Saturday, September 29, 2012

The Business Chat - ho ho ho part 2

‘tis the season! The season to make money that is! Yippeee!!! Retail is a fickle business, it’s inconsistent, unpredictable and persnickety. But the one thing you can count on is that people will buy gifts during the next 3 months. So buckle down and get ready.

First you have to think about what you’re going to make. Then you decide how much of it to make. Then you get down to work and make.

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.

As the holiday season approaches most of your customers are buying gifts. When buying gifts, people are looking for smaller items, smaller meaning cheaper. Most people are buying long lists of items and are on a strict budget. Having a variety of price points helps your customer. They may be looking for one special item at $100, 3 items for $50 and 10 items priced under $30. The more choice you can give them the more sales you will make.

If you design holiday-specific items (Santa hair clips anyone?) now is the time to bring them out. Don’t wait until 2 weeks before the day.

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 with shows you have 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’m signed up for 3 shows and all of these are repeat shows. I also sold online for the past several years so I can track my sales. 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 6 weeks before my first show, November 7. By that date all my inventory should be made. I took my sales goal and divided by 6. That is the amount of finished inventory that I must make every week. For me “finished inventory” means the item is completed, in a bag with a price tag on it.

As to what I’ll make for that inventory, well, I’ll be honest. After 9 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 post here’s a wrap up with homework for you.
  • list your sales plans
  • set yourself a sales goal
  • think about what you plan on making this season
  • break your sales plans down into categories
  • break each category down into tasks
  • decide how much inventory you should make

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