August 29, 2016

7 Reasons Handmade Businesses Lose Money

At the beginning of every business I’ve started, I’ve bent over backwards for my customers. There’s nothing wrong with caring about your customers and their happiness but just as the airlines advise you to put your oxygen mask on before assisting others, you need to take care of your business and happiness first or it will lose money.

 

There were several things that wore me out with the handmade businesses I have moved on from. And in particular, these were the top 7 areas I would have been a little less flexible in.

 

Handmade businesses tend to be really accommodating with their customers. Sometimes to the point they lose money and don't realize. Here's what to watch for

 

1) Custom orders

Imagine walking into The Gap and saying to a sales associate “I really like this top, but can you make it in a yellow and just remove this pocket and maybe make it a bit longer in the back?” Do you really like the shirt or do you like your version of the shirt?

 

You are the designer in your business and if you’re making products to sell as is, then shoppers should either take it or leave it.

 

If they wanted to make an alteration to an item they purchased at a major retailer, they would have to take it somewhere else and pay extra.

 

The business would not lose money to alter a product they could sell as is to the next person.

 

Your business may rely on custom orders and personalization to thrive (if so, I hope you’re charging properly for this service). But if you make products to sell as is and have a system going with your patterns/designs and materials, I would encourage you to think about whether or not taking custom orders is going to cause your business to lose money.

 

If customization is a service you want to offer, then consider how much extra time and materials it takes to alter your handmade products and charge accordingly.

 

I dealt with all kinds of customers and am grateful to anyone who supported my business over the years. However, there were a couple I ended up resenting, all because I couldn’t say no, which caused me to lose money.

 

In particular, I remember one custom order I accepted that I almost instantly regretted. This customer was not shy about telling me exactly what they wanted and getting the most bang for their buck. They not only wanted a different material and color than I offered, they wanted the handbag in a different size and shape…..and “maybe a couple extra pockets?”

 

I had to make an extra trip to the fabric store and take photos of the fabrics I thought matched what she was looking for. Then go home, email the photos and make another trip to the store once she chose the fabric she wanted. That’s a lot of time spent running around for one sale. I also had to alter the pattern to make a smaller version of a purse I offered and spend extra time figuring out the new design.

 

In the end I was left with extra fabric I had no use for (it didn’t work with any of my existing collections nor was it anything I would build one around in the future) and a pattern I wouldn’t use.

 

It was my fault. I should have had clear policies and prices ready to go to be sure I wouldn’t lose money if I accepted them. Or decide not to accept them at all. It’s not a system that will work for every handmade business but if I had to do it all over, I wouldn’t accept custom orders.

 

You’re in business to make money and it’s your job to ensure that each sale is profitable and won’t cause you to lose money. Customers don’t think about the added effort or cost, they’re just interested in getting something that suits them. It’s up to you to draw some hard lines in the sand when it comes to what can and cannot be altered for custom orders.

 

2) Discounting prices

What do you think would happen if you went into your favorite big chain retailer and said to a sales associate “I want to buy 2 of these, can I have a discount?” or maybe “you guys are about to close, can I have a discount?” They would likely laugh in your face and then laugh later when they told all the other sales associates the story about the absurd customer. And they bring in millions of dollars in a year! Why should your small business be expected to offer random discounts?

 

My advice, if you want to discount your handmade product, is to run promotions, just like major retailers do. Schedule sales at the beginning of the year and decide when discounts will be offered instead of randomly handing them out when you’re put on the spot and running the risk to lose money.

 

If you want to be able to offer discounts on the spot, set your percentage beforehand. For example, your friends & family rate might by 25% off or discounting for bulk purchasing may warrant at 10% discount.

 

Whether you schedule your promotions or offer them randomly when they’re asked for or when you want to, be sure you factor the price reduction into your prices. If you haven’t priced your handmade products properly to start, there won’t be any wiggle room to offering discounts, or you’ll be losing money to please a shopper.

 

That was a mistake I made in the beginning; I priced my products based on what I thought people would pay, not what they were worth.

 

I wasn’t concerned about my time and didn’t put a value on it. I simply looked at the cost of my materials and ignored any other fees I had to pay for tools, events or listing/transaction fees. (If you want a closer look at the costs you should be accounting for, have a read over this article: HOW MUCH PROFIT DOES YOUR HANDMADE BUSINESS REALLY MAKE?)

 

I again, didn’t have a policy on giving discounts. Plus, I’m horrible at math. So if a customer said to me “If I buy all three of these bags, would you give them to me for $100?” I’d probably say yes and realize after, that at that price, I barely made a profit.

 

This is where having a calculator on hand is…..well, handy. If I had set my bulk buying and friends & family discounts to 30%, I could have easily added up the price tags from each bag, subtracted 30% and replied, “I can sell all three to you for $150” without feeling awkward or flustered and knowing I wouldn’t lose money.

 

3) Work Hours

Did you know that 25% of businesses take 1 – 3 days to respond to emails, 4% take more than 3 days and 14% don’t respond at all (Source). You don’t expect emails to be replied to, phone calls to be answered or the ability to shop in a store, after a business’ hours of operation.

 

Even though you’re a small handmade business and probably work odd hours whenever you can, it’s important for you to set your hours of operation. You’ll become more efficient and more profitable if you follow a schedule and block your time. Set the expectation with your customers that you aren’t available during the day, don’t work on weekends or are only available on weekends.

 

I was grabbing my phone as soon as I heard it buzz (yes, even if I was lying in bed), and replying within minutes. This turned me into a stressed out, sleep deprived business owner. And no, those are not prerequisites for running a business. It’s not sustainable and it’s not beneficial to your business.

 

I was also working until 9:00, 10:00, 11:00 at night after my full time job and then wondering why I couldn’t fall asleep right away. I know that when you’re in startup phase, it’s not always easy to punch the clock at a certain time. It’s also nice to have the flexibility to work when you want and take time off when you please. But you’ll have a smoother running, more profitable operation if you stick to a schedule.

 

You wouldn’t allow an employer to tell you the day of if you are working and how long you’re working for. It would be impossible to plan your life. An employer also wouldn’t allow you to say, “Nah, I don’t feel like working today. I’ll just make it up tomorrow?”

 

Yes you started your handmade business to have flexibility but there needs to be some structure or you have a hobby, not a business.

 

Instead of taking some days of the week off and working 5 hours in the evening on others, commit to working 2 – 2.5 hours each evening so you build a habit and a schedule. This will ensure you don’t fall behind on your work or have the need to stay up until midnight completing orders. If you can’t fit your work into a set amount of hours each week, it may be time to scale back somewhere or look at making your business more profitable. These may help:

 

 

4) Deliveries

Delivering a product to your customer’s door is a huge perk for them. They’re not having to guess when their package will be arriving or needing to head to the post office if they miss it. They’re likely getting their handmade product much faster than they would if you sent it through a postal service and they’re getting a service no other retailer offers.

 

I’ve never had a retail employee offer to personally drop a purchase off because I didn’t feel like heading to the mall that day.

 

I’ve definitely spent many hours driving around the city, looking for homes I had never been to, in an attempt to make a sale and keep a customer happy. Dropping off an order was ‘no big deal’ when I first started my handmade business but I soon grew tired and resentful of spending my time and gas hand delivering a product at no extra charge.

 

If I had to do it all over again, I wouldn’t even make delivery an option or I would be charging more than the postal service to deliver it.

 

If you’re going to offer delivery as one of your shipping options, make sure you’re accounting for your time and gas money (and if you need to bring a helper to move larger pieces) or you’ll lose money. I would also consider setting up zones for delivery charges. If you simply state $20 for delivery, you may be charging someone who lives an hour outside the city the same amount as someone who lives 5 minutes away.

 

5) Deadlines

“You don’t have anymore in the size I need? Can you call the warehouse and have them make one and get it to me before next Friday?” Major retailers want to make sales just as much as you do but they know their limits and they base their decisions on profits, turning down any requests that will cause them to lose money.

 

They would never put in extra hours, neglect their regular operations or lose money to make one sale off a customer who waited until last minute to do their shopping and are now expecting the retailer to cater to them.

 

Last minute shoppers are a dime a dozen at Christmas time. Looking for custom orders, sold out items or unrealistic shipping dates.

 

You may feel like you have to take advantage of every potential order that comes your way or you’ll be losing money but you can’t deprive yourself of sleep and social time because someone left their Christmas shopping until the last minute.

 

When I was sewing pajamas, I would get tons of orders around Christmas time and I would keep accepting them and accepting them until I was literally sewing until just a few days before December 25th. This took away my joy for Christmas. I didn’t get to relax by the fire with eggnog & rum in the evenings. I didn’t have time to make it to the malls before they got insane. And I didn’t get to have my to-do list completed on time because I was busy helping others with theirs.

 

If I was staring over, I would gather customer emails throughout the year and spend September and October marketing to past customers, letting them know the deadline for pajama orders was at the end of October and I wouldn’t be taking any more past then. I would have pajamas in stock they could purchase but I wouldn’t be taking any “can you make an extra small in a pink plaid?” requests.

 

6) Holds

One time I had the organizer of a small craft fair ask me to hold my last pair of XS handmade pajamas for her. It was a small, slow show and I honestly needed every sale I could get. Shortly after I put them on hold, I had a mom and her daughter come by my table wanting a pair of pj’s but they needed an XS. I had to turn them away with my business card in hopes they would contact me after the show. They never did.

 

And the organizer never did come back to pay. I felt too awkward to ask her if she still wanted them so I lost that sale.

 

Holding something for someone seems like a simple enough task; most retailers do it. But here’s the problem; your items aren’t mass-produced. They’re likely one of a kind or one of very few.

 

Holding an item for a shopper at a craft fair means you’re taking an item off the table that could potentially be the difference between making a profit that day or not. You likely don’t have 5 other smalls for someone to choose from or more stock in the back.

 

The same goes for people who see an item before a craft fair and ask you to put aside and they’ll pick it up at the event. They may show up right on time and pay in cash but you don’t know for sure that they will.

 

When major retailers do allow holds, they have rules. “Yes, we can hold it for 1 hour” or “until the end of the day”. They don’t allow holds based on what works for the customer. Well I can’t make it back until next Tuesday, can you hold it until then?” The answer would be no.

 

If you accept holds, have a policy in place and communicate it to the shopper. “Ya I can hold it” may mean that you’re holding for an hour or until the end of the day; you’re leaving the decision up to the customer.

 

Try “I can hold it for 15 minutes while you run to the cash machine” instead. Create some guidelines for the shopper to follow so they know when they need to be back by and you know when it’s safe to put the item back out.

 

You may decide on a different policy. It may be that you don’t offer holds at all. Or you offer them with a deposit. Or you may offer to hold an item but if another shopper wants that item, you have to sell it.

 

You have to do what’s best for your business and make sure you don’t lose money because of holds.

 

7) Other

In Chapter 4 of my ebook I cover all the other areas I believe you should consider before you start selling your handmade products, as well as touching on licenses/permits, insurance and taxes you should be thinking about.

 

To go over each area and define your policies, you can download the full ebook and fill in the editable worksheet here: MAKE MORE MONEY AT CRAFT FAIRS.

 

If we don’t take care of ourselves, our time and our business’ profits, we’re going to get run down and feel like giving up…or be forced to give up.

 

Just think about how long you would work for an employer who didn’t pay you for all your time or pay you what you thought you were worth. You’d get mighty sick of going into work everyday, probably become miserable and soon be looking for a new job.

 

Take care of your customers but not at the expense of your happiness or your business’ profitability.

 

Do you have any other customer service situations that caused you to lose money and say “Never again”? Share your important lessons below!

 

 

 

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