Arts ‘N Crafts Business Alliance

Many people have plans to start their own home craft business, one that ideally would replace their outside income with income earned at home. They dream about giving up the commute. They fantasize about working at home, spending more time with their spouse and kids, and having the time to putter around the house and yard.

Usually these dreams and plans come about because the person in question is looking at the idealistic lifestyle of someone who already has an established and successful home craft business. Look at these people! Aren’t they lucky! They don’t have to drive through the snow to get to an office! All they have to do is walk across the driveway and they’re at work!

The trouble with this vision is that the wanna-be entrepreneur is only seeing a “snapshot” of the business-owner’s current success, and they assume it sprang–boing!–effortlessly into being, sort of like those nifty mushrooms that grow overnight on your lawn. No preparation, no planning, just boing. Not.

Rather than comparing an established home craft business to those rapid mushrooms, you should compare it to an oak tree: slow to get started, but sturdy and strong once it’s established.

This should be the pattern for your home craft business.

“Boinging” into business

Go back to those dreams of working at home, of making your income from your own labor, of avoiding the commute, of spending more time with your family, et cetera. These are sweet dreams and there is no way I want to discourage them. I just want to make you see them realistically.

Spurred by these wonderful fantasies, some people decide on a product to make (boing!), quit their jobs (big boing!), use their credit card to purchase the necessary raw materials and tools (boing!), pay rent on a shop space instead of using their garage (boing!), and begin production.

Then comes reality. As I mentioned in my article in the last issue of Countryside (”It Takes Time”), most home craft businesses don’t start out with a bang (or a boing). They grow slowly, like those oak trees.

The folks who “boing” into business are in for a nasty financial shock if things don’t go exactly as they fantasized.

Startup costs

This is all fine and good, but what about the nitty-gritty financing of a home craft business? Where do you get the money for that?

Here is an example of do-what-we-say-not-what-we-do: don’t quit your day job. I’ll expand on this in my next article, but for now I’ll simply leave it at this: don’t quit your day job. Trust me on this.

Now for the bright side: getting the tools and raw material for starting a home business may be easier than you think. Most people don’t just pluck a successful home craft business idea out of thin air. They start the business by expanding an existing hobby, talent, skill, or trade. That means that many times they already have the basic tools or materials or knowledge needed to make the product.

What kind of tools do you need? Will you need a sewing machine, a quilting machine, a bandsaw? If you already know how to sew or quilt or do woodworking, chances are you’ve learned your techniques on your own tools and equipment. Now is your chance to utilize these existing tools to start your home craft business.

Or, alternatively, think of a home craft product that is compatible with the tools you already own. Tools such as a sewing machine or a band saw are versatile and easily adapted to any number of crafts. You might be an expert in making lavender-velvet frammerjammits for all the grandkids, but now you can expand your repertoire by making and selling blue satin nig-nogs as well, which are more marketable and have a wider appeal.

Do you have space on your property to run a business? If you have close neighbors, they may object to loud power tools. (Despite our nearest neighbors being a quarter mile away, we still won’t run our noisiest tools after nine o’clock at night lest we disturb them.) Do you have a shop or a garage or a spare bedroom you can devote to your business? Do you have a computer for billing and Internet purposes? Are you prepared for shipping?

Sacrificing for a reason

Finding the money for a start-up small business is not easy. It’s not supposed to be easy. If it were easy, everyone would be doing it. Like anything worth doing, it usually requires a complete philosophical change from immediate gratification to deferred rewards.

So how do you raise the cash for all the tools and supplies you might need? How about for the advertising, display or show fees, raw materials, etc.? How can you do this without going into debt?

You use the principles of deferred rewards. If you had plans to buy a new (pick one) computer/car/dress/kitchen appliance/vacation trip/ restaurant dinner/lawn mower/ iPod/whatever, don’t. But do take the amount of money you saved and apply it to the business instead.

Have a favorite vice? Buy cheaper cigarettes (or quit altogether) and apply those funds to the business. Or buy your wine by the box instead of by the bottle and do the same.

But whatever you do, make sure it’s a real savings and not a phony one. You’re not saving money by resisting an impulse purchase. You don’t save $50,000 by not buying the yacht unless the yacht was in your budget to start with.

Rather, your choices should be: The old refrigerator is dying. Do I spend $1,200 and get a new fridge with the ice cube maker and water dispenser in the door? Or do I spend $100 at the used appliance store and make do for another couple of years?

Deferred gratification

Even if you’re as thrifty as can be and apply all your spare money toward funding the business, life can get in the way.

When our daughters were small, we called them Shop One and Shop Two. That’s because our workshop at the time consisted of a 10×10 chicken coop. Much of the time, shop work either spilled over outside (in good weather) or into the house (in bad weather). Or, to put it another way, we frequently lived in our shop.

Whenever we were poised to spend the money and build an actual shop–an honest-to-goodness real shop, with room to move around without bruising an elbow on the bandsaw–another “blessed event” would occur and we had to pay hospital bills instead (that’s why we called the kids Shop One and Shop Two). Fortunately we stopped at two kids and were eventually able to scrape together the money to build a proper shop (20×20 feet, palatial when compared to the chicken coop).

However, the five years we spent working in cramped quarters didn’t stop us from expanding our business. Despite the adverse circumstances, our home craft business was still our primary source of income. It just took creativity and a willingness to accept deferred gratification. We didn’t go into debt and build a shop at a time we couldn’t afford it. We waited. Our girls learned to crawl and then walk among piles of half-finished tankards, and for years I did housework around stacks of clamps, mounds of rubber hosing and rubber bands, gallon jugs of glue, and other tools of our trade.

Shrug. It’s a living.

The debt trap

Coupled with the desire to work at home is the frequent wish for instant business success (boing!), an irrational desire to have everything go perfectly from the beginning and to have your business become a rousing success without much effort. Boing.

Yeah, that would be nice. I’d like to win the lottery, too.

However, this little “boing” fantasy is a dangerous trap, because sometimes it translates into a spending spree. You whip out your handy credit card and purchase all the tools, equipment, supplies, and raw materials to make your product. You set your workshop up with Geppettolike beauty and precision. Then you stand back and think, “Okay, finally! Now I can go into business.”

Bad idea.

Don’t ever, ever, ever, ever, ever, ever, ever, ever go into debt to start your home business. Aside from the idea that going into debt is wrong to begin with, there is the very real possibility that your business will fail for whatever reason, and then you’re left with the bitter regret of a failed business and heavy debt to boot.

This is another example of “do what I say, not what I do.” When my husband and I started our home craft business in 1993, that’s exactly what we did: went into debt.

I’ll make some excuses for this, namely that our business was our sole source of income and frequently, in those early days, our modest living expenses outstripped our ability to pay our bills. Sometimes a critical tool (such as the belt sander or planer) would up and die, and we had to order a new one and put it on the credit card because we sure as heck didn’t have the money to pay cash for it. Sometimes a baby was born (remember Shop One and Shop Two?) or a medical accident would happen (like the time Don sliced off the tip of his thumb on the band saw) and we had to pay hospital bills.

Nevertheless, I will never, ever advocate these tactics for the reasons I mentioned above: if the business fails, you’re still saddled with the debt. In our case, it took years to dig ourselves out of the debt-laden hole we dug while getting our business on its feet. Had we properly planned things, the debt (and stress) could have been avoided.

Give yourself time to develop your customer base, increase the speed and efficiency in making your product, and develop your marketing knowledge. Don’t sink yourself into debt getting started because of wishful thinking or misplaced optimism. Obviously you’ll need the raw materials and tools to make the product, but work your way up towards better items as you begin to bring in income.

The lure of debt

Recently, while discussing frequent flyer miles with a business friend, I remarked that we seldom fly anywhere, in part because of the cost.

“I charge all my business expenses on my credit card,” he replied. “That way I earn so many frequent flyer miles that I can fly just about anywhere for free.”

“Hmmm,” I observed. “We never use our credit card for business purchases.”

“You don’t?” he asked, genuinely surprised. “Then how do you pay for your raw materials?”

Now it was my turn to be surprised. “With cash, of course,” I replied. “Or rather, with a check.”

“Everything?”

“Everything. We prefer not to establish credit with a company because we don’t want to get socked with a bill 30 days later, after we’ve used up the material. If we pay for everything up front, it’s over and done with.”

This concept seemed to baffle the fellow, though he agreed it was a cleaner way to do business … even if it didn’t earn us frequent flyer miles.

Credit card companies make it so temptingly easy to get into debt. Just think of all the frequent flier miles we could accrue if only we bought our supplies with the credit card!

But unless you are disciplined enough to pay off that credit card in full every month, this is too simple (and deep) a trap to fall into. And frankly, if you’re financially able to pay off the credit card every month, why the heck are you using the credit card to begin with?

If you like the convenience of a credit card (and are good at keeping track of your expenses), try a debit card instead.

For the small home craft business, it is a far safer and more intelligent proposition to keep your business transactions clean and simple. Pay cash.

Reality check

What are some of the things you’ve heard you’re supposed to do before starting a business?

You must have a business plan. Otherwise you will fail.

You must incorporate. Otherwise you will fail.

You must establish credit. Otherwise you will fail.

You must buy only the best (equipment, supplies, etc.) because quality and facade (how others see you) are what’s important.

Must must must. Why must we do things this way?

In part, it’s because most business advice applies to larger enterprises than a home craft business. If you’re renting office space in a fancy high-rise building in the downtown portion of a large city, then it implies that you won’t be churning out hand-made quilts or wooden tankards with the aid of one employee (your spouse).

But millions of businesses have started modestly, with used equipment, borrowed spaces, and yes, sometimes less-than-quality raw materials (I won’t tell if you won’t tell). There is no better and more satisfying thing than to start this way, because then your successes have been earned by the sweat of your brow.

One of the most successful home businesses we know is a couple who started an oil-and-incense business on a card table in their spare bedroom. Fifteen years later they employ five people, rent a large warehouse, and supply stores all over the country.

Dream big, start small. Don’t do the opposite.

Remember: Bill Gates started in his garage. You can too.

Patrice Lewis is co-founder of Don Lewis Designs (www.donlewisdesigns.com). She and her husband have been in business for 14 years. The Lewis’s live on 40 acres in north Idaho with their two homeschooled children, assorted livestock, and a shop which overflows in to the house with depressing regularity.

Permission to reprint this article is granted.

Of all the basic business concepts that people must learn when starting a home craft business, one of the most difficult to grasp is that your time is valuable. You hear that a lot as a platitude, but this time you actually have to put a dollar amount on each hour you work.

Wow.

When we first got into the business of making wooden drinking tankards 14 years ago, we had a rather naive approach to paying ourselves. In those early days we were so grateful to be selling anything-anything at all-and being able to pay our mortgage and bills, that the thought of paying ourselves some sort of hourly rate seemed ludicrous.

Interestingly enough, so did a lot of other people.

How long can it take?

Now I’ll grant that most people have no idea how long it takes us to make our tankards. One of our most common questions is, “How long does it take you to make one of these things?” My standard reply is, “One takes about a week to make.” (Their eyes will widen at this point.) I’ll add, “Of course, it takes a week to make 100 tankards, too.” I’ll go on to explain the assembly-line production techniques that we use.

My point, though, is that with the drying times between steps for the glue, varnish, and epoxy resin coatings that we use, and including the vagaries of the weather (cool, rainy, or cold weather hampers drying time), it is not a fast and easy procedure to make one tankard.

That’s why we don’t do individual pieces. It is not efficient. It is not worth our time. I cannot count the number of people who, over the years, have asked if we can make them a custom tankard.

“We can’t,” we tell them, “because it would be too expensive for you.”

“Oh, we’ll supply the wood,” they confidently tell us. “Then the tankard will cost-what-S5, maybe?” Honestly, that’s what people have asked us.

“No, the tankard won’t cost $5,” we reply. “The cost of wood in each tankard is negligible. The largest part of the price is paying for our time.”

The number of people who walk away insulted at this idea–that we need to pay us, that we deserve to earn some money for our time–is startling. These people have no idea how to conduct a business.

We are not in this line of work for the sheer joy of making tankards (that’s not gone, but let’s say it’s faded). We are in this line of work to pay our bills and support our family. It’s the same if we were working in an office for a corporation, which would pay us for our time spent at a desk job. The only difference is that we work at home, for ourselves. Surprisingly, some people conclude that this means we shouldn’t be “worth” anything.

What most folks don’t grasp is that the material costs of many home-crafted products are negligible. It’s the time involved in making the product that jacks up the price and ‘earns a living wage for the manufacturer. This has its good side as well: we have been able to avoid raising our prices as high as we might. Despite the increase over the years of material and shipping costs (as well as the general cost of living), we’ve been able to hold the line on a lot of our prices by increasing our efficiency and thereby reducing the amount of time it takes to make our product.

In simpler terms, we make our tankards faster, so the cost to us, and therefore to our customers, is less.

Perfect vs. suitable

Here’s a shocking thing about hand-made craft items–they’re hand-made. Surprise!

Something that is hand-made often has slight imperfections or variation between items. That’s the nature of the game. A hand-crafted item is not stamped out uniformly by a big machine somewhere in mainland China. It is hand-crafted in somebody’s garage, workshop, or sewing room, often one at a time or in small production runs.

We do business with a fellow who has been a loyal wholesale customer for well over a decade. We have an excellent working relationship with Peter, and he represents us at a number of large venues around the country.

However, one year Peter hired on a new manager. This woman was something of a perfectionist. While this sounds spiffy in theory, the truth was that her perfectionism led to unrealistic expectations.

We had shipped 100 pieces to Peter. To our surprise, his new manager shipped about 50 of those pieces back with instructions to re-sand this, recoat that, and generally fix things to her superior expectations.

We called Peter, baffled by his new requirements, only to learn that this had been done without his knowledge. We then got on the phone with the new manager and explained that yes, we can produce Absolutely Perfect Pieces, but for a Far Higher Price. Since perfection (by her standards) would take a hell of a lot longer to achieve, then the price per piece would have to reflect that extra amount of time.

We explained that our prices were mid-range because the quality was too. Our tankards have a three-year guarantee against leakage, and hold hot as well as cold. That’s what people pay for. They look earthy and hand-made rather than sleek and glossy … because people who attend the types of events we do (such as Renaissance Faires) have no interest in paying for that kind of thing.

It took a while, but she finally got the message. She wasn’t happy about it though, and her association with Peter did not last very long because her understanding of the business side of hand-crafted items was not realistic.

Sometimes it ain’t worth it

Along this same line, we sometimes have to stop making a beautiful product because it’s not worth our time to make it.

For example, we used to make lovely solid-wood dome-lidded chests of various sizes from steamer trunks to jewelry boxes. These were popular items, and when we did shows we sold quite a number of them. Eventually much of our business went wholesale, and that’s when the trouble began. A chest that used to sell for, say, $50 when we sold it ourselves, would now have to retail for $100 if one of our wholesaler customers sold it. That’s because the $50 price tag reflected our minimum amount of compensation for the time and materials needed to make each chest.

The chests were worth $50. They were not worth $100.

This happens a lot to us-someone will ask why we don’t make such-and-such any longer, and we’ll have to honestly reply that we can’t make enough money doing it.

We made as much money making trunks as we did making a tankard, but the wood costs were higher, the weight (for shipping) was a lot more, and it took longer to make. When all this is added up, we made just as much money selling a tankard; and tankards can be shipped more cheaply, sold wholesale, and made assembly-line style.

Some things simply don’t lend themselves to a home craft business. I repeat, a home-craft business–something that supports your family and pays your mortgage. Lots and lots of things lend themselves toward a home craft hobby. Please understand the difference between the two.

It’s the time, not the materials

To refer back to an earlier point, the materials cost in most products are not what establishes the price. It’s the time involved in making the product that accounts for most of the cost of manufacturing, especially when the product is hand-crafted.

This is hard for a lot of people to understand (unless they’re on the manufacturing side of the business, that is). So, as usual, I’ll illustrate.

We were approached by a friend who wanted us to make a series of wooden trunks for home storage. Since he was a friend, we figured we’d cut him a deal.

He gave us his specifications, which essentially were that each trunk should be approximately 18″ x 24″ at the base, and about 18 inches high, and made out of solid oak. We priced each trunk and came up with a figure of $100 each.

He was appalled and said it was way more than he wanted to spend. What if we made it out of pine instead? Pine was much cheaper than oak.

We agreed that it was. We repriced and said they would cost $80 each.

He was aghast because at the time, pine was about 1/3 the cost of oak. We had no luck trying to explain that, to a large extent, it wasn’t the cost of the materials that determined the price. Making the chests out of pine took just as much work, effort, materials (glue, nails, etc.), and most importantly, time.

In the end, we suggested he buy what he needed at an Army-Navy Surplus Store.

Set your hourly wage

Okay, we now understand that your time is probably the most costly aspect of making your product. Now you need to figure out how much to pay yourself per hour.

If your product takes 15 hours to make, such as a quilt, first pay yourself an hourly wage, such as $30/hour …

Wait a minute … $30 an hour? You’re kidding! Wow/I’ll be rich!

Hang on there, cowboy. Remember, when you work for yourself, you’ll be paying your own taxes, your own health insurance, your own social security, etc. Thirty dollars an hour often translates to $15 an hour take-home pay.

For the record, roughly, you can double your hourly wage and add three zeroes to get your approximate before-taxes yearly income, so working 40 hours a week at $30/hour is approximately $60,000 a year. Factor in the cost of materials, advertising, packaging, shipping, and then price your product accordingly.

Remember, this is before taxes. It is also before your mortgage payment, your health insurance payments, and other expenses. It also assumes fulltime 40-hour work weeks.

This exercise separates the wheat from the chaff. If you can find someone to pay $500 for your quilt, then perhaps you can make money. On the other hand, if it takes you 80 hours (two full-time work weeks) to make a quilt, your market will be thinner as most people won’t want to pay $2,500 unless it’s a darn nice quilt.

How much does it cost?

There is also a psychology to pricing. If we sold our tankards for $5, we might indeed sell more tankards. However, the unspoken question in customer’s minds would be, “If the product is so good, why is it so cheap?” High-quality needs a price to match. It goes without saying, of course, that the quality of the product must be worth the price.

As our own rule of thumb, we price our items at five times the materials cost for wholesale sales, and 10 times the materials cost for retail sales.

This rule of thumb changes for more expensive items. A cabinetmaker might be able to price his product at twice the materials cost and still make a profit.

But if you are making bead necklaces and your materials cost $2 (costs might include beads, needles, clasps, thread, shipping, etc.), then you can reasonably charge $10 per item for wholesale, and $20 per item selling retail.

We are often experimenting with new products for our home business. How we set prices on a new item involves two parts. The first part, obviously, is the amount of materials cost in each piece. The second, and far greater consideration, is how long it takes to make something. Obviously a piece that slips easily into our standard production run will cost less because the techniques are comparable.

For example, we have a new product (flasks) that are much more complex to make than a tankard. They also require new manufacturing techniques such as laser-engraving, mouthpieces (ugh!), special coating requirements both inside and out, etc. These will have to be priced accordingly because frankly, they’re a pain to construct.

These flasks are also something that we will sell at our one and only retail venture of the year, the Kansas City Renaissance Faire. The reason we won’t sell flasks wholesale at the present time is that they’re too complex to make and not worth our time except at retail prices. That might change as we get more experienced and efficient at making them.

Shrug. It’s a living.

Get it? Got it? Good.

I hope these examples have illustrated why some crafts will work as the basis for a home business, and some crafts should stay as hobbies. If the time involved in making, a single one of your craft is too much, then you won’t be able to support yourself making that craft.

Remember, time on the road selling your craft is also time that must be paid for, either by the customer or by you.

There is nothing wrong with a craft remaining a hobby rather than a business. Far from it. But knowing in advance which is which might save you a lot of time, money, and heartache when you conclude your hobby should have stayed a hobby.

Patrice Lewis is co-founder of Don Lewis Designs (www.donlewisdesigns.com). She and her husband have been in business for 14 years. The Lewis’s live on 40 acres in north Idaho with their two homeschooled children, assorted livestock, and a shop which overflows in to the house with depressing regularity.

Permission to reprint this article is granted.