Yesterday I started posting the answer to a question I had posed to successful Etsy sellers. It’s so interesting seeing their different responses!
Here’s the second answer I have received to my question: Q: What is your formula for your earnings? How do you work out how much to put back into the business and how much to save? It’s from Savor, a company that has been on Etsy since October 2007 (almost one year!) and has sold over 5,500 items. With great packaging, affordable pricing and clear photography, it’s easy to see why Savor has been so successful!
When I price out my items, I include a labor figure. It’s an hourly wage, based on how many hours per month I work on Savor (currently full 40 hr weeks), and how much soap I can produce and sell in that time frame. If I can sell 300 soaps the labor takes a big chunk of the budget — if I can sell 600, it doesn’t hurt so much 🙂 If I find I can suddenly make 800 sales (pick up a wholesale account, for example), I can theoretically increase my wage per hour. It may or may not be sustainable — I might make more per hour over the holiday season but then cut my wage during the summer.
My wage is moved from my business savings account twice monthly right now, so I get two paychecks, just like I do in my day job. Since we’re saving for a house, I move the wage from the biz account to our personal savings account.
After the wage has been paid, my next point is my tax burden. State income tax, Federal income tax, and one-half of the Self-Employment tax (there is an income threshold for that, I didn’t have to pay it last year as I didn’t make much profit, since I opened in Oct). This is saved in my biz savings acct.
My next item is CA state sales tax, which I also reserve in my biz savings acct.
Then we’ve got Etsy fees. Those I reserve in my Paypal account, since I pay my Etsy fees via Paypal debit card. Since Paypal fees are deducted immediately I don’t worry about them.
Then we’ve got bills: there is an overhead component in my item pricing, for three main bills — 20% of our rent, since that is what I deduct on taxes, our entire electric bill, and my mobile internet access bill.
Next consideration is raw materials for upcoming needs. I typically find I need to restock every two months. Restocking would include everything from soap raw materials to shipping supplies, from replacing broken equipment to office consumables like printer toner, paper, and shipping labels.
Then we get, finally, to improvements! Equipment upgrades, expanding into other products, etc. In a way, this is “whatever is left.”
I have an excel sheet where I track what I want. I want X oil from X company, it costs $X and this is what I want it for (christmas, whatever). When I get some cash, then I say, ok, I have $20, what do I want? What do I need? Oh boy, a mold just broke. Can’t get the new oil, have to get a mold first.
Or I might say, I have $20, I don’t really need anything now, so I will save it. Next month I’ll have $40, and be able to buy something more expensive that I need. So some months I spend a bit, some months I spend some and then save some for bigger purchases.
Also part of the consideration are some dues I have — flickr pro, liability insurance, business license, webhosting for my savorsoap.com site, international postage software.
Before any of this is the cost for shipping, when you have a $20 sale you’ll need to remember that maybe $5 of that is shipping cost.
I think that covers about everything.
Wow, that’s a lot to think about! Take it all in, read it again…there’s some really helpful stuff here!