Friday, March 4, 2011

Consignment Conundrum: Suggested Retail Price

For my Facebook Followers and Twitter Peeps (Yes, I’m now on twitter @TheSilverHookca), you may have noticed that I’ve been having daily goals this week. Over the weekend I received two substantial consignment shop orders and an Etsy order. I needed to be accountable, so I have been publicly stating my daily goals along with updates. I’ve also finally finished my consignment/wholesale catalogue (if you are a retailer, and would like a copy, please send me a message!). With consignment and wholesale on my mind, I thought I would add a blog post on figuring out the Suggested Retail Price. I want to run a transparent business, and this is my process.
SDC16556

Business or Hobby?

I love crocheting, and designing. I enjoy selling. There is a strong sense of pride and accomplishment that comes from the success of selling your creations that I could never find in traditional employment. I crochet as a career, not as a hobby. Financially, I’m not yet there. Finding information and support can be difficult. It’s has taken an adjustment period for my husband, friends, and family to take my business goals seriously. And some days I have doubts. I am financially dependant on my husband, but my sales increase each year and my business is growing organically.

The Silver Hook is a business, not a hobby, and I have to treat it that way. I need to charge a living wage for my work. I know of so many crafters and artisans that once expenses (materials, overhead, advertising) are subtracted, they make much less than minimum wage. They undervalue their skill, and think that if they price low, they will sell more (see this previous post). But this is not always the case. I am a skilled artisan. I have been crocheting for over 20 years. I spend hours researching and improving my skills. And I have trouble charging minimum wage (I’m a super frugal person), but I think that I specialize in a trade, and should earn more than if I flipped burgers.

For those ethically inclined, selling your work at less than minimum wage hurts the industry. Just like buying products that are cheap, but the result of child labour or horrible labour laws hurts our local economy, communities,the environment, and people. I live on the East Coast of Canada and many of my childhood friends and relatives have had to find work “out West”. Why can’t they find employment here? Because people are cheap and greedy and don’t think about the impacts of their shopping habits.  Quantity is more important than quality and what that represents. We outsource our products and services. Local  and national producers cannot compete with the mega-stores prices (which barely pay minimum wages, discourage unions, and buy from places with bad labour laws). I could rant about this all day, but I think my point is made: Support Local!149244_158877454153775_149003381807849_256704_2567382_n

Consignment vs. Wholesale

First thing – what are these? The main difference between consignment and wholesale is when you get paid. Most artisans prefer wholesale but there are few stores that actually buy this way. For wholesale, you are paid when you supply the product. Your pay is not dependant on your sales. Many wholesale stores will specify what they want you to supply. Once you product is delivered, you never have to think about it again, mostly. I personally insist on excellent customer service so do offer a couple of times a year to buy back any products that are not selling. I feel this builds a strong relationship. For consignment selling, you drop off your products, usually fill out or provide an inventory sheet (be sure to get this signed!), and wait. Payment only comes for items that have sold. No sales = no money. This is a much safer option for stores, hence why it is more popular. Think of it as lending your products for sale. If they do not sell, you can have them back. I often let the owner request the items, however, I will also take requests. For some stores you maybe able to begin with consignment sales then transition to a wholesale arrangement.
The Silver Hook at CarreFour Atlantic Emporium

Step 1: Base Price

First, you need to figure out your base price. How much do you want to make an hour? What are your material costs? If it is at all possible, figure out roughly how much material you use per hour. It makes everything much more simple. For what I do, yarn and stuffing are not super expensive. The main cost for The Silver Hook is time. I pay myself $12/hr (includes materials). Yup, it’s not going to make me rich, however I am happy to work from home and have a very flexible schedule.
Second, you need to time how long it takes (without distractions) to make a piece. A few times each year, I re-time all my products. I am always tweaking patterns, and my crocheting skills are always improving. I make three of an item and pick the average time and round up to the nearest 5 minutes. The base price (calculation below) is the minimum that I must be paid for my work. I will not charge less than this amount. Below is the calculation. You can insert whatever your hourly wage is in place of $12. Or, if materials are expensive for you, you can view this equation as determining your Time Cost and to that you can add your Material Cost.
base price
My Base Price is also my wholesale/consignment price. For wholesale and consignment stores, I am not paying any sort of overhead, I am not employing staff, I am not paying insurance. I am happy to charge the base price, since my only responsibility is to supply the product.

Step 2: Suggested Retail Price

Why I am concerned with suggested retail price and not a set retail price? Simple. My only concern is that I am paid my Base Price. Each store has its own operating costs which they need to cover. They also know their cliental and how things will sell for them. As a producer, and for a lack of tact, this is not my problem. If I wanted to deal with these issues, I would open a brick and mortar store. Many stores like to have a 60-40 split. This means that the artisan receives 60% of the retail price and the store keeps the other 40%.
We are working with percentages. If you add 40% to your base price and call that your retail price, you will not be paid your base price. For example, say the base price is $100. Add 40%. This gives $140. The store will pay you 60% of $140 or $84. This is no equal to your base price of $100! You are losing $16! Here is the formula you should be using. I figured this out using equivalent fractions (Thank you Ms. Dixon, my chemistry teacher from high school for drilling us on how to balance equations!).
retail price
You can substitute the 40/60 ratio for whatever ratio the retail store wants. People have all sorts of ways of figuring out their Retail Prices, and this is just my method. It is very basic and a good starting point. You may need to alter this base to suit your own business needs. I use the 40/60 spit for my Etsy shop (I believe that online you should not undercut your stores, however from time to time you can use promo codes) and at craft shows where the table fees are high. However when I attend the local market or school fairs where the overhead costs are low, I will decrease this ratio.

Best of Luck in All Your Selling Endeavours,
Susan

7 comments:

  1. so if you had an item that took 1 hr to make, with a $12 base price then you multiply that by 4/6 and add the base price = just under $20, right? Just checking my math skills. LOL

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  2. Thanks for the post! I found it really helpful. I'm trying to turn my hobby into a business, and I know I have a tendency to under price my stuff, because I'm afraid they won't sell if I sell them for what they are actually worth. I'm going to start using your equation and see what I come up with.

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  3. Hi wrchili!

    I had the exact same fear about increasing my prices. I hated doing it (and still do). Would my customers be insulted? Would I lose my sales? Is my work really good enough?

    But I slowly began increasing prices on one product at a time...and my sales increased. Every year sales for me have increased. I haven't lost any repeat customers - in fact they were very supportive. I still get the rude comments about my prices, but I heard them even when my prices were dirt cheap.

    Good luck!
    Susan

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  4. Thanks for the formula for consignment! I always struggle with math and that was just what I needed. I am struggling too with giving my items the proper retail value, and it is so hard to compete with price expectations because of bargain bin pricing from China. Everyone wants something cheap, but I am learning to value myself and my work. Thanks for the great post :)

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  5. Hi Antolilly

    Thanks for checking out my blog. While some people are most concerned with the overall price of an item, there is a definite growing community of people that purchase with other goals in mind (supporting smally business, supporting good labour conditions, supporting handmade, supporting local, etc). People also judge quality based on the price. So while it may feel odd (and you may get some rude comments) to charge a fair price, your products target customers that are more interested in buying quality.

    I'd also recommend selling through Etsy.com - it is a great place to find your customers.

    Susan

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  6. Very stimulating blog commentary… definitely something to think about =). Thanks for sharing this.

    Easy consignment

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