Keeping good records allows you to chart your sales and expenses to see where there are strengths and weaknesses in the way you do business. Without this knowledge, you might be selling lots of products and still not be breaking even. Break-even is when your total costs or expenses equal your income.
Your income (not your profit) can be figured like this:
selling price x number of units sold = gross sales
For instance, say you are a doll artist and your average piece sells to stores for $50 and your expenses average $900 per month. Here is how you would determine the number of dolls you would have to sell to meet your expenses given those figures. “Y” is the number of units
you need to sell.
$50 x Y = $900
$50Y = $900
Y = $900 / $50
Y = 18
You must sell 18 dolls a month to meet your costs of staying in business. That’s good to know. But you must also learn whether each piece is worth making. That is, are you making a profit?
Figure your material costs and labor costs for each item that you sell. Material cost is the sum of all the materials that went into making the piece. Labor cost is your hourly rate times how long it takes you to make the item.
If the sum of your material cost and your labor cost is less than the price you are currently asking, the piece is priced profitably. If that sum is greater than your current price, you are losing money with every sale.
For more strategies on becoming profitable through pricing, recordkeeping and tax advantages from your craft business, see this book on pricing crafts.
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