You've just worked a full week in the day job. It was a full on week with highs and lows. At the end of the week your Boss informs you that due to doing such a great job, all your wages for the week will be given back to the company and you have to organise the administration of this. There is no room for protests; you simply have to lump it.
Ok, this is a pretty horrid scenario, isn't it? No one would stand for this...would they? Well, you'd be surprised. Many of us in the craft world do. When underselling our designs, we literally give them away for free or work for nothing. Not only that but we're also undercutting all those hard working designers/crafters/makers who do this to pay the bills. That's not good karma, eh?!
Ok, if you're with me, I'll get down from my soap box and talk numbers and formulas. Don't worry we're not doing multiple equations, it's all easy peasy but do have your calculator at the ready if, like me, your mental arithmetic is a little dodgy.
Right, there are two key areas, which I'm going to focus on: pricing your products and tax.
Pricing your products
There are many methods available for working out how much you should charge but each of those formulas pretty much all have the same ingredients, so you might find one that suits you better but this is the formula I follow.
Baseline Costs + Time (hourly rate) + Marketing = Wholesale Price
Baseline Costs + Time (hourly rate) + Marketing x 2 = Retail Price
Your baseline costs include all materials used to make your product. And I mean everything! For example, don't forget to add in a small percentage of things like glue. You might only use a little bit but you still paid for the glue to use on your product. Also, if you've purchased a tool or machine to make your products with, take a very small percentage of that and add it in. Why? Well, as your business moves forward, you may need to purchase additional or new tools and without those tools, the product couldn't be created. And remember to include the cost of the jiffy bag/parcel you're posting your products in.
Now, figuring out your hourly rate may seem like a tough one but remember, if you want your business to pay the bills and ooh, maybe be a full time profession, then you've got to pay yourself properly. I'm not talking bankers' bonuses; my point is simply to be fair on yourself and to also be realistic. I pay myself the hourly rate I get in my day job and over time give myself a pay rise, like you would expect in the day job. This isn't being greedy, it's being serious about running your own business.
Marketing is all the effort you put into promoting your product. From tweeting about it, letting your Facebook fans know about the latest design, to all the time spent photographing and uploading your product into your online shop. It's a lot of hard graft, so the time spent doing this should always be included. The key thing to remember in this part of the formula is that you only need to take a percentage of this. For example, if you spent an hour photographing, uploading and sharing your new design on social media sites, then you end up selling this one design to 60 customers, then you've only spent 1 minute marketing each of those 60 items sold. This can be a tough one to work out as you don't know how much you'll sell, so it may come down to guess work to start with but over time you'll have more stats to work this out properly.
By adding up your Baseline Costs, Time (hourly rate) and Marketing, you have your wholesale cost. When you multiple these by two, you have your retail cost. Now, a word of warning. Don't panic if you see the figure and think that's too expensive because it's not. This is how all retail shops do it - the multiplying of the baseline costs etc. Some multiply by more but from what I've gathered, never less than two. But why multiply? Well, you want your business to grow and move forward don't you? To do so, you have to spend and the only way you can do this is by making a profit. That's how business works!
Ok, we're nearly there, just two other costings you must factor in: packaging and postal costs.
The cost to package your product can either be added on top of your retail cost, e.g.:
(Baseline costs + Time (hourly rate) + Marketing x 2) + Packaging = Retail Price
Alternatively, you could give your customers the option of gift wrapping at an extra cost. For example, all your products could come wrapped in tissue paper for free but your customers could also have the choice of a more bespoke gift wrapping at an extra cost. To work out the cost of your bespoke gift wrapping, simply add up the cost of all the packaging used and I mean everything! If you've wrapped the box in ribbon, then add that in too. If you're going to opt for tissue paper and baker twine, then make sure you add this in to your retail price.
Postal cost is very straight forward. It's the cost to post your product. To start with I made up some example parcels of all my products, went to the post office and asked for the price to post in the UK and internationally. I now have an electronic posting scale and an official Royal Mail postal guide, which is one of those big ruler type things that identifies whether the parcel is a large letter or parcel. This allows me to work out the cost from home, which is especially useful if I'm designing a new product that is a completely different size.
And that's how I work out my pricing! Grab yourself a cup of tea if you haven't already and we'll move on to tax!
Yeah I hear ya', tax is urgh on top of urgh but actually, this section is a lot shorter.
Firstly, get yourself registered with HMRC for self assessment asap. It's very straight forward. You're given a unique code and some login details, then all you do is fill in each page of the self-assessment form online. You can save it as you go along and do it in stages, so you can easily come back to it. When you've finished, you simply submit it and you never know, you might get some money back!
The one bit of advice I would give for self assessment is to be super duper organised with your figures - your out-goings and in-comings that is. Basically, record either in a spreadsheet or good ol' pen and paper, every time you make a transaction related to your business. For example, if you buy a new sewing machine for the purposes of making your products with, then record that cost in your out-goings. When you sell a product, record that in your in-comings. As you will see when you log in, the self-assessment form breaks your out-goings down into sections, such as supplies, travel costs, electricity and so on.
If your keen to be even more super duper organised, once you're registered with HMRC, log in and have a look at the form for all the categories used relating to out-goings. Now plug these into your spreadsheet, so that you can easily put any money spent into the right category. I know, I know, this sounds super boring but seriously, I'm speaking as someone who's learnt the hard way. Yup, on filing my tax return, I had to work all these categories out from a pile of receipts. If any of you watch Black Books and can remember the scene where Bernard Black goes to see his accountant with a pile of receipts in his pocket, this was me the first time I filed my tax return. It really wasn't fun; so seriously, get organised before your file your tax return, then most of the hard work is done for you.
And that's it! I truly hope this helps and remember, I'm writing this as someone who is still learning, so I'm sure there's plenty more advice out there but maybe this will give you a starting point.
If you have any questions or any advice, please do comment below.
Source of calculator image: Colouring Pages 101.