Ellen’s views on the 2008-9 benchmark data

Ellen O’Hara, Head of Business Development, Cockpit Arts and Sarah Thelwall, Founder, MyCake had a long chat about this year’s benchmark data over lunch this week and Ellen kindly agreed to pitch in with a contribution based on a comparison of the MyCake post on jeweller’s and her own experience with the data they gather from Cockpit members. The post below can also be read as a commentary on this post which compares the finances of designer makers and artists.

Some interesting observations here – many of which are supported by Cockpit’s own research into the business models employed by its studio holders.  Jewellers actually make up the biggest percentage of studio holders at Cockpit (22%), followed by textiles (16%) and ceramics (14%), so I’ve had a look at how each of these are doing and what we can learn:

Jewellers
We hold data on a similar group of jewelers to mycake – all sole traders, a mixture of precious and semi-precious, representing businesses at all stages of their career, including some part time businesses.  The main difference seems to be that a higher percentage of our guys outsource manufacture – nearly half.

Our figures also show that, generally speaking, those with relatively high production costs are either gem and/or gold based jewelers.  Or they are jewellers with relatively low levels of turnover (below £20k), but who are still investing in stock.  These tend to be either part-time business (and have an income from elsewhere), or start ups.

Textiles

Our research shows that textile businesses, along with jewelers, are among the best performing businesses at Cockpit in terms of overall levels of turnover and profit, and growth.  Our sample includes sole traders and partnerships, again ranging from start ups to established businesses.

The model here tends to be slightly lower gross margins, but higher volume of sales generated through a combination of wholesale orders, and direct sales via e-shops and selling events to the public.  The majority of these businesses fall under the printed textiles banner, producing homeware and stationary, and tend to outsource a large percentage of production.

Ceramicists

All of our ceramicists are sole traders with some catering for the fine market, some for the craft collectors market, and others the high end gift and interiors markets.
We’re afraid to say that these guys seem to be facing the biggest challenges in terms of sustainability and growth.

Despite the lower absolute cost of materials, direct costs are up to 60% of turnover for some start ups and up to 36% for some more established businesses.  This means that profitability and productivity tend to be lowest within this discipline.

What do the best performers have in common?

What’s clear is that the most successful makers are employing a diversity of business models and strategies.  84% have a strategic business plan, which includes detailed financial forecasts and budgets, and their business model is fit for purpose.

All have a strong USP, good profile in their chosen market place (however niche), and robust business processes.

The most profitable businesses are split between:
1.    Those with higher gross margins, who tend to sell smaller volumes at higher prices and generate sales through a mix of private commissions, direct sales (with Open Studios and other high profile shows such as Origin and Goldsmiths), supported by some gallery / retail outlet sales.  For this group, direct costs are a lower percentage of turnover (no higher than 26%), with the mode being just 15%.  They become sustainable at around the £60K turnover mark.
2.    Those who rely on a higher volume of sales tend to outsource production, and reach their market via trade shows, have a greater dependence on wholesale orders and on-line sales, and take on fewer private commissions.  Evidence suggests that turnover needs to higher in order to be sustainable at around the £100k+ mark.

So in addition to Sarah’s sound advice, I would add:
1.    Consider gross margins when developing your new pieces and collections.  Be aware of which products (or services) offer the most profitability and use this to inform your sales plan.
2.    If you can’t increase your margins and need to go for volume sales, ensure you have the production capacity to cope with this level of activity.  Explore different options – outworkers and batch production, outsourcing to a factory, collaborating with a partner who does have the production set up, or licensing.  Efficient production also means you are more likely to cut down your lead times, which will help encourage repeat orders and respond to those retailers who are employing a ‘just in time’ approach to placing orders at the moment.
3.    Being visible is important, but don’t fill galleries with SOR stock at the expenses of your cash flow unless you know from experience the work will sell and you’ll be paid in a timely fashion.  If you are a precious metal or gem based jeweler – consider SOR as a pr activity as opposed to relying on it as income – and be discerning about the outlets you choose to stock.  Do keep regular stock takes and pull your work out of outlets that aren’t shifting your work within 3 months (6 months max).
4.    Introducing a less precious range, or using a mixture of materials, may be a way of increasing overall profitability.  Similarly, you may be able to add value by introducing more ‘precious’ materials, or introducing optional product pricing and offering additional extras to bump up the value of each sale.
5.    Marketing budgets are interesting one.  On the one hand, if profits are being squeezed then you may need to shave costs.  However, this should not be at the expenses of sales.  Use a system like Mycake to conduct a cost / benefit analysis of the different marketing activities you engage in – how does the investment compare with the sales (and pr) gained, and under what timescale (in other words, what is the return on this investment and how long does it take to reap rewards?)  Could some, or all, of your limited budget be put to better use?

Overall improving you financial literacy needn’t be scary and crunching the numbers can actually be really satisfying once you know what you’re looking at.

Cockpit will be providing plenty of financial related support in 2010, so keep an eye out for our business and professional development events programme.

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