How to Reduce Your Craft Business Overheads

in Business Tips on October 11, 2015 . 0 Comments.

Running a small craft business that you’re passionate about can be very rewarding, not least because you’re doing something that you really enjoy, but also because you might well be benefiting from some nice profits too.

If you want to ensure your handmade business is as profitable as possible now and in the future, you’ll need to keep track of your business overheads and try to reduce as many outgoings as possible.

In this post, we’ll look at some of the most common expenses that you’ll come across when setting up and running a small craft business and explore some ways that you can keep these overheads to a minimum.

Small business overheads explained

The term “overhead” is used to classify an ongoing expense of running a business (also known as an operating cost). Overheads can’t usually be traced to a particular product and have no tangible role to play in generating profits.

Examples of small business overheads include website design and maintenance costs, marketing and advertising, administration costs, salaries, insurances, utilities, rent, membership fees or subscriptions and postage or packaging.

5 ways to reduce your craft business overheads

1. Work from home

Most craft businesses start out with the owner working from home, which has many benefits when it comes to keeping overheads down. If you can work from home on your business, you’ll avoid paying separate rent, utilities and internet costs and you may be able to claim a proportion of your household bills to offset against your annual tax bill.

There may come a point where you feel you need a dedicated studio and professional equipment to successfully grow your craft business and take it to the next level. It’s worth considering whether it’s cheaper to make room for a studio at your home by rearranging space or even extending, compared to the ongoing rates that you’ll need to pay if renting.

2. Save on selling fees online

You may already have an online craft shop via the likes of Etsy, Artfire, DaWanda or similar. It does cost money to list products via an online platform, for example, Etsy charge $0.20 to list an item and 3.5% of the sale price. Once you add PayPal fees on top of those charges, the costs can start mounting up.

When you’re first starting out in business, it is helpful to set up a shop on a platform that has a ready-to-go audience of handmade buyers. But it’s worth considering other alternatives to the main ones too as you could save money on listing fees. Take a look at this handy post on 12 Etsy Alternatives.

If your business really takes off, you could consider setting up your own ecommerce website, which will be cheaper in the long run. But in order to do that, you need to be confident that you have a good following of handmade buyers; those that will keep on returning to buy your products, plus a good presence on social media.

3. Save on postage and packaging

Many handmade businesses charge their customers for postage and packaging, yet it can still end up being an expensive overhead. When you run a craft business, it’s not like you can really skimp too much in this area. Your buyers aren’t going to be overly happy with their carefully crafted purchase being sent out in a plain (boring-looking) plastic envelope with not nearly enough padding to protect it.

Craft businesses thrive on creativity and uniqueness so that they become memorable. It stands to reason that your packaging should be creative enough to put a smile on your customer’s face too!

Luckily, there are ways to make your packaging unique and lightweight so that you’re not paying over the odds in postage. You can wrap your products in hand-stamped paper or crepe paper tied with ribbon and use padded envelopes to protect your product against potential damage.

Make sure to use exactly the right size packaging for your needs to eliminate wastage and avoid extra postage costs. Invest in a set of weighing scales so you can accurately predict how much postage costs will be, that way you hopefully won’t be left out of pocket.

4. Buy materials in bulk and check your product margins

Although the cost of materials are directly related to your products (so they are not an overhead per se), they are still an ongoing business expense that you can reduce in order to retain more profit for your business.

If you can buy materials in bulk at wholesale prices, you can reduce the amount of money it will cost you to make your handmade products. For this to work, you need to confident that the products you’re making will sell! Otherwise you could be left with a lot of excess supplies.

It’s worth revisiting your net profit margins regularly and checking that you’re not only covering your costs, but actually making a good profit too. As a rule of thumb, you need to be charging enough on your products to ensure you make a profit even if you sell it for the wholesale price. To work out how to price your products for profit, take a look at this article from our blog.

5. Pay yourself last

If you take an income from your business, this is another overhead that you might be able to cut down on, at least for now. Of course, it would be amazing to take a regular wage from your craft business, but you could think about taking less money out of the business so that you can re-invest some of your profits.

If you want your business to grow, there will come a point where you’ll need to spend money! For example, you may need to spend to create a custom website, additional marketing, higher quality materials, additional staff or a separate studio. So if you can, think about taking as little money as possible from your business in the early days.

We hope you found this article useful! For more handmade business tips, check out this section on our blog.

Last update: October 11, 2015

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