Starting Out?.. Some Thoughts.

[VanDutch]

Hey guys..

Let me preface this by saying this really only applies to people who run their leatherwork as a business. Having spent a lot of my corporate life as an Accountant and Business Coach and establishing a number of successful businesses hopefully I can pass on some of my past experiences etc...

Moving along.

Firstly, I believe it is vitally important to find a niche market. By that I mean don't think that you can make it cheaper unless your prepared to gear up for high production. We can never compete with cheap labour countries etc. Find a sector of the market that isn't being supplied. Not easy. Do your research. For example talk to lots of people about what they buy, why they buy, attributes that influence their decision making. Sometimes talking to retailers is a great place to start. Often they will tell you what is selling and why.. also they have insight into what people will buy that is not currently being produced. For example they may say that people are looking for such and such in a different colour, bigger, smaller, more features.

Now you have found your niche market and decide to toss in your secure job for the life of a craftsman. Congratulations at least you have the guts to do what most people only talk about. Remember there is no security..only opportunity.

Pricing... This is often one of the most perplexing decisions for a new businesses. Warning... Don't compete on price. You will go broke. If you're producing an item similar to an existing product then you should base your pricing around that. Maybe you can add 10% because yours has extra features.

NO 1 Rule: Don't undervalue your time.. Unless you have other sources of income etc... You have to pay yourself. You need to live.

Maybe your product is unique in the market.. How do you price it? Will you be too expensive.. I know there has been lots of discussions regarding pricing but lets look at some figures.

Lets say you need to earn $50k per year.

Your overheads (elect, heating/cooling, vehicle, insurance, printing/stationary etc) is $20k per year.

Thats $70k without selling anything.

No of weeks of work = 48

Hours per week = 40

Total hours per year = 1,920

Your labour & overhead per hour = $36.46.

Now you produce XYZ item.

Direct materials cost = $45.00

Labour x 3 hours @$36.46 = $109.38

Total cost per XYZ = $154.38 That is your selling price/Retail price. How does that compare in the market place?

Therefore you need to make and sell 640 XYZ units per year to meet your sales target.

How are you going to sell that number of units per year. This leads us to how you will market your product.

Retail or wholesale?.. Each has it own unique advantages & disadvantages.

Retail. You are solely responsible for the marketing and sales of your product. Do you choose an ecommerce website?, craft markets or open your own shop. Retail gives you more profit per item but requires you to ensure you meet your sales target...

Wholesale. Your customers (Retailers) are the ones responsible for the marketing of your product. All you do is supply them.. Wish it was that easy. They will want wholesale pricing on your product. You need to sell to them at say $80.00 per item. at $80 per item and selling 640 units means your profit/salary just took a big hit unless you want to work 80 hours per week. This is the reality of selling wholesale..

Question is.. how can you ensure you continue to make your target profit. What can you do?..

Value add your product?.. new features so you can charge more.

If you analyse your costs you will note that the labour component is your biggest cost. Can you look at ways to reduce from say 3hours to 1.5 hours per item?.. Maybe machine stitch instead of hand stitching... negotiate better deals with your suppliers.. buy in bulk.

Enough ranting for now..

cheers

Frans

Edited March 22, 2014 by VanDutch

[Wishful]

Good analysis.

[Lobo]

Excellent post.

[Redochre]

Excellent post..... Does leatherworker have a thank you button?