So today I'm going to be talking about money. I know money isn't something that people are hugely comfortable talking about, but we're getting into it today. Not only will I be touching on how to price your handmade items, but I'm also going to touch on keeping track of your finances, and UK taxes. Enjoy!
I have mentioned in a previous blog post that underselling does nothing for your business. Not only is it not sustainable long term, but it cheapens the whole market and won't guarantee you more sales.
There is a basic formula for working out your prices! It requires some maths, but with your crafty brain, I'm sure you'll manage it.
[Supplies] + [Time] = Item Cost
The "Item Cost" is how much your item costs you to make. Yes, it's not just supplies that makes up the item cost! Your time is valuable too, so work out your hourly rate and be sure to stick to it when you're working out the pricing.
[Item Cost] x [Markup] = Wholesale Cost
The "Wholesale Cost" is how much a shop would buy your products at with a view to sell them. There's usually a minimum quantity arranged and such. The "Markup" is usually around 2-2.5, but it's ultimately your choice.
[Wholesale Cost] x [Markup] = Retail Cost
Your "Retail Cost" is how much you should be selling your items at. I won't lie, while researching this more, I realised how much I undercharge for my stitch markers, but that is a crisis for another day.
So let's give an example. Let's say you make necklaces. Thesupplies cost you £3. Your hourly rate is £12 an hour and the necklace takes you 15 mins to make, so yourtime is £3. TheItem Cost would be £3 + £3 =£6.
If you were then to sell that to a shop, we'd take theItem Cost of £6, and multiply it by theMarkup (which will be 2, to make this example easier). TheWholesale Costwould be £6 x 2 =£12.
This means that to sell this necklace, theRetail Costwould be theWholesale Cost of £12, multiplied by theMarkup, which is 2. TheRetail Costwould be £12 x 2 =£24.
While this is a good basis to go off of, you may choose to tweak your pricing. The good thing about charging with retail in mind, it means that you don't have to have a huge price increase later down the line, if you decide to go the wholesale route.
One other thing to bear in mind is that if you offer "free postage" in your shop, like Etsy and other websites encourages, be sure to add that onto your item cost. Yes, the packaging too. We don't want you making a loss because of your generosity!
I have found it helpful to have products at a range of prices in my shop. The less expensive items will tend to sell tell at craft fairs and the like, as they're more of an impulse purchase. Your more expensive items will take a bit more thought before they take the plunge. That's not to say that all your items should be cheap! Quite the opposite. We already know that we need to price our items with our target customer in mind, but it can also be helpful to have a couple of high-end items available. This can make your mid-range items appear more affordable. A £200 handbag seems expensive, until you see it surrounded by £2000 handbags!
Spreadsheets! YAY! I love a good spreadsheet. Now, I will say that I am an affiliate with Paper & Spark, but I've used their spreadsheets long before I was! If you'd like to get your hands on a Paper & Spark spreadsheet, click here to be taken to their website (affiliate link).
It is so important to keep track of your finances. We don't want to be getting into a situation where you think you have more money than you do because you're not looking at what you're spending. This is where spreadsheets come in, but I'm also aware there are apps such as QuickBooks. As I don't use these, I don't want to talk too extensively about them. Itry to update my finances every month, although I'm the worst so it tends to be every 2-3 months. My Paper & Sparkspreadsheet comes with a user guide and shows you how to import your sales, how to work out your website fees, PayPal fees and also how to input your spending. It's formatted for USD, CAD and GBP, but I also have it on good authority that they will change it to your currency if you ask them nicely. I have the Shopify spreadsheet and I would be lost without it when it comes to tax time. It's a one-off payment, and you're sent a new spreadsheet every year. It's quite cool.
While you're keeping track of your outgoings, try to keep your invoices and receipts somewhat organised. I have an expandable folder for mine now, which is so useful. You will need to keep them in case your business is audited. I know that on apps such as Quickbook, you can photograph your receipts and save them to your account, which is super useful. It saves you having lots of paper everywhere, like I do!
Now we are briefly going to touch on UK taxes. I can only talk about UK taxes as I live in England and have never done my taxes anywhere else! Well the good news is that if you're new to your business and are just having a bit of a dabble, then the HMRC (UK tax people) have introduced a tax-free allowance. If you earn up to £1000 in a financial year - before expenses, so gross income - then you don't even have to declare it to HMRC! It's pretty cool if you're just testing the waters.
If you earn over £1000, you'll have to register for self assessment. Doing your own taxes always seems much more daunting than it is. I won't lie, it makes me anxious when I have to do it, but I'm always pleasantly surprised by how easy it is. If there's ever anything I don't understand, a quick Google usually helps out a lot!
The UK financial year runs from the 6th April to the 5th April (or around those dates anyway) and your tax return is due the 31st January after that. So, the 2019/2020 financial year was from 6th April 2019 to the 5th April 2020, and your tax return is due the 31st January 2021.
Please don't leave your tax return until the last minute!If you rush it, you'll make silly mistakes. It isn't worth the stress. Also, if you do your tax return before the 31st October, then any student finances you owe will be calculated and included in your final amount. So that's a bonus. If you do your taxes early, it also allows you time to budget in how much you have to pay. It means that you won't spend it and then be stuck when you have to pay you bill!
For 2020/2021, you can earn up to £12,500 (after expenses!) before you have to pay tax. That's pretty amazing! For VAT, or Value Added Tax, you can take (meaning, before expenses are taken out) £85,000 a year before you have to register. And this isn't a financial year, this is a rolling year, so if you're business is doing well, be sure to cross-check with last year's finances. I will probably hire an accountant if I ever get to that point as that's knowledge, maths and skills beyond my capabilities. But, that's a problem for Future Hannah. I'm sure she'll thank me for that!
I hope that you found this blog helpful. I know there's a LOT of information there, but it's all useful stuff, or at least I think it's useful!
Let me know if you have any more finance and money tips by leaving a comment below!
