The Business of Craft: Pricing – Cost of Materials

on Oct 6, 2008 in The Business of Craft | 13 comments

First off, I have to say I’m feeling more like writing these days. Not sure what happened over the summer but I completely lost my mojo. Thank you for your patience as I get back on the horse!

I’m going to chat a bit more about topics brought up in the comments from Part I (and I’m ditching the whole Part thing, I don’t have a plan so we’ll just continue this discussion as long as it’s interesting for us both!)

Irene mentioned Wholesale vs. Retail costs on materials. I run my pricing model using retail cost. I was truly amazed the first time I actually sat down and calculated this for a project. Before I did the calculation I kept thinking “I have to figure out a way to buy wholesale in order to make this thing work” or “I need to buy fabric on clearance to keep my costs low”.

Staying with the pencil roll example (remember this is for making 3 pencil rolls):

Exterior Fabric                10 inches           20.00            5.56
Interior Strips                  19 inches             9.50            5.01
Flannel Batting                10 inches             5.00           1.39
Pocket Exterior                 5 inches             9.00           1.25
Pocket Lining                    5 inches             5.00           0.69
Total Fabric Cost                                                        13.90

Colored Pencils                                          2.84            8.52

Total Raw Materials                                                     22.42

Cost of Materials for a single pencil roll: 22.42 divided by 3 = $7.47. Cost of fabric for a single pencil roll: 13.90 divided by 3 = $4.63

I’m using fabulous Japanese canvas and linen fabrics for the exterior of the roll. I used $20 a yard (very much on the high side). I’m pricing out quilting cottons at $9.50 per yard. I use Kona cottons for the lining and flannel batting which I price at $5.00 per yard.

Several observations:

Don’t ever compromise on the quality or beauty of the materials you use in your projects

Run the numbers and you’ll realize you’re just not saving that much by using less than perfect materials. I always keep this in mind and grab the prettiest, most fabulous fabric out of my stash when I go to make something. Ultimately this will make a quality item that stands out from the crowd.

Wholesale vs. Retail Cost of Materials

Sourcing my fabric at wholesale would lower my fabric cost from $4.63 to $2.32. OK, an extra $2.32 added to the profit margin. The level of sales needed to support buying bolts of fabric doesn’t really kick in until the numbers get big. I’m too small to worry about this difference.

If you’re making aprons or some type of clothing item where it’s easy to use up a bolt of fabric I would recommend talking with your local fabric shop. They may be open to allowing you to purchase an entire bolt at a discount close to the wholesale price. I think this would be easier than trying to negotiate these deals with a fabric distributor, most of which require minimums that don’t make sense until you get big.

Overhead

Kristin asked about how I defined overhead. It truly is a thrown dart. I estimated $1 per pencil roll. This theoretically would cover the cost of things like the thread, sewing machine needles, rotary cutter blades, cutting mats.

One of the difficulties I experience in estimating these costs is the blending of a hobby with a business. Whether or not I make things to sell I will have a sewing room with lights, a sewing machine that uses needles, a cutting mat that needs to be replaced.

And goodness, how does one factor in the concept of a fabric stash into the equation? You don’t even want to know what my order from the Fat Quarter Shop looked like to create that table runner for the cover of Quilting Arts. And what about the number of samples I reject for my pattern covers. Those numbers would amaze and confound.

The Practical Side of Tracking Costs

From a tax standpoint I have a single business that includes pattern publishing, magazine articles and selling handmade goods. The fabric shop is a separate operation. All of the costs associated with Pink Chalk Studio goes into the same bucket. I don’t attempt to associate them with individual items.

The fabric cost (gulp, very scary having Quickbooks tracking these things in such a detailed manner) is just one examples of a cost that permeates everything I do. It’s inspiration, development, final product all in one. When I make a personal project I estimate the value of materials and do some bookeeping to pull that out of the business expenses.

I don’t think the practical side of accounting for costs negates the value of developing a costing model for each product sold. I have Excel spreadsheets for my patterns that looks very similar to the pencil roll example. This is a VERY long winded way of saying I add in an overhead number to the cost model but ultimately that overhead gets tracked at a much higher level.