Why Figuring Costs
is Important If
You Want to Make a Profit
Accurate figuring costs requires organized and accurate information in establishing prices which will cover your costs and give you a profit.
Some jewelry designers figure that they are doing fine if they cover the cost of their materials and make a little extra to cover the cost of their time. Their formula for pricing might look like this:
MATERIALS + LABOUR = PRICE
If you don't intend on making any money in your business this formula is fine, but if you want to be self-supporting and make a profit too, then using this formula is totally unrealistic and probably won't even allow you to break even.
A typical situation can be illustrated by the plight of a jewelry designer who produces beautiful Swarovski bracelets. Her cost is six dollars each. She feels that a markup of 50% will pay for her labor profitably.
Thus her bracelets are priced at $9.00 each, and she honestly believes that she has done a good jog of pricing. In fact, the whole arrangement seems great. She produces and sells a lot of Swarovski bracelets from her home studio.
As business volume increases, however, she realizes that she is spending so much time ringing up sales, that she is not producing any bracelets. If she hires someone to handle sales, her costs will certainly increase. If she continues to cope with it herself then her production will go down. At about that time, she realizes that she has not based her prices correctly.
Of course, if our jewelry designer discovered that she did not have customers coming to her home studio, she might consider that the local craft show would be the place to sell her bracelets. Upon reading the entry requirements, however, she learns that the craft show charges a booth fee, as well as rent on a table and chair.
In addition, the jewelry designer has to consider the setting up and dismantling of the booth, transport to and from the show, and breakage as well as her time attending the show—time that she might have spent designing bracelets.
Any price increase that this jewelry designer considers will not be small. Will the radical change in prices mean that her bracelets are so expensive that no one will buy them?
At this point, the jewelry designer wonders how she went so far astray in her pricing. Unfortunately, she started at the wrong point, and many of her assumptions were incorrect. Her original retail price (cost + labour) was completely unreal.
If the purpose of selling your handmade jewelry is to enable you to become self-supporting, it is vital when figuring costs that you clarify all the costs involved in doing business. Which would include cost of materials, labor costs, overhead costs, profit, and selling costs.
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