Costing our Craft
INTRODUCTION
This article will not make you rich. It will give you a bit of guidance about
determining how much you should charge for your work. You will have to; do the calculations,
collect the data necessary to do the calculations, decide on your profit
margins, and calculate your wages. It
has been developed for a one person operation.
The publication does not take into account
the cost of selling you craft. The
reason is simple. There are too many
ways to market our objects, such as shows, farmers’ markets, the internet and
galleries. I have however, built in a
period of time when we are away from our workshops, in order to sell. You will have to decide if the time allocated
is sufficient for your needs.
In the end this publication will also
serve to help determine, the purchasing of equipment, and the addition of
workers.
GENERAL INFORMATION
I am a ceramic
artist/ potter. I have been practicing
my craft professionally, since 1988.
I will be using
language, and techniques related to the pottery craft, to help explain the
process. Nevertheless, the theory will
apply to any craft that is repetitive, and in series. We just have to analyze the process along the
same lines as we will discuss in this document.
I will also use
layman’s terminology to make the process easy to apply. I will also give some simple techniques that
will give us a better understanding on how to price our craft.
As a craft professional, we designs, produce, and, sell our creations, so
that we can generate revenue. We are a small business. We are our own boss. We must make decisions that affect the bottom
line, our income.
One of Our main responsibilities will be
to identify our expense, and revenue producing activities. In order to make revenue, we must pay
particular attention to our expenses. It is through a clear understanding about
how much we spend, that will allow us make decisions that will generate green
ink on our revenue ledger. If we do not
analyze our expenses correctly, we could lose the ability to develop our craft.
I worked in a cooperative studio during
the first fifteen years of my pottery career.
One of my colleagues, a great potter, and a wonderful craft-person, was
always at work when I would arrive in the morning, and was still working when I
left during the evening. She worked
almost seven days a week. She was new to our cooperative, and as she was so
busy, I did not get to talk with her during her first months in the studio.
Her product was a candle scent diffuser.
Her work space was
filled with these beautiful objects.
They were assemblies of three pieces of clay, thrown on the wheel. She would spend a great deal of time
assembling the objects.
I would see her
glazing, and firing her work, packaging, and shipping out boxes. She would complete one order, and begin
another, without stopping. She seldom
stopped for coffee, and always ate a quick sandwich in her work space, for
lunch. I envied her because she has such
a large production going out to shops around the region. I thought that she was
a great business person, because she was always filling orders.
Three months later
when the cooperative council was settling up our monthly accounts, I was
informed by our treasurer that our new member was behind in her rent
share. I asked if anyone on the council
knew the reason.
We all agreed that
she was producing lots of product, so she should have enough funds to pay her
shares. The council asked me to talk
with her, to find out why.
Later that day I
approached her, and stated that I would like to discuss her delinquency in
paying her share of the studio costs.
She almost broke down
and cried. She went on to explain that
she could not understand why she was not making enough money to cover her
debts. I asked her if she was getting
paid for her product, and she answered yes, but there was not enough money left
over after paying her material, and administration costs, to pay her rent in
total.
I asked about her
product, and what she was charging for each unit she was producing. Her answer told me that she was not charging
enough to cover her costs, and to give her revenue to compensate her work.
I asked her how she
established her selling price. She said that it was what the stores were
willing to pay in order to acquire her items.
The amount was ridiculously low.
I told her that she had to increase her selling price; otherwise she was
losing money with every sale. Her reply
was that they would not buy her work if she increased the cost. She also added that she did not really know
how to price her work properly. I could
see that she needed help.
A week later she left
the studio, and ended up making pottery in a spare room at her home. To add insult to injury, she had told me
that she had to supply a small container of the scented oil with every bottle.
It was obvious that
this person needed some help in establishing a fair selling price. Sadly she never asked for that help. I recently saw some of her work for sale in a
local craft store. I still thought the
items were undervalued.
We will be looking at
gathering important data that will be used to help us find our way. A part of
this process will require that we attempt to list all the steps in making the object
that we wish to price.
Where we live may
require us to adjust our figures to comply with the local tax laws. These adjustments, however, should not affect
the theory of finding the break-even-point.
Have you ever noticed
that whenever crafters discuss pricing strategy with fellow artists, the
discussion becomes ambiguous, vague, and without any real information being
shared? We never seem to get a straight
answer.
Some crafters speak
of retail prices. Others talk about wholesale prices. Some use terms such as
inventory turnover, and others state that they let the boutiques determine the
selling price. It all seems confusing and mixed up.
Some artists are
great at creating their own methods to determine their pricing strategy. There
are those who price in the same range as their peers. But what happens if their
peers go broke? Some artists established formulas that were derived over years
of trial and error. These may work for
their way of doing business; yet fail for our method of working.
Others might say ‘today
the sun is shining, so the public will pay more.” I have seen some potters establishing complex
formulas such as multiplying the weight of the finished pot by a magic figure.
Who cares what it looks like, it weighs a lot!
The sad fact is that
many artisans don't really know if they are breaking even, or losing their
shirt, until it is too late to do something about it.
The question
"How much should I charge for my work?" is a dilemma facing many. It
is a question that we each agonize over.
No matter how many
exhibitions we do, we rework our prices. Before visits to boutiques and
galleries, we recheck our prices. The
pricing thought process is strongest while we are creating. We are always asking ourselves if the effort
will be profitable.
Let's face it; we may
not know how to analyze our operation adequately in order to make sure we can
cover the costs of our overhead, materials, and equipment. Many of us have little knowledge on how to
price our work to ensure ourselves a fair wage.
Most crafters earn
revenue below the minimum poverty levels for their regions. Could it be that we are unknowingly
undervaluing our work, and short change our earnings?
"How much should
I charge for my work?" I have given this question a lot of thought, and I
have come to realize, that we are not asking the right question. The real
question, we should be asking ourselves is: "How much should I NOT
charge for my work?”
When setting the price of an art object,
we can say that there is no limit, when it comes to establishing the price
upwards. This is especially true when the work is quality and in demand. There
is, however, a limit when it comes to establishing prices downward. For
example, if we set a price of a "one-of-a-kind" mug at $35, and the
market is willing to pay the price, and then life is good.
If we find, however, that the market is
not willing to pay this amount, it will be difficult for us to reduce our
prices without losing some credibility. Imagine the clients who paid $35 for
the mug a month ago, suddenly finding that a similar one, sold by us, is now
available for $15. I am sure they would feel a bit disappointed.
If, on the other
hand, we set our initial price too low, possibly, below the cost to make the
mug, we could be placing our business in jeopardy. We would, in time, be asking
our self why we are working so hard with so little return.
Therefore, it is very important to price
the object correctly. Establish a price that will allow us to make money on the
sale.
THE MUG
I like to use the mug as an example
whenever I discuss pricing strategies. That is because I am a potter. It is one of the best forms, available to
emerging ceramists that can be used to generate funds. The mug can be highly
decorated, carved, or could be simply covered with traditional glazes. Most
households need mugs, so they are always a bread and butter item, use by
potters, to generate revenue
THE TASKS
Pottery, like most crafts is comprised of many
repetitive steps.
I firmly believe
that, whenever we create work that is repetitious, we should endeavor to
maintain a list of each step in the process, so that we can study how to work
more effectively. More importantly to analyze the amount of time that is
required to make our item.
I also firmly believe
that, even when it is a one-of-a-kind object, consisting of different designs,
we should endeavor to maintain a list of each step in the process, so that we
can study how to work more effectively and more importantly to analyze the
amount of time that is required to similar items.
If I was to list the tasks required to make a
mug, I would find the following:
A list of steps needed to make a
coffee mug.
• Setting up the work-area.
• Preparing the clay.
• Throwing the cylinders.
• Drying the cylinders.
• Trimming the cylinders.
• Pulling the handles.
• Attaching the handles.
• Drying the mugs.
• Fettling
the piece.
• Loading the kiln for the first firing.
• Unloading the kiln after the first firing.
• Decorating the mugs.
• Glazing the mugs.
• Cleaning and fettling the mugs.
• Loading the gloss kiln.
• Unloading the gloss kiln.
•
Carrying out
quality control.
•
Pricing.
• Storing the work.
Most of the
steps mentions above will probably require additional manipulation of the
object, which in turn will add time to the analysis.
I cannot stress how important this step is when we are
trying to determine a break-even-point. To do this effectively we must
know what we actually do, when we are producing
THE BREAK-EVEN-POINT
The break-even-point
is arrived at when enough of a manufactured product is sold to cover those costs
that were incurred to develop, and fabricate the piece. Finding the break-even
point is most important. Without it, we will be continuously guessing at what
to charge for our work. Even if we wish to sell crafted objects below the
break-even point, as a loss leader, it will still be necessary to know what it
costs to make them, so that we can evaluate the loss, and make it up, by
applying the difference to another creation more in demand.
Finding the break-even point is a process similar to
the one used by a shoe manufacturer, analyzing the cost of producing a shoe, or
an automobile manufacturer, working out the cost of making a car fender. It is
the method used by thousands of other businesses that manufacture objects for
sale
Knowing the break-even-point will give us the
confidence to establish a fair value for our work, and to know that when we
sell the item, it will give us a fair wage. It will also allow us to establish
a fair selling price for the consumer, and encourage return customers.
In order to
determine the break-even point, we will have to research a number of important
pieces of information. The list of tasks will help us to find the time expense.
We will also
need to know the quantity of clay required to make the mug (material). We will have to determine, in addition to
time, and material costs, the expenses related to rent, taxes, electricity,
telephone and other expenses. We will need to isolate the information, on the
energy costs required to fire our work, and finally we will have to decide what
we wish to pay ourselves. I am sure the latter subject will make for a great
deal of discussion.
When we are
trying to establish the break-even point, we need to group the information
required for the analysis into two major categories: fixed costs
and variable costs.
VARIABLE COSTS
Variable
costs are also easy to determine. They are associated with the activity of
actually producing our mug. We will have to think about what we are doing. We
will have to develop, and maintain some data records. These registers will
assist us in analyzing the cost of the activity, and will also serve as a
history of our productivity. We have
already seen a basic list earlier in this article. We must be careful not to mix variable cost
activity with fixed cost figures.
FIXED COSTS
Fixed costs are
also relatively easy to determine. If we already operate a studio or if we have
maintained records of our income, and expenses required for tax purposes, we
can look up last year's balance sheet, and we will find most of the information
required. Those who have not maintained a balance sheet of expenses, and
revenues, will have to estimate by using past history, and expenses, or by
researching the information. I recommend
those in the latter category begin to maintain some form of expense and revenue
ledger as soon as possible. We cannot
decide where we are going until we know where we have been.
These figures are examples of what
a pottery studio might cost. They may
not reflect your expenses.
YEARLY EXPENSES including sales
taxes
Rent $*2,500.00
Office expenses $** 250.00
Insurance $** 200.00
Stationery and Stamps $** 250.00
Journals $*** 50.00
Utilities $** 250.00
Equipment Maintenance
and Parts $*1,200.00
Interest Costs $** 500.00
Conventions/Workshops $** 700.00
Taxes and Licenses $** 500.00
Equipment (small) $** 200.00
Travel Costs /Hotels/Tickets $** 500.00
Advertising $**
600.00
Meals and Entertainment $** 250.00
Associations and Guilds
$** 300.00
Motor Vehicle Expenses $*5,000.00
Salaries and benefits $25,000.00
Total $38,250.00
You might
have noticed that we did not include some cost items such as kiln firings (gas
or electric), clay expenses and glaze costs. If you are a jeweler, the costs of
your raw material will fall into this category. These expenses fall under
variable costs.
We may have
to separate out the energy costs into variable and fixed expenses. That will
depend upon what we create. For example,
I use a formula to get a fair reading for my electricity use when I fire my
kiln. One can find out how to do this
with a bit of research.
The above
figures may not truly reflect your business costs. Some of us may feel that we
can operate our studio without the bells and whistles. That is ok.
Just ensure we look at all our fixed expenses, and list them.
We may
already own equipment, and have no debt to carry. We don’t have to list these figures. Nevertheless, it would be worth building the
figures in to our estimates, so that when we have to renew our equipment, the
money will be there.
Also remember
that in order to produce a quality product (art); we will need to have quality
working conditions, good equipment, and sufficient material available to us. Of
course, we may also elect to earn a higher or lower salary.
That is an
individual decision
LABOUR COSTS
Our labor
costs are a reflection of what we think our time is worth. It will be one of
the most difficult decisions for us to resolve. Before we make any decision
about our salary, we should take a good look at the average income in our area,
and adjust our wages accordingly. Remember that just because we are a
potter/artist/craftsperson, there is nothing to say that we cannot earn a
decent living, and that could mean more than a minimum wage.
Some experts
might say that salaries should also be included in the variable costs. This
would be true, if we were paying production employees. However, I am assuming
that we are working entirely alone. We are present all the time, even when we
are not producing. Salaries fall under variable costs when an employee is
directly involved in the activity or process of making of the object or when an
employee is being paid by piece work.
In summary,
the fixed costs are those expenses required, just to open the door, and operate
the business.
RENT
Some people
work from home, and therefore say they don't have to pay rent. They feel that
they are more competitive as they do not include rent in their costs. Others
put the rent into their costing model because they know that although the
break-even price will rise, the increase will be pure profit. Whatever we
decide, we must remember that, in reality, we are paying for our home studio by
giving up space that could be put to other use. We may be giving up some
quality of life, such as a possibility of having a recreation room. If we are
using the basement or garage of our house, it could mean giving up storage
space. If we use our home, we are incurring a cost to our standard of living,
thus this cost should be reflected in our pricing model. The tax laws in my area say we can deduct the
cost of the household expenses in relation to the percentage of the house being
used to earn revenue. But we can only do
this if we show a profit before applying the deduction. Once again, tax laws depend on where you
live.
INSURANCE
Purchasing
insurance is a personal decision. If we have buyers coming into our studio,
there is always the chance they could fall or become injured. If we have a gas
kiln, there is the possibility of a fire. If we are in a large industrial
complex, the fire could affect other businesses.
The amount
shown for insurance in the table reflects the cost of insurance when I was a cooperative
member. A more realistic figure could be
$500 to $700, depending on the coverage required. Business insurance can cover our product in
case of liability.
If we are
working out of our house, we may have to inform our insurance company that we
have a home business. If we declare that
we have an electric kiln, or some other high energy equipment, we may find that
our home insurance rates will increase.
Speak to your insurance agent to ensure you are protected.
MATERIALS
Variable
costs depend upon our economical use of production material. For example;
I know that I require 14 ounces of clay
per mug, I will be able to determine the number of mugs per 44 pound box of
clay by using the following calculation: (44 X 16)/14 equals 50 mugs.
Allowing for
a price of $20 per box of clay, the cost of clay per mug would be approximately
$0.40. Should we decide to use 13 ounces
of clay per mug, we will save approximately $0.03 per unit.
Finding this
information was fairly simple. The other information may prove more elusive,
and require some form of organized data collection
TRANSPORTATION COSTS
Transportation
costs of raw material will have an effect on the cost of your clay. We bring
our clay in from a supplier whose company is approximately 600 kilometers from
our studio. The resulting transportation
costs are approximately $4 per box, or $0.08 per mug.
ACTIVITY DATA CHARTS
In order to
gather the other information, it may be a good idea to make up a few data
collection charts. These charts do not have to be complicated, but they should
be prepared so that we can read, and record data easily. In other words, don't
make a form with a thousand little squares. Design the data forms using large
print and large writing areas.
The forms don’t
have to be fully completed with data, the first time through a production
session or series. They should, however, be updated or filled in as often as
possible. Sometimes we might forget to record a specific action. Don't worry.
Our craft is repetitive. We can record
the information the next time we return to the task. We should always be
looking for the repetitive actions. If
we analyze the steps necessary to create our art, we will be able to see those
repetitive actions. When we do, we
should document them.
What we miss
today, we will be able to record tomorrow.
There may also be stages in our production when we must wait for
something to dry, or to reach a certain state before we can continue.
It is also
important that we acquire a good clock, and place it in view. If we do not have
a good idea of time, we will not be able to record accurate data.
PRODUCTION CAPABILITY FORM
One of the
first data forms we should consider using is one that will help us to determine
our production capability. We will use this form to determine the maximum
number of units that we could produce in one year. In my case the unit is a
mug. We will do so by sampling our
production capability over short periods or sessions, and expanding
(extrapolating) the results to give an approximate yearly figure.
We may also
be collecting data on more than one product line at a time, so our form should
include a header to identify the item under production.
We will, in
this specific session, be recording the steps required to make a mug. We will
require a table of 5 columns and approximately 12 rows. You will include a
space at the bottom of the chart for additional comments, and to give you a
place to register other data that may of help. The 5 column headers should
read:
PLANNED TASK;
PRODUCTION TIME IN MINUTES;
PRODUCTION COUNT OF EACH ITEM;
UNIT AVERAGE AS MINUTES;
RUNNING TOTAL IN MINUTES
The planned
task column should show our activity. In my case it would be: wedging,
throwing, trimming, wet decorating, appendage forming, appendage attaching,
bisque decorating, glazing, kiln loading, and of course, quality control, or
work evaluation time.
I listed some
of these actions earlier in this article.
Your activities may be different. There may be more steps than mentioned
here, but be careful not to include concurrent or parallel activity. Examples
of a potter’s parallel activities are bisque and glaze firing. These activities
can be carried out simultaneously while throwing, or decorating.
The studio
set-up time and studio cleaning time will be calculated in the daily routine.
Let’s say we
potters arrive at our studio at 7:30 am and start immediately to work. We would
get clay from the storage area, and gather our tools, water buckets, towel and
whatever else we would need in order to begin to throw on the wheel. Even if we
only spend 10 minutes doing this, we should maintain this data daily, as it
will be used in your analysis later.
Open our
production page and enter ‘MUGS’ as the product line. The next task we begin
may be wedging clay. We will be the one
deciding our initial production targets. Let’s say we plan to make 25 mugs in
this production period. We would state
this in the planned task column, and we would then begin to wedge,
and prepare our clay. When finished, we would check the time we spent carrying
out the task, and enter the appropriate information in the action time
column, beside the task. Let's say we took 20 minutes to successfully wedge 25
balls of clay. We would enter 25 in the production
count column and 20 into the time in minute’s
column, and finally, in the unit average in minute’s column, we
would calculate, and enter the average time that it took to wedge enough clay
for one mug. In this case, wedging one ball of clay took an average time of 0.8
of a minute. The calculation is as follows: 20/25 = 0.8 minutes.
Assume that
we have taken 60 minutes to throw 14 clay balls, which have resulted in 12
successful cylinders. When someone phones, we stop what we are doing. We check
our time, and make a note of where we were in our production. When we finished
with our telephone call, we check our time, and complete our throwing session.
In this case we would use the remaining 11 balls of clay, which takes another
65 minutes, giving a total throwing time of 125 minutes. We then enter the data
as shown above. When calculating the unit average time in minutes, the results
would be as follows: 125/23 = 5.4 minutes per unit. We would continue to assess
the production time in minutes, the production count of each unit, and unit
average in minutes. We will then record the calculations for each task.
Once we go
through a complete cycle of making the mugs we will be able to see the running
total, which is a picture of the average time that it takes to make a mug.
After we do 2
or 3 sessions of data collection we will be able to figure out an average
hourly production capability for all of the tasks related to making a mug.
Let us assume
that our final production capability of finished, ready-to-sell mugs averages
out at 5 mugs per hour. I know there are
potters out there who can turn out more mugs per hour, but for this exercise,
we’ll pretend we are not a super potter. We will use the 5 finished ready to
sell mugs per hour figure when estimating our yearly production capability.
YEARLY PRODUCTION CALCULATIONS
Before
beginning this exercise, we will have to make some very critical decisions. We
must ask ourselves if we want to work weekends, and national holidays. We must
ask ourselves if we wish to take a two-week vacation with our family, each
year. We must ask ourselves if we wish to take a one-hour lunch break, and two
15-minute coffee breaks. There will be the decision as to how many days a year
that we will dedicate to R&D, as well as the number of days we wish to
spend showcasing our work at gift shows. Once we determine this information we
can begin the task of projecting our yearly production capability.
For the sake
of argument, we decide that we'll work 365 days less 104 days for weekends, 11
national holidays, (this will differ depending on your location), 10 working
days for vacation, and 10 days for R&D, and 25 days for craft fairs ,or
shows. Thus we will only be producing
mugs for 365 minus 160, giving 205 days.
I am hoping that I will not have to take any days off for sickness.
To find out
our daily work schedule, we will start with the 8 hour work day. Our working day will most likely be 8 hours,
less 30 minutes for lunch plus 30 minutes for morning, and afternoon coffee breaks. We may remember when we were recording
our production data; we did not talk about set-up time, and clean-up time. We
can now account for this activity. If we do, we will take 30 minutes per day
for set-up, and clean-up. Thus our productive working time making mugs will be
6.5 hours per day. Do not disregard the
clean-up time. If we do not clean up
today, the requirement will still be there tomorrow.
Now we can
estimate our daily production capability for ready-to-sell
mugs. If we are working for 6.5 hours
per day, completing 5 finished mugs per hour, we will have an average of 32.5
finished mugs, produced per day.
When we use
the daily production figure, and multiply it by the maximum
yearly productive days we arrive at (365-(104+11+10+10+25)) * 32.5 = 6,662.
In other
words we could theoretically produce 6,662 mugs per year.
 |
Sample Data collection slip
|
I emphasize
theoretically, as I am sure that we have no intention of making this many mugs.
At least I don't. These figures are necessary, however, in order to solve our
calculation. We should also take into account that our production capability
will improve with practice. So we should perform this analysis from time to
time.
If we stop,
and review where we are in this discussion, we will see the following figures:
Material cost for clay $0.45
Cost of transport $0.08
Production capability 6,662
FIRING COSTS
We may recall
from earlier discussion, I mentioned that some figures would remain fairly
constant, even though they appear in the VARIABLE COSTS part of the
computation.
One of these
constants for potters will be the firing charge for our mugs. The figures will
seldom change, provided our mugs remain similar in size, and provided we fire a
similar schedule each time. We also hope
the energy costs do not change too often.
Pottery
firing normally consists of two schedules.
Some people may schedule a third firing for over-glaze or luster
application, but for our example, we will stick to the standard two firings.
Determining
firing costs for the bisque is relatively simple. We simply count the number of
mugs it takes to fill the kiln. If we cannot fill the kiln, and want to
complete the firing with other pieces, then we must find the percentage of the
kiln space taken by the mugs, and use this figure when calculating the cost.
Do the same
computation when we load our kiln for a gloss firing. Record the number of mugs
that we can place on each shelf. I have established kiln capacity for my bisque
firing to be between 110 and 125 mugs, and my glaze firing to be approximately
88 to 100.
We must record the
electric meter reading at the beginning of the firing, and again at the end. We
then figure out the difference between the two meter readings in order to
determine the electric kW consumption. Finally, you multiply your kW
consumption by the Hydro cost per kW in your area.
For the sake
of discussion, we can say that when we fire 125 mugs in cone 06 bisque, we use
5 units of electricity at $1.15 per kW unit, including tax. The overall firing
costs would come to $5.75, or approximately $0.05 per mug. A cone 9 glaze
firing of 100 mugs may consume approximately 12 kW of electricity. This equates
to $13.80 per kiln of mugs, or approximately $0.14 per mug. We combine the two
firing figures, and arrive at a total firing cost of $0.19 per mug.
Remember to
read the meter before, and after each firing to determine your firing costs.
Keep your firing costs separate from your day-to-day fixed expenses. Firing
expenses are calculated like a VARIABLE COST. The day-to-day electricity
consumption should show under FIXED COSTS.
Study our
kiln capacity for full loads, and calculate part loads as percentages of our
kiln space. For example, if we have only 40 mugs to fire then they will use
approximately one third of a kiln. Our kiln energy consumption should remain
stable, so once you do you firing energy cost calculation it can become a
constant for future firings.
GLAZE COSTS
Glaze costs
are another item that must be calculated when determining the production costs
of our mugs. Determining them can be a bit complex, especially if we glaze
numerous different sized pieces from the same bucket.
We can
calculate the glaze costs using two methods. The first method would be to
determine our glaze recipe size; cost the recipe; then mix the glaze to the
standard of gravity. It is important to
find the gravity. We then weigh the
entire batch before glazing our mugs, and again after glazing them. We will
then find the difference in weight of the two figures as a percentage of the
original weight. We then multiply the results by the cost of the entire glaze
batch. Dividing this number by the number of mugs glazed will give the unit
glazing cost.
Another way
is to weigh the piece before glazing then again after glazing. This will tell us
the quantity of glaze used. All we do is to multiply the difference in the two
weights by the cost per gram of glaze.
It could be ounces, or metric.
This depends upon what weight system we use.
We will use a
glaze batch that costs $3.20 to produce. We record the gravity, and then weigh
the entire batch. Don't forget to take into account the weight of the glaze
container to adjust the weights accordingly. We then glaze our mugs.
For our
discussion let us say that we glaze 20 mugs. We then re-weigh the glaze batch.
In this example, we find that we consumed 50% of the entire glaze batch.
Multiplying the cost of the entire batch ($3.20) by 50%, we can determine that
$1.60 worth of the glaze was used. Dividing this figure again by 20, we
calculate our unit glazing cost to be $0.08 per mug.
Be aware that some glazes are
very inexpensive, and the cost will be negligible. However, if we work with
material such as Albany slip and cobalt, our recipe may be very expensive. It
is, therefore, important that we calculate our glaze costs every once in a
while.
Once we
establish the cost for a specific glaze batch, we should record the information
in our notes, for future reference.
Another
important point to note here is that by knowing the gravity of your first glaze
dip, you can approximate future glaze costs without having to go through the
weighing process. All you have to do is ensure the glaze batch is at the same
gravity as your first calculation. The cost per mug will become constant.
Summarizing
all of our data at this time shows the following:
Fixed costs $38,250.00
Variable costs
Material costs per mug $0.45
Cost of Transport per mug $0.08
Glaze costs per mug $0.08
Firing costs per mug $0.19
Total $0.80
Production capability 6,662 mugs
We can now determine
our break-even costs.
We simply
divide our fixed costs by our production capability, and add the variable costs
of 1 mug to the results.
The formula
looks a bit like ($38,250/6,662) + $0.80.
By dividing $38250.00 by 6662 we
find the fixed cost for one mug, and then when we add the $0.80 which is the
variable cost for one mug, we arrive at the total cost of the mug.
We have thus arrived at a
break-even-cost of $6.54 per mug.
Whatever we do, we should not sell our mug
for less than this amount.
If we cannot
sell our mugs for more that this amount, find a better way to create the mug so
that it will become attractive and sell.
Wait a
minute! There’s more. We are a business, and as such, we must consider profit.
PROFIT
Profit is the
amount of money we put aside to act as a buffer when times get tough. Profit is
the money we set aside for our retirement. Profit is the amount of money we
would get if we were an investor in our company, or if we invested the value of
our business, and our time into the stock market, or a mutual fund. It is also
the money we use to pay ourselves to undergo additional education, and
training.
Profit is
also the money we give ourselves as a grant or as a gift in support of our
craft guild. Companies must make a
profit in order to pay shareholders a dividend. We are the shareholder of our
company.
How much
should we determine to be our profit?
This is a
good question. According to Wendy Rosen, the author of "Crafting as a
Business", a good profit margin should equal one third of the wholesale
price. If we represent our wholesale price as $X, then $6.54 would represent
2/3 of $X. To find $X all we have to do is divide $6.54 by 2/3 or multiply the
figure by 3/2, and subtract $6.54. In our case, the PROFIT margin should be
about $3.27 per mug. When we add this to our break-even costs, we arrive at a
final wholesale price per mug of $9.81.
Remember that this is a wholesale price for our product.
When we look
at this figure to calculate the final retail price that a gallery or boutique
will have to ask, we may be a bit reluctant to put the resulting suggested
retail price on the mug because it may seem too high. Remember not to
undervalue your work.
We can lower
the suggested selling price provided, we are ready to give up profit, or we
could work for less money per hour. It is in these two areas that we would be
able to reduce the retail cost of our mug.
The suggested
retail selling price of one of our mugs should be set at $19 to $20 when we
sell wholesale outright, and $16 to $17 when we consign at 60%. If the consignment store wants a 50% split
then use the wholesale figures.
I remember
one high priced boutique asking for a 75/25% split. I simply increased my consignment costs to
reflect the percentages. After a while
the owner of the boutique asked me to allow her to reduce the selling
price. I simply stated that she should
reduce the percentage of her take, and that would do the trick.
Reducing
our hourly income may seem like a good idea because we want to compete with
others in the market.
We
may see artists selling their mugs for less, and ask ourselves why. The answer
is simple. They may be able to sell their product for less because they can
produce faster, or because they are using the mugs as loss leaders to encourage
clients to buy sets of dinner ware. It could also be that they have no idea
what they are doing.
We can decide to produce
faster in order to reduce our break-even costs, and thus sell for less. Doing
so, however, will be a real challenge. For example, if we double our production
of mugs to 10 ready-to-sell mugs per hour (double our initial calculation), the
wholesale price for your mugs would be equal to ((($38,250/ (6,662 *2)) +
$0.80) * 1.5) = $5.51. This will give you a retail-selling price of $12 to $13.
The
main point being made here is that we can reduce the selling price, but at an
expense to our well-being. Doubling the production capability will mean that we
will be working ourselves into the ground. Remember we are a craftsperson not a
machine. That is why we must take care. and make a good piece, and charge a
fair price for the product. If the client doesn't want to pay the price, then
let him purchase a machine-made product. Remember that it is making the object
by hand that makes us different.
Someone
asked me if it would be possible for me to sell 6,662 mugs per year. The answer
is no. There is not a market for this many mugs in my area, and furthermore, I
am not interested in just producing mugs. However, I am confident that when I
make and sell 100 mugs, I will get fair value for my efforts. Even if I only
sell 10 mugs I will get fair value.
CONCLUSION
In conclusion, I would like to point out
that this exercise would work for all forms, and all types of repetitive craft
production. In addition, the market
changes on a regular basis. Now many
sales are being carried out on the internet.
This brings in new figures that have to be categorized as fix or
variable costs. We have the frame work
on how to go about doing the math in this document.
Once the basic data is formulated, we will
be able to apply most of the figures to determine the production costs for both, One-of –a-Kind objects,
or craft carried out in series.
