I’m currently in St. Paul for BlogHer Handmade and The Creative Connection. Yesterday, I had the pleasure of speaking on a panel with three lovely ladies – Tara, Anne, and Alicia.
Our topic was Craft + Money: Intermediate to Advanced Techniques for Monetization, and you can check out the live blog transcript here.
We had three key takeaways we wanted to share with the audience.
1. The importance of multiple revenue streams (which you all know I’m a big fan of).
2. Creating a sales funnel for your customers (which Tara loves to talk about).
3. And the importance of having really big goals.
And it was this third concept, the idea of having really big goals, that led me to a point I’ve been thinking about sharing for a while.
Having big goals for your business means you have to be willing to spend big money on your business.
A fear of spending money on the business is something I see in so many of the crafters that I work with. (And more of the ones I don’t work with.)
And it’s precisely this fear of spending on the business that holds so many crafters back.
Think of any big company you admire. One that’s making a million (or more) dollars each year. Do you know how much money they spend each month just to keep the business running?
Even if your goals aren’t that lofty, it’s still important to consider what a typical business bringing in a large income is spending. Especially in a capitol intensive field like product manufacturing. (And let’s face it, a craft business is a product manufacturing business at heart.)
If your goal is to sell $100,000 worth of product this year, you’re unlikely to do it spending a few hundred a month. It’s more likely that your annual expenses could be something in the range of $50,000 or more. (I know mine are.) Which means if you want to make $100,000 in profit in a year, you might be spending almost as much on business expenses.
Now, I’m sure you’re wondering where this money comes from.
When you reach a certain point in your business, it becomes cyclical. Money flows in, money flows out. You spend what you make because you know it’s essential to keep more money flowing in.
When you’re first starting out, you might not have as much money coming in to your business. But that doesn’t mean that you can get away without spending money ON your business. Oftentimes, not spending on the business is what’s holding back the growth of your business.
But then where does that money come from? Savings. Another job. A loan. Kickstarter. Ultimately, where it comes from matters less than developing the willingness to spend when it matters.
I spend a lot of money on my business. Sometimes close to $10,000 in a month. But this doesn’t scare me, because I know it’s what needs to go out in order to bring money in.
I’m fortunate that I grew up in an environment where spending on the business was normal. I remember my mom going to the bank to cosign a loan with my dad to buy a new million dollar machine for his business so he could make parts for a new customer. The motto was always spend when it was necessary.
Something to keep in mind is that even when you’re spending big money, it needs to be strategic. Buying more supplies and more equipment won’t help you get more sales. You need to be willing to invest in marketing opportunities (shows, advertising, PR, anything that will help you generate more sales) and anything else that helps you grow the business. Sometimes, that might mean buying a new pieces of equipment, but it usually doesn’t mean adding to your stash of materials.
If you want to grow your business, you need to get comfortable with spending. You have to be willing to loosen your grip on your money, and remind yourself that you’re sending money out so that more can come back in. It’s a scary step for some people. But it’s essential if you want the business to grow.
Where have you been holding back when it comes to spending money on your business? And how can you change that?
Whats been holding me back is the “unknown” a lot of other designers design what i do thats one the other is the lack of funds . I live paycheck to paycheck
hi gabbie –
it sounds like you might need to look for some outside funding sources – perhaps a bank loan or a kickstarter campaign to help take your business to the next level.
you might also want to check out a post i wrote previously called “How to find $500 to spend on your business” – http://www.craftmba.com/2010/11/11/how-to-find-500-to-spend-on-your-business/
I absolutely know that this is a stumbling block. Most crafters look at their business as a hobby. Until they treat it as a business, it will stay a hobby. One has to be willing to jump in with both feet. And that usually means spending the money. Thanks for addressing this. I would also like to hear more about the importance of multiple revenue streams! Say hello to Alicia! She is a good friend!
thanks megan – this is so reassuring. It takes a lot of faith in yourself and your product. especially “in this economy” when everyone is saying don’t quit your job, you’re so lucky to have it at all.
I’m one of those that has kind of plateaued on etsy. I do a few retail craft fairs and I’d like to stop doing consignment, but I feel like wholesale takes too much of a cut at this point. I feel like I’m always thinking about step 12 when realistically I’m only on step 3.
So my question: for someone on a really tight budget, what’s the one first main thing you would suggest investing in at the beginning-ish stage of a business? a website? a booth at a wholesale show? a big ad somewhere? all three?!
thanks as always, hope you’re having fun at your conference!
Hi Karen!
If you’re concerned that wholesale is taking too big a cut, then that probably means it’s time to raise your prices!
To answer your questions, unfortunately, there isn’t one right answer for everyone. It really depends on a combination of your goals and your products.
For me, the best investment that I made starting out was to do a wholesale show. But one of my goals at the time was to find a way to stop doing retail shows, and to shift my business to a wholesale model. So if wholesale is a primary goal, than a show is a great investment.
However, if you don’t have an interest in doing wholesale, than that money might be better spent on a website – provided you’re also spending on a strategy to direct traffic to that site.
As far as advertising goes, one big ad is never the answer. Instead, you should commit to spending on a multi-pronged ad campaign based on where your buyer is. Depending on your ideal customer, this could mean Facebook advertising, Google ads, ads on blog, ads in magazines, or ads in newspapers. The most important thing to keep in mind with advertising is that it requires a long-term investment (more than just a month or two) before you’ll start to see a pay-off.
Thanks so much for posting this. I’ve spent a lot of time lately pondering whether the old “spend money to make money” adage is true.
What’s been holding me back? Fear of debt. I was raised to live well below my means and never ever spend money that I didn’t actually have in hand. My parents thought borrowing was only OK when you bought your house. I’ve realized that it’s not really possible to run a business that way; for example, this year I’m doing a lot of bigger shows and of course they always require the booth fee well in advance. In theory I’d make that fee back and then some at the show but sometimes the show’s months away! So for now it goes on the credit card and that always makes me feel faintly ill.
Lately I’ve been using the “feel the fear and do it anyway” approach but I am new enough at this that I’m not always sure that I am investing in the right things. And sometimes it feels like the result is out of my control. Take shows, for example. I can spend money on a booth fee for a show that feels right for my product, that draws my right people… but then if no one shows up because of freak violent storms (which we’ve had numerous times this year on show weekends!), I am out that investment. I’m really not sure what to do about that.
I am just worried about spending a lot of money on supplies, and then the product flopping, which has happened to me in the past. I am currently working on a line of hand dyed scarf wraps, and I am stuck, I have some samples that I paid retail for the supplies, but I can’t really start marketing them unless I am able to fill the orders. I cannot do that unless I shell out for a 50 yard roll of fabric, which I don’t want to do until I feel more confident they will sell.
How do I test market something without spending all my money up front?
Another way I’ve found to come up with the cash (besides the ways suggested in the above link, which is great, btw), is to clear out old supplies, inventory, clothes, whatever on eBay.
I needed to make a major equipment purchase that would allow us to make a new product. It was going to be about $2500, which I didn’t have at the time. I’ve been committed to running a debt-free business. I realized that I had piles of things sitting around that I could easily unload, get cash for, and clear out a ton of cluttered space in my studio.
I started with supplies for crafty projects and such. I had tons of supplies for various projects, that realistically I will never get to… or, I tried them and they just aren’t for me. I had to let myself get over the guilt of not finishing these projects, or selling them for what I paid. Ultimately, all that stuff was costing me time (because I spend too much time tripping over it and sorting through it), and money, because I previously wouldn’t let it go.
I had various other products that just had never sold well… instead of continuing to let them sit around, I cut their price down by half. That made me just barely break even on some of those items, but how many more months would they be sitting here at full price? Into the bin they went.
Finally, I raided my house and closet for things that I really don’t need, and was pretty much keeping because someone gave them to me. (Like the pair of Ugg boots that I got for Christmas last year, that I didn’t ask for and don’t like.) Yep, they need to go too.
I put it all on eBay and watched it fly. I had to re-list a few items a couple of times, but eventually everything sold. I ended up reaching my $2500 goal and being able to pay cash for the equipment we needed. Besides that, another great side effect was all the SPACE that opened up. I had previously thought that I needed to go buy some new storage containers and organization system for my studio. Nope, I just had stuff I didn’t need. Yet another problem solved.
Good luck to you all!
I’m about to take a leap of faith. I’ve just committed to a 3mth retail cube at in.cube8r. (A store set up for handmakers just like me/us). Never dreamt my pieces could be in the middle of town for shoppers to see in person. It will take up all my profit so far. It feels like an essential expense to keep moving my bussiness along. I’ll be stuck in hobby mode forever more if I don’t take a caculated leap. For me it’s a big goal, new things to learn (eg setting up a display). Another challenge I need to get past is actually making things consistently. I feel this is just the kick up the rear I need to move things along. =) Love reading MBA Megan.
Hi,
I found this post really interesting, because I had not really thought about it in this context before. I can relate to most of the comments made here because up until a few months ago I was feeling the same way – how do you spend money when you are not making much money and also felt that all my efforts were benefiting others more than myself (when hefty commissions were taken on my work or I shelled out big bucks for a show and there seemed to be little return).
I decided I needed to be the one selling my work direct to the customer in a gallery setting to ever hope of making any money to actually pay myself. I felt confident that my work would sell because I have a pretty unique product, I have run my own small galleries before and my work sold well in a few other Galleries.
But in this world economic downturn I felt mad taking on a lease, what if I could not pay the rent, what if no-one bought anything – what if it failed! To get me started I enlisted the help of a fellow jewellery designer whose work was of a high standard but very different to mine and offered her commission free sales in lieu of managing the space a couple of days a week to allow us to maximise sale opportunities and be open 6 days in the week.
The shop front I signed a lease on (2 year lease no less…) was in a quiet street off the main street in our tiny, little seaside village (that is a tourist haven in Summer).
Because of the downturn I was able to negotiate a big reduction in the rent.
Even though my studio is not on the main street it is perfect, because it doubles as working studio with a lovely, intimate selling space at the front.
For the 2 and a half months since I opened we have had daily, multiple sales. I have been able to pay all my monthly costs plus all my extra materials costs (which went RIGHT up) plus extra packaging costs, promo costs and numerous other costs.
Now, I would not have incurred all these hefty monthly costs, if I was still at home in my little spare, ‘studio’ bedroom. But neither would I have been able to pay myself a nice little wage on top of these other costs, IF I had not taken the plunge to spend so much and moved out of that home studio.
In addition, my work looks more professional because I can display it and ‘style’ it and manage it myself. Customers take me more seriously and I take ‘me’ more seriously. I have to work very hard to make this viable, so there is no time to wallow in self pity as I was want to do when I was on my own at home. Lots of opportunities have arisen in this short space of time as well – we have both secured a couple of commissions for example.
So if it is something that is a possibility for any other crafters (setting up a selling space) then I would encourage you to take the plunge.
Of course you need to do some research first and not all locations are viable but if you could team up with a couple of other designers and pool your efforts and maybe even your funds then it is worth thinking about.
Customers have really valued being able to see where the jewellery is made, they have rejoiced in the fact that they can by hand crafted from a designer directly.
I absolutely had to spend ALOT of money to start to make any money.
LOVE this blog post, and I love reading all of the comments about folks who have taken the plunge to make their business work! It’s really scary!
What holds me back is not being confident about how to spend the money. But, what I’ve learned from reading these comments is that most people are seizing new opportunities to grow their business… they’re not saying, ‘oh, I’ll just go spend a ton of money on Facebook ads’.
I’ve been hesitant to expand my business in a way that requires inventory (I sell mostly digital products), but there’s definitely a need… and I just decided last week to go for it. I placed my first order the other day- and it feels really good! I think it’s what I need to do go grow 🙂
Great post. I have only sold online on etsy for last 2 years. I have really grown my business online this year. Now I am taking the next steps. I am going to start selling my items in a local shop so I am trying out wholesale for the first time. I have putting in only so much product to see how it does but I am hoping for a lot of custom orders which I charge more for. Also I am doing to be doing my first craft fair in Oct. Which I can’t wait to get my products in front of real people to see what they say. I am now in process of buying all the things I need to set up shop outside and retail. Things I never had to buy before for displays. Since I sold online I didnt need. I have noticed I am scared to spend the additional cash but it has to be done if I want my product to shine in the real world and not just on a computer screen.
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I love your writing and have just added you to my personal guru list. You are an inspiration to me.
Hello there!
Long time reader….not much of a commenter:)
I read and digest every thing you write! I have lofty goals with Simple Daisy….but sometimes it’s hard to find the time to do it all…
where to advertise…blogging….responding to e-mails…on and on!!
I absolutely love it and WILL make it a full time career at some point…but for now…I figure at least I have an income {i’m a special education teacher} while I learn the ropes!!
Thank you so much for your insight!!!!
ps…i’m having a little give-away on my blog…not sure if you ever like to enter those….but stop on by if you get a minute!!! Plus…i’d love to know what you think about my jewelry!
Keep up the good work…even thought I never comment….I read everything you write:)
~Heather
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I am so happy I read this post. I have been reluctant to spend money on marketing. I think I am addicted to having the tangible-supplies.
I also have a lot of trouble deciding what type of marketing to go with?!
There are so many ways to go-I don’t know which to follow or invest in.
I have been showing more. Some are scores, others are an epic failure.
Could you give any insight on where to put money in marketing?
Many thanks-Recrudescence
Hello Megan, So happy to have found your site! Your jewelry is lovely and your advice is very lovely during this time as I am trying to start a jewelry buisness. It is a mix of things founf traveling( I lived in Turkey the last 5 years) and my own designs. Just moved back to Mn and am trying to get some roots replanted here and it is all a bit scary but thank you for this advice about spending money to make money. Appreciate your site, thank you.
Emily
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