This last fortnight has been, for me, all about the holiday/Christmas season - 2010! It's actually getting a little late for planning for next year and I'm almost beginning to panic as we've had a shock from one supplier - our long-planned samples came back looking like something from a cheap market stall. They're functional, but they're not nice and we can't possibly go ahead with this maker. (You can see a small picture here - the trim is nightmarishly bad). So, it's back to looking for good makers for this kind of bag - which really does require industrial machinery to come out well. *
One of the themes of this blog is the importance of good design, production and manufacturing. There are loads of places that will tell you about marketing and promotion. How you need the blog, the newsletter, the Facebook fan page, the Twitters - it's all true. But what I want to emphasise is that first and foremost the product needs to be good, everything follows from that.
To get it right takes time. Our bags seem to need at least a year from first concept through to us actually selling them. In between are several sample cycles, adjustment and testing (I joke, but I really do carry our bags around so I know the strengths and the weaknesses). In between is also a lot of frustration and, on the upside, some great moments when we see how to make something better, or understand that yes, it's going to work.
Right now, I'm pissed off and feeling under time stress - having been let down by what I thought would be a great production partner next year. But in spite of this, I actually love the production side of things, it's so tangible and so satisfying when you see a bag go all the way from a vague idea to a reality in canvas and leather. Ideas are exciting, but making them into real things is better.
* By the way, for anyone thinking "handmade"? we largely nowadays use professional makers for our bags - but we do all the prints by hand. In this way, we're a bit like Etsians who print on ready-made tees or bags. However, we have the base bags made specially to our specs, we don't use mass-made, generally available ones as we find the quality is too low.
I've talked a lot about the times that you need to change your main focus, whether that's in business terms or creatively. Sometimes, the things you've been doing successfully for years stop working, or begin to feel stale. Or circumstances simply become different, and force you to rethink.
However, the opposite can happen. There are moments when you may actually want to go back to something that you've done in the past, and revisit a market, or a style or a field or skill that you thought you'd left behind. It's important to leave options open for when unexpected opportunity or inspiration strikes.
When we finished the Bohemian Gothic Tarot we were both exhausted. For me, it got caught up with the whole experience of the death of a parent that happened at the same time, and it became too intense at one point. For Alex, it was simply too wrecking to work night after night until gone two in the morning. We both felt like saying, "Never again" once we finally published, even though the deck was such a success as far as buyers and users were concerned.
But we didn't make a decision at the time - we knew we were too emotional and tired to see things clearly. We just said, "Not right now, not for a while, and perhaps not ever." Now, suddenly a deck seems a more inviting prospect again. Or at least feasible. We've learned, from the experience, a lot about not making announcements about anything or promising publication dates or getting into too many open - and demanding - discussions about design (we have enough wild- slightly wild - fights here about that) .
So we've changed our attitude and something that seemed barely possible two years ago looks more do-able again. It doesn't mean that it'll ever happen - meanwhile we are heavily involved in a new Bohemian Cats project that may lead us to places we didn't expect so who knows what will happen. But I'm glad we didn't close off all possibilities, even psychologically.
Think of it like love. When some idea suddenly comes along that's a thrill and that takes your imagination, you don't want to find that you've cut yourself off from it by vowing never to have anything to do with that kind of
person project/style/business/customer/field again. Now do you?
One thing you need to face squarely when you're running a studio business is that there are some people who you don't want an on-going customer relationship with - those who just don't like your work that much.
Yes, it's great to expand your audience and clients/customers. But the fact is that there are some people who will never "get" what you do and who, even if they can perhaps be persuaded to buy once, won't ever be all that enthused by it. You know, if you're honest with yourself that "they're just not that into you" - right? Don't waste your energy - and their time - by trying to target those people on the very edges of your natural customer/fan group. Your efforts are far better spent listening to the people who love your work and working out how to make it even better for them.
Don't be afraid to choose your customers so that you genuinely can like, enjoy and feel at ease with them.
I just got an email from Bag, Borrow and Steal the handbag rental people asking me, "Are you on Trend?" and I have to say, no, I'm probably not and I'd like it to stay that way.
Trrrr-end. The whole point is that it's ephemeral; by the time one fashion is ubiquitous it's already the beginning of the end for it.
The web spreads trends far faster than ever before, and globally. So it's easy to keep up with them and often just as easy to latch on and design something similar. This may work if you are a high street fashion chain focused on selling affordable throw-away clothes (whatever you feel about the ethics of that) but it can be disastrous if you're a small studio. Why? Well, in practical terms you just won't have the speed of distribution - even if you're selling mostly online not many people will see your stuff fast enough if the fashion proves fleeting. Far more importantly though, if you jump on a lot of the new fads, then before long you'll be just a copyist, with nothing distinctively yours. Okay, you may make some money from it, but probably not for long, and meantime you'll have missed opportunities to build your own distinctive brand style.
So please, I know it's tempting, but don't get eaten up by the big monster of "currently cool". Find your own way, develop your own look and feel, and have the confidence to be yourself, not a pale shadow of some other artist or designer. By all means be aware of trends and influenced by them - you will be in any case, whether you embrace this or not. But don't follow fashion - find your own style and one day fashion, fickle as ever, just may follow you. At least for a while.
This week, Kunati, a publisher who did fiction and tarot decks (which is why I found them interesting) went out of business. It's a shame, but when they first started up, I said to Alex, "I give them about two years," and I think that was just about how long it was. Quite honestly, that wasn't so insightful - anyone in the industry who paid a bit of careful attention to what they were doing would probably have said the same.
On the surface, there wasn't anything particularly wrong with their tactics and strategy, and they did get lots of attention in the first year or two and even won awards. It all seemed great. But, look just a little more carefully and it was obvious that they didn't know the publishing business (or, for that matter, the marketing one, though that's another story), and were making most of the classic mistakes. How did I recognise this? Simply because we made most of those very same mistakes at the beginning of Baba Studio and Magic Realist Press. The difference is that we made them small, not big. Which is why we survived and still continue to grow.
When you first start out, you may choose to go into a business that you have experience with, or you may decide go into something that you're new to, but find attractive or promising. In the post below, I've talked about the dangers of doing exactly what you were already doing, but, at the other extreme, there are also problems with going into a business in which you have little experience. However bright you are and however much research you do, you're bound to get many things wrong.
So, what are the options? Well, you either start off big, pour in lots of money, make an immediate impact, charge ahead and assume that you'll learn fast and overwhelm some of the competition. Or you start small and cautious, feel your way, be prepared to learn, alter course and change direction and accept that you'll initially be ignored and eclipsed by the "biggies".
Most of the 1995-2000 dotcoms went the first way, they burned through money, got heaps of publicity, appeared to grow fast - and in the end went out of existence even faster. Having been through all that during my London dotcom days, when we began Magic Realist Press and Baba Studio I wanted to go the second way, small step by small step, happy to learn by our (small in financial terms) mistakes and to make many changes in what we were producing and how we produced it. When we were patronised or laughed at, which sometimes happened, it rarely bothered either of us. On the upside, the fact that we were so obviously willing to learn and adapt meant that many great people went out of their way to encourage us and give us sound advice.
Of course, if you have money behind you, it's very attractive to charge right in, get noticed, put out lots of product and attract attention. You could say it's the "look at me" way of doing things and yes, it can work. It's risky though, because if, when people do look, they find your product or service not quite up to scratch, or simply not all that appealing in the market, you've lost them - and thrown the money down a drain. And with your resources spent, you may not get a second chance. I assume it's something like this that happened to Kunati, and it's not uncommon. Think how many fashion or music brands make a huge splash one year and are gone the next.
On the other hand, if you start small, even discrete, then one or two products that don't quite take off in the market won't do much harm, and may even be tweakable to get them right. It's an odd fact that our Baroque Bohemian Cats' Tarot and Bohemian Cats picture book weren't a great success money-wise in their first year - but the deck, the pictures and the products based on them, have done increasingly well since, and now look set to become classics. It just took us a while to understand their audience and market - and we had that time to do that because at no point had we hurled large amounts of our limited resources at it.
Quiet, low-cost, careful and adaptable isn't especially glamorous. But if you want a business that's successful medium-term, and can survive the ups and downs of real-world changes, then make small steps with their associated small, recoverable mistakes. Over time, many little steps add up to a good-sized, sustainable business that feels comfortable in its own skin, and never has to scream, "Look at me."
I'm not sure why rebounds are on my mind. Maybe I once finished a relationship in August once so it could be that this weather brought back some vague memories? But for whatever reason, I began thinking about starting a business in a recession and why you shouldn't leap into any business on the rebound.
Perhaps you just got fired (it's happened to us all) or your company folded or laid off a lot of people. Or you just feel that it's now or never. One way or the other, there's an understandable tendency to panic, and to jump right into looking for another job and/or starting a business. It's certainly the way I began my first "serious" business - in a state of sheer panic.
But be careful if you do this. Like the relationship on the rebound it may lead to all sorts of poor decisions. If you leap straight into a new business you'll tend to:
- Build the business around what you already know.
- Build it around what you already do.
- Try to set it up in a way that's familiar and easy to manage.
- Do things in a way that feels safe.
Now those things aren't bad. But they may not be optimal. When I began my first full-time business (a multimedia consultancy) I did it so that it looked like my former job in miniature. But now, looking back, I realise I would have done better to have stepped back and considered some slightly different approaches and tactics. Long-term, that would have worked much better and I would have left myself much more free to respond to the rapid changes in that field.
With Baba Studio, it was quite different. We took time - maybe too much time - and gradually felt our way, trying out different products and ways of working. As a result, it's nothing like anything I've done before (well, okay not since my teens - I was designing and making clothes for London boutiques from the age of 15 during my school holidays) and it feels both more solid and more fun than a more familiar business "in my specialist field" (which was in fact web/internet consulting) could ever have been.
So, you're about to be forced into starting a business because other things aren't working out. And you want to tell your friends that it's all up and running and you want to sound sure and focused and confident. Fine - tell people whatever reassures them. But privately, make yourself some time and space to think about broad possibilities - and leave your options flexible. You'll find that over the first year or two you may see all sorts of new directions opening up and you'll find the business that's right for you, rather than the one you grabbed in a rebound.
Just about the worst mistake any small company can make is to model themselves on large companies. Because, let's be honest, large companies are currently proving that they are often disastrously badly run.
Reading my friend Richard Oliver's blog led me to a wonderful final article by management critic Simon Caulkin - he's been axed by the Guardian newspaper. In it, he dubs the last 20 years of corporatisation, "The Blunder Years". His point is that -
Wherever they looked, readers found a glaring discrepancy between "official" and "unofficial" versions, between talk and walk.
The talk was empowerment, shared destiny, pulling together: the walk was increasing work intensity, tight performance management, risk offloaded on to the individual. The talk was flat organisations: the reality, centralisation and a yawning divide between other ranks, required to minimise their demands for the greater good, and a remote officer class whose rewards had to soar to motivate them to do their job. Employees were the most valuable asset - until costs had to be cut. Repeated mis-selling and other scandals demonstrated it certainly wasn't the customer who was king.
And yet, and yet, somehow this inept, inauthentic and inhumane style of management has become incorporated in our business world as the norm. So in spite of its obvious flaws, some small companies ape it - complete with ghastly, insincere corporate speak and a complete insouciance about treating customers as idiots.
The recent incident over Etsy messing up seller's Google titles is a good instance of a small company communicating (or not) in a "mock-corp" manner.It's easy for me to cite Etsy because we sell there, so I tend to keep in touch with what's going on, but to be fair they're only one example of many small organisations that sometimes slip into behaving as though they took their management training from a poorly-run and disengaged corporate. It's everywhere.
Surely one big advantage that small companies have is that they don't need to behave like this. At a small company you can dare to be honest with your customers. You can talk to them in your usual tone of voice rather than a artificial one. You can communicate in a timely fashion (even though with a small number of people - or in our case two - to answer emails you may not get to it as fast as you'd like) - and you can stay in touch with everyone working with you and your customers and suppliers.
A small company is personal - so make sure that your communication and your behaviour clearly comes from a genuine person, not a corporatebot.
Our move to a new studio has been a revelation to me. I realise that one reason I felt that things were going too slowly in the old place was that we literally didn't have room to think. We were surrounded by boxes in the end - full of samples, textile and books - with no way of unpacking them as the cupboards were all full. Our printing studio meanwhile had become a dark little cave, lined with our slide-out boxes of drawstrings.
Suddenly, we have space, and light and even flowers. And I find I am working faster and yet I'm more relaxed.
Consider your physical space. I know that may sound obvious, but well, it took me about two years to realise that we really needed a move. If your working environment is not supporting you well, then if you can take some time out to improve it - or even to move - it's probably worth doing. It can not only give you a boost in productivity, but it can make working life a whole lot nicer and that will show up in what you do.
Oh - and one final thought. If you work in a cubicle, in some anonymous office where you can't even open the windows - as I did for six months at one point - really, really consider a move. As a colleague of mine once said, if you have to keep your eyes shut because you don't want to look at the decor, it's kind of hard to do design!
Boxes of small drawstrings, packed and labelled in our studio.
The last few weeks we have been quite focused (apart from our move) on getting some new products designed and produced and it's made me think a lot again about the endless cry of "Promotion, promotion, promotion" that goes up in most of the art/craft forums whenever someone complains that their work is not selling.
Here are some of the things we've been doing to get a limited number of really good new products on to our shop this upcoming summer and autumn.
Some of these things are tedious, but others are the exciting part of design - I love doing new patterns and pictures. The point is that they are all very demanding of design, production, communication and organisational skills. But they're the very most important, central part of the work of any studio business.
Next time someone tells you about their ideas, ask them about how they will put those into production. There's a common fallacy that creativity is mostly about coming up with good ideas and then marketing them well. The reality is that ideas are easy. It's getting them designed and produced to high quality, at the right price and in a repeatable way, is the hard part.
In the end, however good your marketing, branding, public relations and customer service, you'll sink or swim on the quality of your products.
Well. Maybe I am going to turn this one inside out and say that sometimes you CAN predict the future.
I read tarot. I used to practise yoga and yogic magic (well, I never got far with that but I was taught a few techniques) from a very early age and if I am entirely honest, I do believe, through experience, that sometimes you can get a very good idea of what's going to happen. Even occasionally in detail.
A rationalist would call this hunch based on observation and analysis. I once heard a professor at the Royal College say that in the case of some designers, it's an almost uncanny ability to pick up on the zeitgeist before most other people can recognise a coming trend. Whatever, sometimes you may get a powerful feeling of what's going to happen and an equally powerful urge to do something in anticipation of it. My advice is to follow it when it's strong and persistent. I did, it's the reason I packed up hastily and came here in 2001 - and it worked.
But. Mostly, we can't tell what's going to happen. I had been here just five days when 9/11 occurred and all sorts of things in the world changed. I walked across Charles Bridge the next morning early and the only people on it were two police - checking for bombs in the arches - and an elderly accordion player, playing this:
The big financial bubble had its beginning then - in the days when panicking Western governments took hideous long-term risks to stop their economies being affected short-term. We are still living through the effects, in both small and big ways. Our "recession beater" new shoulder pouch bags would not have been my last six months' obsession without all this. Equally, rents here could never have fallen to the level that allows us now to take on a vastly larger working space (right by the Castle too). Trivia compared to world events of course, but important to us and our studio.
So. Look to the future because it will have a huge impact on your planning if unanticipated events occur. And they will.
To do this, first and foremost keep up to date with what's happening. Follow news channels, read papers, think about everything from why Obama got in to why the world went mad this week over an unknown Scottish singer (good emotional manipulation on the part of a reality show, but more than that also). Think about where it's all leading. Try to predict how things will go over the next couple of years. Don't be caught out following a trend that's past (in fact, why follow transient trends at all?) and don't miss opportunities.
Here are a few of my non-political predictions. If you're interested you can see if I'm right in a year or so:
1. Big blousy flowers will be huge on textiles and in fashion. Sort of improvisations around those Dutch still-lives with great big overblown roses (I knew someone who faked those - many of the ones you see around are probably by him. But I digress). It'll be like the chintz thing of the early eighties, but more decadent and with a slightly over the top period feel. It'll be everywhere, so in a couple more years we'll all be sick of it again. Buy your florals the minute it happens or you won't get a whole lot of wear out of them.
2. Modernism will begin to look very, very dated. Okay, that's an easy one, because it already does. But seriously, Danish chairs will suddenly begin to look a bit like stripped pine did in the 90s. A shame, because I have some and I still think some (Wegner - sigh) are inherently beautiful.
3. Distributors will get hit particularly hard by this recession and you'll see more and more direct-to-customer online distribution services such as Amazon Fulfillment. Shops will be used as showcases more than as actual places for selling. Well, that will take longer than a couple of years - but we'll see a lot of signs of it soon. Many of those empty high-street shops won't come back in the form that we've been used to for years.
4. Etsy will be sold to someone unlikely. Sellers there will be surprised and not altogether pleased. Though in fact, it will all work out okay - or as okay as Etsy was ever going to work out.
5. We will spend a lot of time dressing cats and other animals. More than we expect right now. We will also get our first "serious" fashion feature (fingers crossed, fingers crossed - perhaps that last one is wishful thinking).
If you are into "things to do" take-outs from a blog like this, then write your own predictions. Don't spend too much time thinking about them, go purely by hunch. Keep them somewhere and look at them from time to time. If you have really, honestly, gone by instinct and gut feeling, I would predict they will turn out to be very accurate.
I know, I know, the irony of saying "don't freeze" and then not posting for over a month is apparent to me!
It's just been a crazy time. A period of realising that we really do need some help soon. Right now, it's sort of okay, but I have less and less time to do some of the design, development and more interesting, creative marketing that I really want to be doing - and which we now need.
So, it's made me think about the times, as a business grows, when you have to stop being, at some level, a "start up" and start being a little more managed and planned.
These are some of the features about the early years of a creative business:
- Excitement - which at times means anxiety.
- Eccentricity - in a strange way you can often be exactly how you like at this time. Work in your dressing gown (I try not to, but it has happened), take lunch at 4.00pm. Decide to sit and read under the sun and work until midnight to make up. As soon as co-workers are about, things become more formal and predictable, at least to some extent.
- Possibilities. When we began, we didn't know if we were a design company (and if so, designing what exactly?) or a publisher. Our first two projects were a deck of cards about the year after 9/11 and a small series of corsets built from Japanese kimono fabrics. Neither were terribly well thought-out or successful. But both were entirely new for me and I learned a lot. As we've grown, we've had to focus and make decisions. As Alex says - we can't hop like a rabbit from one thing to another. The focus is great, but I've had to learn not to jump around and follow my every whim.
So goodbye eccentricity and doing whatever I feel like. But goodbye also to over-working and to having no-one to hand over to.
But it's odd to face up to the fact that I've put this moment off as long as I can. I have to admit that a well-run business needs to have enough people working in it. I need to allow Baba to grow up a little.
So without being too maudlin I hope, here is a little song for the start-up we were. I know things are going to change this year and I am looking forward to it. With just a tiny touch of regret. This is the third business I've started, and in some ways I always find it hard to take this next step. Then again, if it all works out my reward to myself will be to get into clothes design next year, and that's a big, big compensation.
With things moving so fast in the world and so much panic and despair around, it's easy to just freeze - "rabbit caught in the headlights" style. Don't. Just do small things - I believe that lots of small steps and quick actions are often better than trying to take on huge projects.
Here are a few small things to do - some trivial, some more profound. It doesn't matter - but do something:
Write a good blog entry
Find a great picture (and remember to tag it well) for your blog
Make comments in some blogs you like
Look at your products and do some (gentle) planning for enhancements this year
Take a look around the web at others in your field. What can you learn?
Be active today in a forum that's relevant to you
Offer some support or help to someone else running a creative business. In that awful cliche - "reach out".
Do that small bit of web site improvement that you've been putting off
If you have an online shop - settle down to list a few new things
If you freeze up, you can lay yourself open to longer term depression and inertia. So don't do it - instead remember that there are good aspects to this global financial stuff - some whole new ways of doing things and, I bet, some of the most exciting art, writing and design we've seen for years will emerge from this. Just make sure you're around to be part of it.
I can't claim to have read her best-seller, Eat, Pray, Love, though I may do now (if you've read it, do please tell me what you think). I also am not quite sure I agree with everything she says. But it's a fascinating talk.
Oh - one tip - it begins with some overly loud music, you might want to turn down your volume control to start off with.
As the recession bites, take a minute now to consider if you can be all things to all customers. Can you really sell at the retail prices that will keep your distributors happy AND give your direct retail customers a good deal? After all, one of the advantages you have as a small company is that you do not have to do a 1 to 8 or 1 to 10 cost/price ratio, as all the "biggies" must. You can sell for a price that makes your goods far better value - and in the current climate, that counts more than ever.
We solve this dilemma by setting our recommended retail prices higher - for distributors - and giving our direct customers a deep discount. It's one way and seems about as fair as anything can be. But is it the time to consider other ways? Look at your customers, your distribution and your prices (and, as ever, costs) and see what's really working and what needs to be changed.
If you can provide value that's way better than the corporates can - whether because of individualism, innovation, price or a bit of all three - don't hang back, now's the time to make this happen.
Manufacturing and producing have been SO declasse in the past couple of decades. Businesses were supposed to do anything but actually make tangible things.
But - right now, if you control the whole process, from design to manufacture to retail it gives you a huge advantage.
As I've pointed out, it allows you to change things quickly - we have very definitely altered the range planned for this year in response to the recession and we were able to arrange this in months, not years. It also lets you have far more control over prices - we know that if times get really tough, we are not stuck with the prices coming from a wholesaler, we can find ways of bringing down manufacturing costs and passing this on.
If you can control the entire supply chain process, or at least a good chunk of it, it will give you many advantages of flexibility and responsiveness. Okay, manufacturing is, as one of our customers said to me recently, "tough" and the feasibility does depend a great deal on the field you are in. But if you can take it on, whatever you do, it will help you become much more recession proof.
I had a conversation with a financial guy this afternoon - he looks after my pension matters. "It's all so irrational" he said, talking about the way currency is going up and down so wildly nowadays. He sounded tired and worried.
When things are chaotic and unpredictable, as they are right now, the important thing is to be able to change aspects of your business fast - not in a panicky way or daily, but at least with speed and decisiveness when it's needed. We set up our new online shop in Euros last year as we could see the need for basing our prices on Euro as it's more tied to the local currency. But we also knew that many of our customers like to shop in US dollars, so we also expanded our Etsy shop (it's USD) and installed an online currency converter right from day one of the new Baba Store. This last year, we have adjusted our pricing according to currency, bought silk in dollars when the dollar was way down, changed our non-US wholesaling prices to Euro-only when the Euro seemed the more stable currency. Almost every month, we did something to respond to the changes sweeping through the economy.
If we were a corporate, or even a large private business, can you imagine how many committee meetings and strategy documents and redeployment of staff moves like that would have taken? As a very small business, you have a huge advantage right now. Use it. Be swift.
A few months ago we sold some bags to a shop that hasn't dealt with us before. When they received their shipment I got a worrying email in which they said they were disappointed that our messengers show our online shop address. They wanted to sell our bags for more than we charge and felt that customers would be turned off if they found out the retail price we charge.
How did I write back? By explaining that we are not keen to sell non-branded pieces (we work hard to build our brand) but also that nowadays, whether or not you put a website address on a tag is largely irrelevant. People will find you by your brand name anyway - or more simply by googling some of your more distinctive features. We would love to go on working with this shop, and I hope they've thought about this and will order again.
I tested our what I said recently by guessing what a customer googling for us would be likely to do. Here's the result of "cats baroque prague" (our care and origin labels say that the bags are made in Prague, even if you ignore the Baba Studio brand).
If you are wholesaling to other shops you'll hit this pricing issue time and again. Because, as I explained to the shop owners, with or without a website address, customers will probably be able to find the designers of most products (provided they are pretty distinct) if they really want to. Things have changed totally - and now a large part of the world is well and truly networked. Nowhere to hide, even if you wanted to!
So what do you do? Do you charge your own price and let retailers set theirs - and risk annoying the retailer if you end up under-cutting them? Do you charge the retailers' retail price from your own shop - and risk scaring off customers because the price is too high?
Do you refuse to wholesale? (many now do) This certainly solves the problem but may be very limiting -and a bad business decision in a recession.
There is no definite answer. But if you hope ever to sell your pieces through shops you will need to begin with pricing levels that shops could live with. And be aware that customers will be able to make comparisons - whether you or the shops want them to or not.
(with a nod to John Berger for those who know the book)
Take a look at these figures for a product made for $9 and sold at retail for $60.
Profit using traditional distributors = $9 (see my post below).
Profit when you sell direct = approximately $40 (allowing for marketing costs, online shop costs and so on).
Which way would you rather go?
Of course, it's not as simple as that. You may well decide to go for a lower retail price when you sell direct - which has its own issues as I'll discuss in my next post.
But in any case the costs of direct sales tend to be high in the early days so when you start, these great-looking profit margins just won't apply. As one friend said to me, "But even the time and effort and expense to go to the post office wipes out all the profit on a 20 buck sale." Yes, and when you are selling two or three things a week, then the overheads - running a professional online shop, storing stock (or the supplies to make stock), doing PR and marketing and, indeed, running to the post office, will kill any profit. In fact, in the early days even the much lower profit from distributed and wholesaled sales may work out better.
But once you are selling, say, two to three things a day, it begins to change and the overhead costs per sale come right down.
It used to be that the only way you could ever really sell enough to make a design product business viable was to use distributors. That's changed. Now the best way is usually to combine direct retail sales, direct wholesale sales and - possibly - distributors too. But that does have its own challenges, particularly when it comes to pricing, branding and visibility. At what point are you competing with your own retail and distribution customers and how can you avoid that becoming a problem? Okay - that's in the next post!
I came across this post when I was looking for methods of making silk flowers over the weekend. The woman writing is outraged at the "profit" that is being made on flower pins. Of course, I respect the fact that she's explaining how to make them for a fraction of that. But is Nordstrom's price anything to be outraged about and is anyone really raking in huge profits? The norm in the retail industry is that retail price is between six and twelve (yes, twelve) times the price of manufacture. Here's why - sorry, it's long but it needs to be -
If you sell via a distributor (not just a wholesaler, but a distributor with a sales force who will actually sell your work into shops) then this is how it works. Let's take a retail price of $60 for an item.
Firstly, there is sales tax. Let's assume it's around 10%, it's far more in many places, so the 60% is actually about $54 plus sales tax (approximately - I'm rounding things up for clarity).
Wholesaler discount - between 45% and 55% (depends on quantity usually). At an average, $27 paid to the distributor. Many retailers demand a bigger discount.
Distributor cut - 15% of price paid. 15% of $27 is $4.20.
All in all, the payment to the maker is approximately $22.80.
Out of this, the maker has to pay -
- Shipping to the distributor/s - say $0.50 per item (varies a lot of course)
- Marketing - again, huge variations, but let's say it averages at 3% or so - i.e. a bit less than $2 per $60 item. I actually think this is on the low side when you take into account all the time as well as money that needs to go into effective PR and marketing.
- Losses and returns - this tends to take off 10% at least. Unfortunately a lot of stuff gets damaged with all this transit and storage between maker, distributor and wholesaler. It's normal to just hit the maker for this if it's damaged before it actually gets to the retailer.
So the maker gets around $18. That means that their cost, including their actual production costs, shipping and import duties if the goods come from abroad, their own salaries, rents etc, should not be more than $9 as you need to allow about a 100% mark-up on basic production cost. This is because generally the reality is that there will be losses like "seconds" - with factory goods you have to allow around 5% of these - and also things that simply don't sell or aren't popular, go out of fashion, have to be discounted etc.
In conclusion - on an item that sells for $60, the maker is lucky to make around $9 profit if their total manufacturing costs (including their own salaries, overheads etc, but not including marketing which I've costed separately) are $9. In other words, no outrageous profits are being made. Particularly if you consider that profits on some successful items have to cover losses on the things that just don't take off. In other words, the maker is very unlikely to get anything like all of that $9 as actual profit that they can put in their pocket - after tax.
If you are planning to make a living from design and production - of whatever - please be aware of these kinds of figures. Amazingly many people aren't and think that if they can make something for $10 and retail it for $20, that's great. Actually, it's not viable if you are working via conventional sales channels. I understand that at the outset it's virtually impossible to get costs low and keep quality high - even the most basic six to one production/retail ratio probably can' t be done until you are making thousands, not dozens, of items; and as we all know from some of the awful mass-production quality out there, it's not easy even when you are large.
So what do you do? Well, there are ways of managing all this nonetheless. I'll say more about them in the next post.