Market places like Etsy and Hyena Cart have given SAHMs (stay at home moms) an amazing opportunity to explore their talents and create a micro-business. But over the years, the exhilaration of looking at unique products on Etsy has turned into despair when I look at the dismal prices sellers are charging for some stuff. I have done enough business and assessed even more opportunities to recognize when somebody is turning a REAL profit on their business and from what I see, most people aren’t even close to breaking even.
Let’s get to the point directly. The only way you can stay in business is if you MAKE MONEY. If you are not making a profit through your business, you should not be doing it, at least not for long.
Now I understand that you cannot start raking in cash as soon as you start your venture. But if you keep these few points in mind, you can ensure that you will make money in the long run.
For the purposes of demonstration, I am going to randomly assign that you make receiving blankets at home and sell them on Etsy. I just recently diverged the product line at Lil Helper from cloth diapers to other baby products like receiving blankets, change mats, and crib mats, so these items are in my focal point.
Illusion of Profits
Say you found a piece of flannel on sale that cost you only $5/yd at your local fabric store. It’s a steal, as the regular price is $8/yd.
You make a receiving blanket out of that flannel and sell that on Etsy for $15.
You charge another $4 for the actual shipping costs, thus you make no money on the shipping.
On paper you make $10 profit on the sale ($15-$5=$10), considering that the cost of thread to finish the edges is negligible and you already own a sewing machine. Subtract from it the 3.5% transaction fee and $0.20 listing fee that Etsy charges. Plus, an average of 3% + $0.25 processing fee that PayPal/Etsy charges depending on the checkout mode.
You are left with: $15-($15 x 0.035)-($0.20)-($15 x 0.03) -($0.25)-$5 = $8.60.
Actually, even this is NOT your actual profit as I will demonstrate.
Time = Money
Most entrepreneurs, and this is mostly true of WAHMs (work at home moms), do not include their time in the cost of products when pricing it.
Let’s look at the time you spent making the blanket, from procuring the raw materials to selling.
Time to travel to and fro from the fabric store: 0.25 hours
Time to cut the fabric and mark it up for stitching: 0.25 hours
Time to stitch: 0.1 hours
Time to photograph the product: 0.1 hours
Time to load it on Etsy with proper descriptions and tags: 0.1 hrs
Time to market the product through Facebook and Treasuries on Etsy: 0.2 hrs
Time to respond to typical customer questions: 0.1 hrs
Time to package the product for shipping: 0.1 hrs
You spend at least 1.2 hours (approximately 1 hour and 15 minutes) on making the blanket, assuming you don’t have to travel to the post office to drop-off the product for shipping.
How much is your time worth?
When I am talking or giving advice to an entrepreneur, I typically take $10/hour as the cost of their time. Now this is ridiculously low, I know, but it is the least amount of money you should earn in any business you do.
Also, I equate it to the wage you would earn if you were working in a fast-food chain or Walmart, places of employment that you could get a job without any particular qualification. This is also a mode of income that is most readily available to anybody in the western world.
How much does the actual product cost?
The cost of the actual product is not only the cost of materials, but also the time spent on making, marketing, and shipping the product.
Fabric cost: $5
Cost of labour: 1.2 Hours x $10/hour= $12
Total Cost of product is: $17
So if you sell it for anything less than $17 you are losing money.
Theoretically, if you sold a product that costs $17 for $15, you would make more money if you just didn’t do anything. Basically, if you just sat in a corner you would not lose the $2, thus be ahead.
How much should you charge for your product?
The purpose of a successful business is to grow sustainability over time and allow the business to support you financially. If you are losing money from day 1, then you will never be able to sustain yourself in any meaningful way.
One of my mentors told me that if you do not have a mark-up of at least 50% then that business is not worth pursuing. Now, the 50% is just an arbitrary number but if you kept that as your minimum mark-up, the blanket should be priced at:
Selling Price= 1.5 x $17 = $25.5; you could round it up to $25.
Now your profit on each transaction will be: $25-($25 x 0.035)-($0.20)-($25 x 0.03) -($0.25)-$5-$12=$6.
Once you pay yourself a fair wage and have enough money leftover in the business, you are building capital, which will allow you to buy fabric in bulk, thus bringing down your expenses and saving time. The ~$6 ($25-$19) left in the business after each transaction will allow you to grow your business.
Also, paying yourself will ensure that the business can support an employee, if the business grew to a point where you wanted to replace yourself with another seamstress and you can take on the role of management or starting a different venture.
Basically, it will allow you to work efficiently. At that point, the business has enough money to sustain itself and support you.
Let me know if you are charging enough money for your product to ensure profitability. If you sell a product on Etsy, Hyena Cart, or any other marketplaces, what are some of the challenges you face and is there anything specific that you would like to hear me discuss?