It’s been a year of adaptation and adjustment for artisans and entrepreneurs, and the holiday season won’t be any different. That’s why we created a 3-part webinar series called, “From Making to Selling: A NextFab Made Online Series for the Makers and Artisans of Philadelphia.” (Listen to the full webinar series here.) In our first webinar, we chatted with two incredibly experienced business minds—Susan and Ken. NextFab member, Susan Murphy, is a professor in Business Operations at the University of Delaware and the maker-founder of local ornaments company, Jawnaments. Ken Tomlinson is our Chief Financial Officer at NextFab and supported our RAPID Hardware Accelerator Program with his investment experience. In our first webinar, these top business dogs gave us simple and effective insight into “Financial Planning For The Holidays.”
How should a small business focus their financial planning?
We all love simple answers and Susan gave us exactly that: The #1 priority for financial planning is creating a feasible price.
Let’s start with business economics 101. If your price is too low, your profit will be minimal. If it’s too high, your demand will be minimal. Business economics 102 focuses on the wider ecosystem. Of course, we know ecosystem doesn’t mean how products look surrounded by green plants and pretty flowers (although there’s a free photoshoot idea for your next Instagram post). What we really mean is how you plan and price in relation to the existing marketplace and competition.
Ken had two key points:
- Determine the value of your uniqueness – the more unique, the more you charge. (Clarification: this is the uniqueness of your product, not your quirky personality or alternative sense of humor).
- Understand your unit economics – identify exact inputs and outputs for a single item. Circling back to those pretty plants, you would determine how much the seeds cost for each veggie vs. how much profit you make when they’re ripe and ready to be sold. What money went out from making it and what money came in from selling it?
Susan’s top tips are:
- Remove yourself from market research. You need true honesty to make this an “eye-opening experience.” Reach out to as many people as possible for feedback on your product and pricing. The more opinions the better, so think about creating a survey to share or do some Google searches to find if there is already existing data for your market.
- Prepare for hard truths. Some won’t see the value or appeal of your products. This honest research is free to conduct and shows if your value proposition is recognized.
- Know your priorities. The profits from Susan’s handbag company would’ve been higher if she outsourced manufacturing abroad; however, keeping her brand local was more important than profits (#PhillyLove). This locality was also part of her unique value to customers.
What does an actionable pricing plan look like?
Susan explained, “A sustainable price is one that considers the scale of production such that you are making profits that grow over time.” Buckle up my friends, we’ve entered business economics 103. Here are the course conclusions:
- Know your variable (materials and packing) and fixed (insurance, rent, lawyers) costs before deciding on a price.
- With a strong awareness of these costs, you can make a profit margin that suits you and your needs.
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To discount or not to discount, that is the question.
Everyone is prepared for the Black Friday sales and pre-Christmas discounts from retail giants. As small-batch producers, are discounts really beneficial to makers? Both Susan and Ken believe promotions are more beneficial than discounts. Only put handcrafted products on sale if necessary. Offering discounts when your income is stable is like switching from a steady table saw to a wobbly hand saw when the table saw was working quickly and effectively. If the table saw is working, why switch to something more challenging? Similarly, if customers are happy paying full-price, why offer a discount? By discounting unnecessarily, you may disappoint those who paid full-price and discourage others from purchasing outside of sales. Promotions, like “buy 5 get one free,” encourage larger orders and don’t bring any negative reputational impacts.
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How do you make an actionable plan on selling?
Craft fairs are the traditional selling spot for many artisans, and for good reason. Susan’s top tip for this was to not just go for the sake of going. Be aware of the total cost of attendance in relation to your likelihood of sales.
Add up fair fees as well as travel, staffing, and supplies costs and use it to determine how many products you need to sell to break even (or make the desired profit.) If it looks like you’ll need to sell more products in a day than ever before, you might want to pass on this fair. Since many of the craft fairs have been canceled this year due to Covid, invest the time and money you would’ve used into online marketing strategies or other selling routes. (Side note: We dive deeper into the topic of selling without craft fairs in our second webinar of the series. Go give it a listen!)
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Some final top tips on pricing, forecasting, and advertising.
- Break down your materials into the smallest quantity you can when determining costs—like literally into inches.
- Use materials in a strategic way with exact measurements to increase efficiency.
- Create a forecasting model that documents what you sold, when you sold it, and how much you sold it for. This shows which circumstances are most profitable and why.
- Find local Facebook groups to post your products, especially if it’s locally-sourced or specifically designed for that region. For example, if your products would appeal to sports fans, think about hitting up some Philly football or baseball fan pages for a VERY enthusiastic bunch!
- Approach places to sell or advertise that you like to shop at. You never know, some of your favorite places might be happy to put your products on their shelves!
- If you are careful and selective in your marketing, you shouldn’t have to cough up many pennies at all.
- Use last year’s numbers to forecast for this year, but be adaptable as circumstances change.
- Set up processes that will allow you to be more efficient when your sales unexpectedly spike. The shop staff at NextFab have helped small businesses to set up jigs and utilize our CNC machines, such as our ShopBot and laser cutters, to help mass produce parts of products. These makers are prepared and ready to respond to changes in demand!
- Listen to the podcast “Business Wars” to hear some inspiring stories and get some other financial planning tips.
This webinar gave great insight into the financial side of business planning and showed how to stabilize economics in these uncertain times. To learn more about planning, promoting, and selling during the pandemic, listen to part 2 of the “From Making to Selling” series!