Saturday, September 10, 2011

The Business Chat - Holiday bootcamp and product inventory

Oh boy, it’s back to school time! New pens! New notebooks! Such a sense of new beginnings! No I don’t have kids, these are all for me! No matter how long I’ve been out of school (and we do NOT discuss exactly how long it has been) this is the week where I feel motivated to buckle down and get to work because school is in.

So I’ve taken my new notebook and pen to the local coffee shop and brainstormed and planned my little heart out. As I mentioned a couple of weeks ago, Christmas is coming! By starting preparations now I’m hoping not to have as much late night panic in November as there has been in previous years.

I thought I’d share my planning and preparations so that we can all walk through this together. Think of this as a holiday bootcamp to get your business in shape. (Fortunately this bootcamp won’t make your butt hurt!)
First, I listed my holiday sales plans:

  • 2 shows

  • online sales

  • studio sales

Go ahead, list your sales plans.
Next, I set a sales goal for myself, and printed it on a big sheet of paper, which is on my bulletin board. Whoa! Looked at this way this is a crazy scary amount of work! Take a deep breath and we’ll break it down into something less scary.
Then I picked up a calendar, bought a new notebook (any excuse for a new notebook) and started thinking.
I broke my project (Holiday Sales) down into the following categories:
1. product line – new work, inventory
2. website – listing new work, better photos, better product descriptions
3. booth display
4. packaging
5. advertising, communications – newsletter, facebook, blog

OK, that’s not so scary. Now I’ll take each of these categories and break them down further into action items and then I’ll put dates on each action item. This week we’ll talk about products and inventory.

Your holiday product line and inventory
Every season requires new work. Repeat customers like to see your collection looking fresh all the time and new work provides your diehard fans with new buying opportunities. It’s also holiday season so customers are buying gifts, gifts tend to be smaller items, smaller meaning cheaper. It’s extra important at this time of year that your product line has a wide variety of price points.
I do not design holiday-specific items (Santa hair clips anyone?) however if you do now is the time to bring them out.

Once I have an idea of what I want to make I need to work out how much of it to make. From there I can work out my supply shopping list and a schedule that means I make a certain amount each week and not all of my inventory the night before a show.

So how much inventory should you make? I base my inventory numbers on my projected sales numbers. How much will you sell? Guess. Seriously, guess. There is no formula for calculating your sales. That said, you can make an educated guess.
If you’ve sold in previous holiday seasons you will have a rough idea, last years sales + 10% (you’ve improved so much!). If you are doing a show you can guesstimate based on your booth cost. Your booth cost should by 10 – 20% of your sales. Using this, if you are doing a show that cost $100 you can expect to sell $500 - $1000. Aim for the higher number.

As for online sales, again, base your guess on last year. Consider how much you’ve worked to promote and market your online store over the past year. The difference between shows and online sales is having to make the inventory before you go to a show.

Once you have an idea of how much you’ll sell you can calculate how much inventory to make.

Let’s say your goal is to sell $1,000. If you are doing a show you should make a minimum amount of $2,000 to take with you. It is very important that you never run out of work at a show. This is a 2:1 inventory to sales ratio.

Let’s break that inventory number down further.
As an example you make the following:

Necklaces $100
Pendants $30
Bracelets $50
Earrings $20

Assume you’ll sell the following:

2 Necklaces $200
8 Pendants $240
6 Bracelets $300
13 Earrings $260

If everybody purchases only 1 item you make 29 sales for a total of $1,000.

Using the 2:1 ratio you should make the following:

4 Necklaces
16 Pendants
12 Bracelets
26 pairs of earrings

Not a lot is it? Hardly enough to fill a table let alone a larger booth. Do yourself a favour, resist the temptation to make a huge inventory to fill the booth. It’s better to get creative with your display. Let’s look at why.

If you are running your costs at about 25% then to make $2,000 of inventory you will pay $500. Now you go to your show and sell $1,000.

Sales $1,000
Inventory Costs $500
Booth $100
Profit $400

All of a sudden that $1,000 doesn’t look so fabulous anymore. Now let’s look at what happens when you go overboard with inventory.
Let’s say you decide that you can’t go to the show with such a small inventory and you make $4,000 worth of work. At 25% costs

Sales $1,000
Inventory costs $1,000
Booth $100
Profit -$100

What???? You actually lost money at the show even though you sold $1,000! Technically you haven’t lost money because you have $3,000 worth of inventory sitting in a box. This will be fine if you are doing a lot of shows. If however you are not doing a show for a while, or are not selling a lot of work online (at least the same as at a show) then you now have money invested in work sitting in a box and no money in the bank.

For this season you need to take a realistic look at where you are selling, how much you anticipate selling and how much you think you should make.

I’m lucky here. I’ve done these shows before, and I’ve sold online last year. I’m adding 20% to my online sales expectations because I’ve worked hard to market myself more and I increased my mailing list significantly. So using my sales goal I’ve made myself a target number for inventory.

I have 9 weeks before my first show, November 15. By that date all my inventory should be made. I took my sales goal and divided by 9. That is the amount of finished inventory that I must make every week.

As to what I’ll make for that inventory, well, I’ll be honest. After 8 years of being a full-time seller I’ll let you in on a secret. I have no idea what to make. What people decide to buy this year is a crap shoot. I’ve talked to many crafters, most of whom have been in this game much longer than I have and they tell me the same thing. You just never know what people will want.

To end this rather long post here’s a wrap up with homework for you.
1. List your sales plans.
2. set yourself a sales goal
3. break your sales plans down into categories
4. break each category down into tasks
5. decide how much inventory you should make and
6. think about what you plan on making this season

Or wait until next week when we talk about getting your website or online store ready for the shopping season.

1 comment:

jen said...

It's so true. Focus on earrings, and your bracelets will fly off the table. Do bracelets next year, and then everyone wants your earrings ;-)