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Lesson Info

Business Profit

What happens if you have blocks to the profitability of your product? What could be keeping you from having profitable products? It could be that the materials are too high um this might be the case in um if you use let's say precious metals or gemstones and jewelry if your furniture designer and I've heard that lumber has been getting really expensive lately especially certain kinds and sustainably forested would so that could be an issue um very often as I mentioned with creative professionals and crafters and handmade artist is the production time that is the biggest block to your profitability so in that case it's not a matter of finding cheaper or easier to work with materials or buying and more bulk um in this case you would need to make your process more efficient uh maybe it's time to invest in a piece of equipment that makes this aa lot more efficient. So, um, you know, let's say if you were I don't know making your own cards and you were, uh, screen printing them one color at...

a time maybe it would be time to upgrade tio a really high quality like art digital printer so that it would print all the colors at once and you would do it by machine and you wouldn't be doing the printing by hand on and you would save some time on the production labor there um maybe it's time to start hiring help if the things that you make are very fussy and time intensive um maybe it's time to outsource some of the production maybe it's time to hire a printer to start printing your card as opposed to printing them all yourself. What happens if the block to your product is that it's the wrong price you just nobody will buy it if you make it the price that it needs to be um well then you either need to lower the price and then take care of these other things the material the production time to still make it profitable or you need to find a different market um I make those crazy you know or I made those crazy meet shaped plush toys and pillows um in my product profit calculation it turned out that all of the labor was going that was going into them made them, uh cost two hundred fifty dollars right if I saw them on etc for two hundred fifty dollars nobody's going to buy them or maybe one person you know, a year or something like that I can't make a business that way um but I can sell them for two hundred fifty dollars when I show them in a gallery or museum because then they're a piece of fine art there a piece of soft sculpture and as we will look at later, pricing is marketing it's not really so much sales or accounting or anything like that even though it is a number it's marketing uh, so you might need to find a different market for your products if you can't make any of these changes or you don't want to make any of these changes, but you're still not able to hit a sustainable price and then last but not least, you might not be profitable because of the product choice or balance. So you mentioned stephanie that you're you love doing the comic books, but they're way more time intensive then doing the one off prince or cards? Um so if you spend all your time doing the stuff that you really really like, which is the comic books, but you managed to sell a lot more of the prince and the greeting cards, but maybe your fans are just not buying very many because you don't release new designs very often for example, maybe it's a question of shifting from one product to another and shifting that balance a little bit so that you are still spending some time and hopefully enough time on the side of things that you really, really love but then also filling out enough time to work on the products that really are bringing in that big profit and you really are helping to cushion things that's not to say that the comic books it's okay, if they're not profitable at all, they should still be profitable. Um, but it's ok, if they bring in a slim, you know, really slim margin, and then you have other products that have much more wiggle room. Any questions about this? Okay, what happens if your company overall is not profitable? What if it looks like you're losing money at the end of the year? It could be that your products are not profitable, which we've just covered. If your products are not profitable, that's it your company is not profitable. Doesn't matter if you never spend a dime it's like that old joke rate the used car salesman joke way. Lose money on every product we sell, but we make it up in volume. Um, it just that's you're a number one area of responsibility is to get your product profitable. If they're not, nothing else matters. That's why we include that product profitability calculator with this class because that's your bottom line right there. Um, maybe, and this is a frequent problem with handmade businesses. You just can't make enough inventory. You work on something that's really time intensive, and even though you're able to sell them at the right price to make a profit, let's, say it's like hand knitted cowell's for example nice chunky one so they don't take that long but you could still make a profit off of them but because they each one takes you an hour or two hours to make and people love them so much you can never keep any in stock then you either need to make your process more efficient or more likely um start hiring some help, right? If your designs are fantastic um and you love making them and they're profitable and they're popular, then you just need to get other people and pay them to help you make those as well um maybe it's a question of outs but in the other parts of your business maybe because you are doing all the marketing and you're doing all of the bookkeeping and you're doing all of the web site updates, you don't have enough time to make all those products. Um, could you outsource some of that stuff to somebody else that you can spend more time on the actual making uh and then last but not least our your general expenses to high are you spending too much on a studio space? Maybe you could have a smaller studio space or you could have it in a different location where you could share it with somebody where could you really cut back on those if everything else is working for you um then maybe that's that's an area that you need to cut back in, um oh, and then marketing have skipped over marketing. Maybe the return on investments for your marketing efforts is just too low. Maybe you're, you know, throwing stuff out there, scattershot nobody's responding? Um, you don't really know how effective your marketing is, and we're gonna look at the stats theeighty stats for in a moment, so we'll be able to see whether your marketing is effective or not. It's really, really useful? Um, in which case, you will need to track your sales, probably on individual product basis, or at least on an individual line basis, and really start looking at those stats and see which marketing efforts are working, or at least working better than others and then focusing more on those areas and trying to lather, rinse, repeat again, marketing is more of an art than a science, so you'll be able to see, like, why did that newsletter result in sales? And this one didn't, and you can sort of guess and applied the scientific method here, even though it just said it's, not a science where you can set a hypothesis for yourself and you could say, well, I think that that newsletter was more effective because it had a friendlier tone. Or it was shorter or it included a coupon or it was aligned with a particular event or holiday season or whatever it is um and then try and repeat that the next time you're sending out a newsletter or a promotion and see well did that have the same effect? No okay well then maybe try one of those other reasons andi, you can sort of start to get a sense for what marketing efforts are reaching your customers and which ones have very little effect because I don't know about you but I hate the marketing side things, especially when it comes to like newsletters and social media I'm terrible at it it feels totally unnatural to me um and if you're having trouble figuring out what it is that's working, hire somebody get somebody else to do it for you um you know you'll be able to tell if you're doing your bookkeeping if it's worth it or not right you'll be able to compare the expense of the marketing person you've just hired to the increase in sales or not they're either going to be worth it and profitable or they won't be but it's certainly worth a shot if, uh you know you're not having a good effect on your own and I know that I don't um so there's no shame in that for me um are there any other questions about profitability in general how are we doing with everybody online? Well, there have been some general questions about etc cetera people save those into the end because they're not specific to this particular task waken cap time for those that be great we'll get something then but you have any questions from our studio for years there were good too okay thank you explaining this very well lauren is good all right great um so we're going to look in the next segment at stats and pricing um I think we're going toe start to wrap this one up unless we have any questions that you want to share now well let's do that because alison was asking she's selling digital downloads and she's selling them on it see where do you host where do you recommend hosting your files do and how do you arrange automatic down as this is all done through etc or do you have you have separately? Yes it is no etc will host the files for you when you do a digital listing you'll just upload the files directly to etc as you're creating the listing as you're typing in the price and the title it will give you an option to download sorry, upload multiple files and then those will all get packaged together and sent to the customer as soon as they press that buy button commedia you know, a lot of people voted on this question I didn't get the name of the view but would you recommend at sea uses obtain a seller's permit on business license to make their book being easier obtaining a seller's permit or business license has no bearing on here bookkeeping whatsoever it will not make it harder or easier. Um if you are running a business, most counties will require that you have a business license um just legally and again you need to check with your local authorities with your accountant or your lawyer about that. Um a lot of states will also require that if you are selling retail that is collecting sales tax from customers that you also have to have a seller's permit because that's how they know that there are going to be expecting a sales tax return from u a t end of the quarter at the end of the year, etcetera. So again whether or not you need a seller's permit or a business license depends on where you live and you should probably check in either with your local government or with a c p a or an attorney about that but it has no bearing on your book keeping other than that you know there's a one time like in california is a one time seller's permit fee to register, so I added that of the line item in like two thousand five or whatever it was um and then my business licenses technically attacks right? We talked about that. It was one of the quiz examples I used and so I pay whatever it is twenty five dollars, thirty five dollars a year for that but it does not make anything easier or harder it's just either a legal requirement or it isn't yeah that's whalen was asking three people voting on this. Do you need to debate a in order to have a business account with bank again? This is up to the bank. Um it's not technically like a legal requirement one way or another. Um when I got my business bank account I think it was with washington mutual which no hunger exists post financial crisis on guy went with them because they had that free business checking at the time I knew a lot of crafters with wamu accounts um and they needed a d b a if ah fictitious business name they needed the whole statement registration if they were going to give me a bank account in that business name. So that meant that I had to officially register my fictitious business name with the city of san francisco in order to have a bank account that had my business name on it in addition to my name so that I could get checks written to sweetmeats and so that I could get checks with sweetmeats printed on them to write to other people um some things require that some don't, um, you know, you can really shop around for that. Um, if you I have a business that has a different name other than your own and you don't want to go through that step, then it would be sort of on you to make sure that your, um, customers or anybody who's paying you by check is paying it to you and not to your business name, because then you can't deposit it. Um, so that might be a hassle if all of the things that you're sending them have, like sweet meats on them, but then you're trying to tell him, but make the check out to lauren vinnell, don't make the check out to sweetmeat so it can help you avoid some headache there. Um, but yes, faras the individual bank requirements, you just kind of have to check with the bank. Yeah, now one last question. I'm not sure you can answer this, actually, laura, but it's it's an interesting one. Sparrow in flight is asking seven people voted on it. They they followed the prophet calculator. Theywill followed all the steps, but they're finding their costs are coming out so much higher because of the competition in comparison to the competition where they're being sold. With barely above cost so they're struggling really how do you figure out a price you know they worked out how through all the steps there now still way more expensive and competition which maybe producing in bulk that might be it there any number of reasons why the competition particularly on etsy is underpricing and again we'll talk about this more in the pricing segment um but pricing is part of your marketing and so I would look at who the competition quote unquote actually is are they really your competition? Are they really making the same thing? Is they're packaging and their branding really the same? Are they really trying to reach the same target customer? Um if so then weaken like I say we're going to cover pricing so we'll look at a top down pricing model where you start with the price that you think you need to charge and then kind of work backwards from there um but I would take a good hard look at who the so called competition is like when eyebrows let's see um I gave this example in the bookkeeping for crafters classes well um I always start by sorting things from price high toe low because I want a weed out anyone who's like drastically under charging for what they make if I'm looking for like a really special gift for a friend of mine like I was looking for a travel journal um you know, the reason I'm shopping on etsy is because I want that special handmade a gift that I can give to that friend of mine it's you know, I'm not looking for something that was made really cheaply I'm not looking for something that was mass produced I'm not looking for something that may have shoddy materials or workmanship ideally if it's someone uh you know, domestic whose story I can read about beforehand or like, who has a little description on their page that's great and so I I eliminated every travel journal that was, you know, under I think like the twenty dollars threshold um I sorted by price and then I looked at the twenty to forty dollars range because that's what I wanted to spend and um you know, because I'm a consumer, I have associations with prices as a customer like a lot of people when you see um products lined up in a store and you don't want to spend a lot of money, you go like one up from the bottom, right? You let there be five products I know so many people it is I'm one of people does this um I need a new, you know, shampoo I have no other criteria other than price for how I'm going to choose this and there are five on the shelf um I don't want to spend a lot of money uh I'm not going to go with the cheapest one because you know, probably the cheapest one on the shelf has like terrible chemicals in it they probably test on animals it's probably made in some horrible polluting factory that uses child labor or whatever I have bad associations because pricing is marketing with the lowest priced item. Um but I am just one consumer I'm one market and you are not trying to reach the market, there is no the market that's everyone, unless you're like, you know, target or wal mart, and even then they're not trying to reach everybody, right? They're only trying to reach people within a certain socioeconomic stratum like wal mart is not catering to millionaires, you know, there are other businesses that cater exclusively to millionaires like everybody has their market, and so your price has to match your market and all of the other parts of your marketing. Um, so I would really take a hard look at who your competition actually is like, are you going after the same people? Um if so, then we can use that top down pricing approach that will cover in the next segment. If not, um, then I wouldn't worry as much about the price, and I would make sure that you look for more places to find those people to find that mark it may be, etc is not you're a number one place to find that, um, etc like I mentioned at the top of the class is a really great tool and really get great way to start your business, but it is not the be all end all of any creative business eighty plus percent of betsy sellers have businesses elsewhere as well on dh there's reasons for that, and some of them may be that you are ideal, customers are not on etc in bulk. Maybe they're more often shopping in certain retail stores, in which case you may want to bump up your wholesale efforts to try and land those accounts. It may be that they're shopping at events like craft fairs more often, or maybe it's just that a z doesn't allow you to showcase your brand very well. All of the pages look pretty much the same. I mean, they're all with a white background. They're all laid out in the same way with the same colors, the same type face the same square photos and aside from your own product photos and that banner up at the top, um, they're all structured the same. So maybe you need to open your own online store or brick and mortar store or wherever it is. That's more in line with your own branding so that people really get a sense of, um, the quality and the brand in the experience. That's associated with your product, including the price.