Making Sure Your Sales Make You a Profit
For many Etsy sellers, the holiday season is the most lucrative time of the year. It’s important to stay on top of your record keeping and budget so you can maximize your profits. Ideally I will record every sale I make in my spreadsheet and figure in how much I spend on supplies and overhead each month. I use these totals to analyze how many of each item I sell and how much I’m making on each item. It’s an important part of making sure that all my sales actually mean money in my pocket.
It’s easy to forget once money is coming into your business that not all of it actually belongs to you. Tax season is an all too painful reminder that as business owners we need to make a divide between our money and our business’ money. If you don’t already have a business account, it’s a wonderful way to record money coming in and out. If you have your tax returns from last year, it pays to go back and take a look at your business deductions and, if you owed money, figure out what percentage of your income you had to fork over. Each month this fall set aside a percentage of your business’ gross income for taxes. I like to view it as though this money was never mine to begin with, which makes it easier to write that check come tax season.
Part of what you make in each sale also needs to go back into your business. Remember to set aside part of each sale for future business expenses so you don’t have to dip into your personal funds to run your shop. Your business needs to feed itself.
When I sit down and look at what my shop costs me in overhead I always get bummed out. So much money I wish I could just keep! However, it’s really important to evaluate your expenses in order to make sure you’re turning a profit. Relisting, advertising, pay pal fees and purchasing materials are all a part of your shop’s overhead. In order to make that money back, you need to incorporate a piece of it into the cost of each item. Here’s a basic formula for calculating the price of an item:
Cost of Item (labour + price of materials) x 2 = Wholesale
Wholesale x 2 = Retail
The x2 is there to insure you can pay for overhead and that you turn a profit on top of that. This money is what will feed your business and keep your afloat. Just charging labor and materials for your products won’t keep your shop above water for long. If you pay yourself a decent wage, like $20 an hour, this may end up seeming high to you. However, this formula is standard for most of those who sell handmade for a living. Even if you are selling as as a hobby, asking a fair price for your work isn’t being greedy – it’s a necessity!
If you are selling wholesale, it helps to take a good hard look at whether or not you are really turning a profit. I found that shortly after starting wholesale, I had to raise my retail prices. While most of us want to keep our prices competitive, we also need to survive and be rewarded for our hard work. If you don’t want to raise your prices, you can always offer wholesale at less than a 50% discount. Many retailers understand our handmade products are valued differently than something mass produced.
I am SO tempted to buy lots of materials in anticipation for the holiday rush. I always want to try out lots of new products, and I have to remind myself every year not to spread myself (or my finances ) too thin. Make a budget for new materials and new products and stick to it!
Take advantage of social media as advertising – it’s free! Facebook, twitter and blogging are a great way to let shoppers know about your products. Relisting adds up, so take a look at what times of day give you the most return in views or sales and be strategic about when you list. It can add up over the course of a month! The holidays are a great time to try out a small amount of paid advertising to test the waters. Not all advertising will give you an immediate return in your shop, so do some research about your target market.
Hope you have lots of fun AND make a profit this holiday season!