Every Christmas my friend (let’s call her Karen) makes
truffles. Really, really, really good truffles. The sort of truffles that we
dream of all year round. Truffles so good that the recipients beg her to sell
them, “you should go into business making truffles!” they cry as they devour
those delicious little morsels.
I’m sure you’ve heard this cry too from your friends and
family. You make something that is really good, everyone loves it, and they are
sure that you should be in business. And why not go into business doing
something you love? Just think, you could make your art/craft/truffles all day
long!
Fortunately Karen is smart enough to do a little thinking
before setting up as a truffle maker. First she calculated how much it costs to
make each truffle. As these are gifts she uses the best ingredients to make the
best truffles she can. You can taste the difference. It means that the truffles
are expensive to make. Each truffle costs her $2.50 to make.
Second she looked at what people are charging for truffles.
High end truffles sell for $2.50 - $3 each.
Third, she calculated how much profit she could make per
truffle.
Income – Expenses = Profit
$3 - $2.50 = .50
Now, she is buying her ingredients at retail cost and if she
were making these as a business she could cut the cost by buying in bulk at
wholesale prices. She thinks about using cheaper ingredients but decides that
they just taste cheap. She investigates wholesale costs and reworks her
numbers.
$3 - $1.50 = $1.50
Hm, the $3 truffles at the other truffle store are a lot
more varied that the truffles she makes. She decides that she will sell her
truffles for $2.50.
$2.50 - $1.50 = $1
OK, so if she buys her ingredients in bulk, she can make $1
profit per truffle.
Now Karen isn’t an extravagant girl. However she does have a
mortgage and does need to pay her bills. To live a decent life (and replace her
current regular secure paycheque) Karen needs to make $750 per week. So Karen
needs to sell 750 truffles a week.
Oops, see a problem? There are all sorts of other business
expenses other than the cost of making the product. Karen will need to rent a
commercial kitchen, have packaging, marketing costs, a car to deliver the
truffles and buy space at food shows. Adding in all these Karen realizes that
she would have to sell 1500 truffles A WEEK to make a living. That is a lot of
truffles. Making them would take a lot of time and then there is that little
issue of actually selling that many. How, she thinks is she going to sell 1500
truffles every single week of the year?
When faced with even preliminary numbers Karen decides that
much as she like making her truffles it is not a viable business. When her fans
holler for her to start a business she asks them if they are willing to buy
1500 truffles a week.
Just because you can make something awesome doesn’t mean
that you should turn it into a business. Do your numbers before you quit your
job.
Here’s your homework. Somewhere in your brain you have a
number, the amount of money you would like to make from your business. I know
we’ve talked about how this is your art and your creative soul and you do this
for more than money.
Reality check is that money is not dirty. It is necessary
and if you are to stay afloat as a business you need to make some. I know that
not everyone is talking about making a living wage from their craft. Some want
to cover the costs of their creative passion so that they can make more, and
some want a lovely 4 month sailing vacation.
Take your number. What is your profit per item that you
sell? Average this out. Now divide your number by your average profit and
that’s how many things you need to sell.
How does that number feel? Doable? Is this realistic?
Ask yourself this: do you want to make that number of pieces
of your work? Every single month. If the answer is no, that’s fine. You have
made a well thought out, informed decision. If the answer is yes, then let’s
get down to running a successful crafty micro business.
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