If you treat a business as a hobby, you will make hobby income. If you treat a business as a business, you will position it to be profitable.
What differentiates a hobby from a business is that a hobby has little to no profit. You perform hobbies in your spare time for enjoyment. While it’s possible to make sales from your hobby, it won’t reach the level of a craft business unless you change your mindset.
You can make sales and still have no money to meet financial obligations. You’re probably reading this and wondering, how is it possible to make sales but no money overall?
Aren’t sales, cash, and profit the same?
There are many reasons why your business isn’t making any money. Your products or services might be underpriced, or maybe you aren’t factoring in all direct-related costs of what you sell. Did you agree to have your product in a local shop and not know the true cost?
When it comes to craft businesses, there are a few stigmas attached, but let’s clear the air.
Myth #1: Craft businesses aren’t profitable. Just because it’s a craft business doesn’t mean it has to be starving (Ever hear of starving artists?). Business owners need to make a profit; otherwise, they won’t be in business long.
Myth #2: Handmade items are lower in value. Handmade goods don’t automatically mean they should be cheap. There are plenty of craft merchants out here who are afraid to price products for their true value out of fear of losing a sale.
If you are a crafter who gets terrified by the thought of numbers, don’t panic. An accounting degree isn’t needed to know the basic numbers in business. At the start of a business, you pretty much take on all aspects of work until you can afford to outsource bookkeeping. You need to know income, expenses, pricing of products/services, and direct costs of goods or services.
As your business grows, you might need to pursue investors or obtain a bank loan (Note: a bank loan is not the best route to go if starting out a business). Your numbers will also help you determine if you need to change price points or hire employees.
Craft Business: Sales vs Profit
Yes, sales and profit are essential in business and found on a profit and loss statement. No matter how interchangeably the words are used, there’s a major difference.
Sales is a transaction. You provide customers goods and/or services in exchange for currency. It doesn’t include direct costs or company-related expenses. In other words, it is the gross amount of money you make.
Profit is what’s leftover after everything (payroll, taxes, expenses, interest, etc.) has been paid. In order to be profitable, there has to be more income than expenses. Otherwise, your business has a loss. Profit is what’s leftover after everything (payroll, taxes, interest, etc.) has been paid.
Are you thinking about starting a craft business because of a trend?
Trends are just what they are…temporary. Due to the ever-changing demands of the marketplace, it’s a bad idea to start a business solely because it’s trendy. Starting a business for the wrong reason might work in the short-run, but not for the long-run.
What crafts are the easiest to make and sell?
What one person considers easy might be a challenge for someone else. There’s no one craft that’s the easiest. If you’re looking to try a craft, choose a project that requires as few steps and materials as possible. In terms of business, sell crafts that you can make well; otherwise, you might lose sales for lack of value.
Before you decide to sell your crafts, here are a few things to think about:
- What is your craft level? (beginner, intermediate, advanced, expert)
- Do you know the latest industry and design trends?
- What sets your craft(s) apart from the competitor?
- How will you align your product with the right audience?
Can a craft business be profitable?
Of course it can! But it takes hard work, including being honest and realistic about finances. You can have all the passion in the world, but if the business can’t stand on its own, without you putting personal funds into it, passion means nothing. If you want to be a profitable business owner, you can’t guesstimate a price and pray that it works to your advantage.
With careful product pricing and research into marketing costs, operating expenses, and the cost of goods sold (direct costs), you can make sound decisions.
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