Saturday, September 21, 2013

The Business Chat - how much will I make?


Ah, the nip in the air, the sighting of the first red leaves, the wearing of a scarf, the beautiful fall vegetables! All signs of a changing season and the coming of fall. Oh and the giant knot in my stomach as I look at my Christmas show calendar. In just 7 weeks I’ll be standing in my booth saying Merry Christmas. ARGH, what should I make? How much should I make? Will I make enough money to carry me through the lean winter months?

This is a question I get asked all the time, “how much work do I make for show?”  “How much money will I make?” 

Unfortunately, there is no magic formula. What I can tell you is that there is a guideline that we can use to help judge our stock and predict our sales. In the handmade jewelry industry we have the 10% rule. 

The 10% 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. 

Note - 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 first 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. Always chart 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%. 

If after 10 shows you aren’t close to making your 10% then you need to look at a couple of things. First, are you booking into the wrong shows? Maybe you make high end work and you’re trying to sell at local church basements because you don’t want to invest the money in good shows. Or you booked into a ribfest because it sounded like fun. (Every town has a ribfest and they all have “craft” shows on the side, don’t ever do one.) Second, look at your work. Is it as good as it can be? Are your lines consistent? Do you have a variety of work at different price points? Third, what about your presence at the show. Is your booth pretty and inviting or does it look like a flea market? 

The 10% guideline will help you run your business in 2 very important ways - show inventory and sales predictions.

As much as we do what we do for the love of it, we are not in business to lose money. You need to make money. 

Let’s say that your business goal is to make a profit of $2500 for the year. (Remember profit is sales minus expenses). You want to do 3 small shows during that year. Each show costs $50 so you predict that your sales per show will be $500. Total sales will be $1500. And that is before expenses. In this case you can see that your goals will not be met. You can change your goals, or increase your sales. 
Maybe you need to do bigger shows, or more shows, or find a store to carry your work, or sell online. 

The really tricky part is that you have no idea of what you will actually sell in shows or online. No one can ever predict sales, at least the 10% rule gives you somewhere to start. 

The 10% guideline also helps with how much work to make for a show.  

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 $20,000 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 (both materials and labour) 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 the money is not wasted. If you are doing a couple of shows in a row you might be okay. But what if you are only doing 3 shows a year? You will recoup your money in 4 more months. It is a better idea to make $1,000 - $2,000 to start, sell some, make a little bit more, sell some, and so on. 

On that note, I’ve added up the costs for my three major holiday shows, doubled it and now have my target inventory numbers. It’s scary. Time for caffeine and making. 


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