Saturday, March 16, 2013

The Business Chat - how much will I make?


“I’ll never have enough time to make enough! What am I going to do?” wailed my caller. My friend was in quite a panic, she’d just received her acceptance into a much larger show than she has done in the past. It’s a good show on a summer long weekend and now she’s in a state about not having enough inventory. Here’s how the conversation went.

First, I applauded her for starting to think about inventory 4 months in advance. Then we talked about her sales expectations.

My friend makes a large statement necklace that gets a lot of compliments when she wears it. At the small shows that she has done she usually sells one or two a weekend. She was panicking about trying to make 75 or 80 of these before the show. This necklace sells for $150. I punched some numbers into my calculator and came up with $11,250. That is how much you would make selling 75 necklaces at $150.

I asked her why she thought that she could sell $11,000 worth of ONE style of necklace when she usually only sells $150 - $300.

“Because it’s a really good show,” she explained.

Wrong answer.

In my business workshops students always ask, how much work do I make for show? Unfortunately, there is no magic formula. What I can tell you is that there is a rule that we can use to help judge our stock.

In the jewelry industry we have the 10% rule. This rule tells us that our booth cost should be 10% of sales.

For a $25 show, you should sell $250. A $250 show, sales should be $2500. It doesn’t matter if your $100 show is 1 day or 3 days, if the show costs $100 you should sell $1,000. For a $350 show you can expect to sell $3,500.

Keep in mind - this 10% is an average not a guarantee. Do not expect to make the 10% in your first 10 shows because as a newbie you will make mistakes. On your three shows be happy to break even (including ALL your costs not just your booth fee).  In the next 7 shows you should see your sales improve as you work out your display and show techniques. Now start charting your show sales.

Sometimes you will do a $25 show (expected sales $250) and make $500. Bonus! Then your next show might be a $75 show and you sell $500. Booth costs = $100, sales = $1,000, average = 10%.

Knowing this rule does help with inventory. If you are doing a show that costs $50, you can expect to sell $500. If you expect to sell $500 there’s no point stressing about bringing $8,000 worth of work.

Every piece of jewelry you make costs money to make. If you don’t have reasonable expectations of selling it, this inventory is going to end up sitting on your shelf. That’s money sitting on a shelf instead of in your bank account.

A good starting point is to bring 2 or 3 times your expected sales. If you expect to sell $500, then bring $1,000 or $1,500 worth of work. Over time this will increase and you will be carrying around 4 or 5 times expected sales.

It takes time and money to build an inventory.

If your costs are 25% making $5,000 worth of inventory costs you $1,000. Spending $1,000 to go to a show where you sell $500 isn’t a great idea. Yes you still have the leftover inventory so if you are doing a couple of shows in a row you might be okay. It is still a better idea to make $1,000 - $2,000 to start, sell some, make a little bit more, sell some, and so on.

When I ran these numbers past my friend I explained that if she made $20,000 worth of inventory she would have spent $5,000 in materials. The show she is in costs $350 so she can expect to sell $3,500 (although being her first real show it will likely be less). At that rate she is going to lose money.

I had to rain on her parade. There is no magic bullet. You aren’t going to make $20,000 on a weekend craft show selling jewelry.

You succeed in this business like you do in any business, slowly and with a lot of constant work. Knowing approximately how much you will sell means that you can reasonably build your inventory, budget your expenses and maintain a realistic vision of your business.

So, if you have received your acceptance letter, congratulations!!! Now, multiply your booth cost by 10, double it, and make that amount in inventory.

Remember there are no guarantees, but at least this gives you a number to start with. 

2 comments:

Anonymous said...

Thank you Catherine, this was very interesting and informative!

Anonymous said...

Thank you Catherine, this was very interesting and informative! Darryle