Are You Running An Expensive Hobby? 4 Questions You Need To Ask Yourself
You can watch the video, or read the post below.
LEGALLY/TAX-WISE:As for everything, the rules will be different in each country so make sure you know what your country/state definition and rules are. In most cases, even you don’t make a profit, if you
- went into it with the intention of making profit;
- work on your shop regularly;
- plan your activity in a businesslike manner;
Are you priced for profit?The first question you need to ask yourself is: are you priced for profit? In my opinion, you need to make money from your shop to actually call it a business. If you make 1500 sales but you’re just or not even breaking even, in my definition of hobby VS business, you have a hobby. If you aren’t making a decent margin of each of the sale you are making – you’re just covering the cost of your expensive hobby. To make sure you are pricing for profit, you need to know:
- The exact cost of time it takes to create your products;
- The exact cost of supplies;
- The exact cost of overhead;
- The margin for each product clearly defined.
Do you manage your money the business way?There are two parts of that. One is bookkeeping and actually managing and organizing everything. The other part is accounting and actual financial strategy. You can’t make proper financial decisions if:
- you don’t have a separate bank account;
- you don’t track every single month your key stats and numbers;
- you can’t predict cash flow issues,
- you don’t spot expenses increases or aren’t able to understand the inner mechanics of your shop’s finances.
Do you create products strategically or simply create whatever comes to mind first?You probably went into the handmade business because you’re creative and love making. That’s completely fine, but the moment you decide you want it to be a business, your product creation has to be strategic. It’s a bit of a mix between the right and left side of the brain. You need to create art that you’re able to apply to a market. Knowing the trends and what’s working and not working for your customers is very important and I feel is often neglected, leaving you more in the “hobby” than “business” category. You can still create whatever you want in your free time, but your products need to be created strategically if you want to run a business. The product collections should be cohesive – your shop should make sense to your customer, and not just be a collection of various, unconnected items. It’s okay to have a range of product, but it should always have something to tie them together. Without that, it’s going to be hard to scale and profit from your handmade shop. If you want to learn how to create cohesive shop collections, you can look here.
Can you walk me through your plan?If you don’t have a marketing/promotional system in place, if you’re playing it by ear or going with the flow, you need to pause and take a step back and work on that. If you’re running a business and not a hobby, you can’t just rely on your friends and family buying from you and an occasional sale. You need to actively plan and sell your products. It’s one of the parts of business we all probably hate (me included) but if you want to be in business, you need to respect yourself and your work and make a profit out of it. That means you have to have a strategy in place:
- a clear, detailed plan for the next 3 months: your social media strategy, email marketing plan etc.
- yearly collection release and marketing/promotions dates. You need to know that 12 months in advance to work backwards and be ready for each. That’s very important because planning, creating collections and promoting is time-consuming and if you were to start thinking about Halloween today, it’s way too late. It’s best to plan your collections and promotions 6 months in advance. Make a plan of the seasons, the dates you want to promote on and work backwards to figure out what needs to be done when. It also triggers questions like: how am I going to market for Christmas? Maybe I should start an email list? Etc.
- Price your products for profit;
- Track your finances and creating a financial strategy;
- Create products strategically;
- Have a detailed plan for your shop for 3 months in advance and a general one for the next year.
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