the cost per charm is $1 right?
Did you drive to a local store? Our closest store is about fifty cents worth of gas round trip
and since it was local and not delivered to our place of business, and was under $200
I would have to add the 65 cents sales tax.
Ordered On Line? so no tax or transport, well what about the cost of shipping?
My personal formula is an additional 15-20% for “obtaining” the materials. This averages out to cover lots of overlooked overhead related to building studio (as opposed to store) inventory. It has worked out over the years to cover, internet ACCESS ONLY, shipping, reorder, utlities and most if not all of the pennies and nickels.
Selling On Line?
Domain Name(s) and Web Hosting, fees charged by Etsy or Ebay, AND OUR TIME TO POST THE PRODUCTS.
PAYMENT PROCESSING: PayPal, etc and of course Discover/Visa/MasterCard all want their share aka/Discount
Depending on volume of sales, there may also be monthly fees involved and dear God, I sincerely hope you bought your equipment not leased it. This is really the last step, because most fees or as I call it, vigorish, is based on a percentage of the total sale (and don’t forget that when PayPal, Discover/Visa/MasterCard OR YOUR BANK CHECK FEES – they are also taking a piece of the cost of Postage)
DELIVERY/SHIPPING/HANDLING – The cost of packing materials, labels, printer ink for invoices, boxes or bags to ship in – Once again don’t forget to include the cost of the percentage/discount/fee/vig collected by PayPal etc when you are paid other than cash in your hand.
Rent/Table or Booth Fees – Local Craft Shows, farmers market or even “big events”
Business use of your home. We have areas within out home that are strictly limited to our business. The costs related to that space are tracked for both costing and tax purposes. Since we tracked show sales on an event by event basis, it was easier to know what the cost and the ROI was/is on each event. Sometimes depressing post event when you face the reality, but helpful in knowing “if we should go back” once the honeymoon repeats are over.
Government Fees Paper Work. It wastes several hours of my time each month to keep and summarize the records required by local, state and federal government – Your business license, record keeping for sales tax and other tax purposes are all part of the cost of doing business.
INVENTORY: Did you buy those charms using a credit card? well until they are sold, they are either costing you interest on your charge card or “cost of money” that might have been earning interest no matter how nominal in a savings or brokerage account.
IN all of the above, the only consideration of your time was in what it costs to do all the not creative business – things often euphemistically called “over head” – these are all EXPENSES and in the art/hand crafted world have not produced a single item you can sell.
Whether you are a master in your craft or just starting out, there is a good chance that all of the above are pretty much the same.
Where it gets different is Part 3 The valuation of your time.
P.S. We were allowed to “charge” (guaranteed by my Dad to the corner grocery) the cost of the lemonade ingredients each day, but had to go back to the store and pay the bill every day or no credit for the next day. Half of the profits “went into the bank” and the balance was split 3 ways. Although my older brother only did the going to the store twice a day, he got a full share because my younger brother and I were not allowed to cross the street so he made a vital contribution. An interesting lesson in valuing the service provided in a bigger picture.