As with services this starts with identifying your turnover goal for the next 12 months. However, unlike selling time you have a bunch of production costs which you need to take account of before anything else. As a very general rule of thumb the direct costs of production when added together should not exceed 50% of the wholesale selling price. If you sell retail as well as wholesale again a general rule is that the retail price is roughly double the wholesale price (in reality this depends on what sector you are in so in fashion the mark up is often 3-4 times wholesale price, in fine art it is usually only double).
Consider what percentage of your turnover will come from wholesale vs. the percentage from retail sales?
So, lets assume you want to turnover £100,000 in twelve months and that half of this comes from wholesale (that’s £25,000 in materials) and half from retail (that’s £12,500 on materials). The reason that I put this in figures is that it is important to see that there are significant costs involved in reaching your sales goal (and we haven’t even started talking about marketing and all the indirect costs).
You need to take account of your ability to invest in the materials before you make sales … if you provide too many sale or return orders you will find yourself paying for lots of materials and it could be months before the goods sell and you are paid. It is too risky and the shop has little incentive to sell your work as you are essentially lending them the money to stay in business.
Equally you need to be clear about the difference between small batch production and its high cost and large scale manufacture. Is it your goal to mass produce or do you want to make more exclusive products than that? There is no right answer here but if you are a small firm and you want to make use of the economies of scale which are achieved with mass production will you do this alone (with all the marketing cost associated with launching a product nationally or internationally which will be needed to sell the volume) or would you licence the product to a larger firm who has the money and the distribution to take it to market.
“This is a whole bunch of difficult questions and all I really want to do is get my work out there.”
Sure, I appreciate that but if you don’t consider this stuff at the beginning the worst case scenario is that you produce a small batch, under price it, forget the costs of marketing it either to shops or to end clients, provide product on sale or return because it’s better than holding stock in your studio and end up struggling to recoup what you spent on it let alone make a profit.
We just want to make sure you’ve considered the things above before setting a price and committed to a production mechanism. Your price must be high enough not only to cover all your production and marketing costs but also to leave enough profit to pay you and have some left over to go into the development costs of the business (investing in more stock, better equipment, larger studio etc).
Growth doesn’t tend to be a smooth curve, instead it looks more like a staircase where each of the verticals means that you’re spending money before you recoup it in sales. That means having enough spare cash (and/or a good relationship with a bank to lend you the money) to make the investments when you need to.