In the previous section of this workshop, you used this checklist to get ready for turning your hobby into a business. In this step, you'll be selling, setting up your work space and strategizing your day-to-day production. Now you have to decide what on earth to charge. You'll need to cover the cost of materials and your time. And don't forget that your creativity and artistic talents should factor in as well. By doing this step, you'll learn an easy adjustable formula for pricing your wares, based on how much you want to work, how much you'd like to earn and other factors.
Turn Your Hobby into a Home Business Exercise 2: Determine How Much You're Worth per Hour
The easiest way to set a price for your goods that you'll be happy with is to set an hourly rate for yourself
The following exercise will help you arrive at a dollar figure for your time
Now let's determine the actual value of your time.
Part 1: Estimated Salary
How much would you like to earn every month? $_____
Now multiply that number by 12 to arrive at an total estimate income from your business: $ _____
Part 2: Billable Days
Next, using the 365-day year, subtract the number of days that you plan spend on activities like administrative tasks and marketing. This is called indirect labor, since you are not directly producing your product during these times. Most people in this line of work estimate that indirect labor accounts for 20 to 40 percent of their time, which comes out to approximately one to two days out of every five-day week.
Number of days to spend per week on indirect labor: ____
Multiply by 52 for an annual number of days for indirect labor: _____
Calculating days off:
Desired number of days off per year (days per week x 52). This should include any time you don't want to work because you're caring for your children or involved in other non-work activities: _____
Number of official holidays per year such as Thanksgiving and year-end holidays (about 10 is usual): _____
Desired number of vacation days per year: _____
Number of days spent on indirect labor: _____
Number of sick and personal days per year you anticipate needing: _____
Billable Days (subtract total from 365): _____
Part 3: Hourly Rate
Divide the total salary that you calculated in Part One by the billable days from Part Two. This is your rate per day: ______
Divide your rate per day by the number of hours worked per day (around 8 for full-time; 4 for part-time). This is your hourly rate: ______
Now that you know what your hourly wage is, you can determine the real cost of your product. Let's say your hourly rate is $36. If it takes you an hour and a half to make an item, you calculate your labor costs by adding $36 for one hour's work plus $18 for half an hour ($36 divided by 2). Total labor cost of the item equals $54. If materials cost you $6 then to be paid fairly, you need to charge $60 per item
If you think the number that you arrive at for your product is too high, you can reduce it in several ways:
- Think of ways to streamline your production process: Arrange your workspace more efficiently, do like tasks at the same time (review Exercise One in Step One), or even modify the item slightly to leave off time-consuming aspects. If you can shave even 15 minutes off the time it takes you to finish the job, you reduce your working hours and the cost of the finished item.
- Reduce the cost of your materials by buying from a wholesale club or discount store.
- Reduce your hourly wage by taking less vacation or working a little longer each day. The more income-generating time you work, the more you are contributing to your total income goal. Therefore, you can charge less for your items.
The dilemma of what to charge for products or services is one that most, if not all, new business owners face. But keep in mind that when you price your work, you must take into account that you are an artist and people are paying not just for material and time but also for talent. One crafter told us this story: "At one of my Christmas shows, I didn't sell a single ornament. They were priced at $3.95 each. For the next show, I upped the price on someone's recommendation, to $4.95. I sold out! Shoppers have the notion that if it costs more, it must be better."
So while you want to charge a competitive rate, don't sell yourself short. If something isn't selling, poll your friends, family members and other people who will tell it to you straight: Is it too expensive? Too cheap? What pricing schemes
--like two for one, or three for $10 --would compel them to buy?
After you've done the worksheet to determine a price for your products, do a little "market research." That means asking people you know if they would pay what you're asking for your product. When polling your friends, family and neighbors, show them an example of the product. Most people will be flattered that you're seeking their opinion. Also, visit craft stores, local flea markets, fairs and anywhere else you can imagine selling your wares and quiz the vendors and store owners there. And you can get feedback and advice online from women who are already selling their wares on the Crafters' Home Business message board.
Keep in mind that starting a business is not for everyone. You may find that after reviewing the results of this exercise and the time and costs for materials that turning your hobby into a moneymaking endeavor just doesn't make sense. You can still enjoy your hobby. Here are some ways to expand your involvement in your craft:
- Start a crafting club, either online or in your community
- Join a crafter's co-op, where individuals pool resources to turn a profit with their wares
- Organize or take part in an open house with other crafters, where people can come and browse your wares
- Throw a crafting party, in which you teach a group to do your craft for an affordable fee
Next, discover the best places to sell your wares beyond your immediate circle of friends and acquaintances.
Adapted with the permission of Alpha Books, Barbara Arena