The Real Cost of Making Craft

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.