How to Calculate Your Profit Margins for Your Handmade Jewelry Business
Whether you are a fledgling jewelry designer or an established small jewelry company, the profit margin of your business is a good indicator of the success and the direction you need to head in the future. There are several factors to consider when calculating the profit margins for your business. And adjusting any or all these factors can increase your profits and help your handmade jewelry business succeed.
1. Cost of materials
The biggest factor that influences profit margins is the cost of materials, but don’t be tempted to buy cheaper materials to save money. Buy quality materials such as gemstone beads, metallic parts and fasteners to build your reputation. A solid reputation is worth more than a few cents saved on cheaper materials. A good reputation builds trust and repeat customers.
Of course, precious and semi-precious gemstone beads cost more than acrylic parts and base metals, so price your jewelry according to the type of materials you use. Include your tools in the cost of materials as well. If you are looking to cut costs, buying cheaper tools can reduce your initial investment. But the best way to maintain your quality standards is to form a relationship with a trustworthy supplier, who can offer competitive pricing on your favorite supplies.
2. Labor costs
If your business makes small jewelry and presumably doing most of the labor yourself, this factor is probably the least variable, though it is still equally as important. Your time is precious. The effort you put in to creating your jewelry and maintaining your business should be reflected in your profits, so don’t forget to include your hourly rate in pricing and profit calculations.
If, after assessing your business model, you discover that your labor costs are where you could save some money, there are some ways you can reduce the amount of time you spend on your business.
Handmaking jewelry requires creativity, dedication and time. However, you can streamline your manufacturing process and cut labor costs by investing in the best tools for the job. A small investment up front can save you a lot of money in overall profits.
Outsourcing is another effective way to manage labor costs. Outsource tasks that take time away from your creative processes, such as hiring a virtual assistant to maintain your social media presence and website.
3. Shipping costs
If you run your business from a brick-and-mortar storefront, shipping costs may be irrelevant. However, most small jewelry-making businesses have at least some part of their business online, and understanding shipping fees can help you calculate your profit margins more accurately.
The cost of shipping items depends largely on the retail price, weight and the location the item is to be shipped. More costly items cost more to ship due to added insurance. Bulkier and heavier items cost more to ship as does shipping internationally. Most small businesses try to absorb some of the shipping costs to give their customers a lower flat rate. However, you can give customers the option of expedited shipping which will incur an additional fee.
4. Selling fees
Selling fees depend largely on whether you operate a brick-and-mortar store or market stall, sell from your own website or through a secondary marketplace such as eBay or Etsy. Each sales point has its advantages and disadvantages. However, the one thing you need to consider is how much it costs to sell your items from these points.
If you have a physical location, you need to include rent, utilities and insurance into your selling fee calculation. If you sell your jewelry from a market stall, don’t forget to factor in market fees, cost of gas and the cost of setting up your display. For sales from secondary websites, you may find there are listing fees or a monthly hosting fee.
Marketing focuses on the other end of your business: your customers. Promoting your products typically leads to greater sales. You can do a lot of your own marketing by blogging on industry websites, running Facebook and Instagram accounts to showcase your items and attending jewelry expos and community events.
Doing your own marketing can save you some money; however, if this area is not your forte, outsourcing your marketing and promotions can be more effective. If you hire an agency to manage social media posts and advertising, be sure to factor in their fees.
Pricing is typically the area that small business owners struggle with the most. There are hundreds of pricing models and finding the right price for your product depends not only on factors such as materials, labor and fees but also on market demand and whether the piece is one-of-a-kind or can be reproduced.
One effective formula for calculating the retail price of your jewelry is to multiply the cost of materials and packaging by four and then add that figure to your hourly wage. Find 10 percent of the total to cover overhead costs and add that to the labor and materials total. Then, round up depending on the uniqueness of the piece.
Handmaking jewelry is a labor of love but don’t let your labors go unrewarded. If your profit margins are looking slim, reevaluate your business model and use some of these factors to recalculate and improve the financial success of your jewelry business.