profitability of production work
-- a case study

Judy has a nice little craft studio making one-of-a-kind recycled pins and beaded baskets. She started her business working part-time in 1989. From modest beginnings she has grown her business to the point where she is now a full time craftsperson. She sells her work at several local retail shows, and this past winter exhibited at the Philadelphia Buyers Market of American Craft. This wholesale show was so successful that she’s booked for the balance of this year, and even has orders for 2002 on the books.

She has good sales literature, personalized earring cards and hang tags, and an artist’s statement. No wonder she was so well received at BMAC.

Right now her business grosses about fifty thousand dollars a year. After production costs, selling expenses and overheads, she brings home more than a thousand dollars a month before taxes.

Judy’s goal is to be able to take home a more significant contribution to the family budget, but not at the expense of having to forego her creativity by becoming a regular businessperson with lots of employees. Sixty thousand dollars a year seems like a nice, round number to her. The trick is in how to get there.

Judy was amazed at her reception in Philadelphia. She had no idea that the galleries would be so excited about her work, especially since some of her high end pieces run to several hundred dollars apiece. Of course a taste of that has gotten her to thinking about the future, and she’s currently developing an angle to help meet her goal her way.

Currently she is working on a catalog insertion for a relatively simplistic piece -- one that lends itself to high volume production. This item was created specifically for the catalog house, but in doing so Judy kept in mind the way she was going about producing work of a repetitive nature, and now she has seven or eight other products that might work well in other catalogs, as well as enjoy a much faster turnover in the galleries than her expensive one-of-a-kinds. Between the different products themselves and the different patterns that can be worked into them, she is beginning to flesh out a line that can be produced and sold in serious quantities. It helps that this line looks sufficiently different that it should not have a major impact on the sales of her present work.

How profitable is this new line? Very profitable. And very saleable, too. Judy estimates that a worker with rudimentary training can produce two pieces an hour. They sell for a wholesale price of twenty dollars or so, and there are six dollars worth of materials in them. There might be a slight increase in overall selling costs for this line, but she thinks the majority of what is produced can be sold through catalogs and her present base of galleries without much further effort. Contract workers on piece rate will do the actual production, so she won’t require a larger studio, nor will she have to wear that businessperson’s hat very often to handle it. Also, her retired husband is available part time to help with the running of this larger business: office work, shipping, liaison with her customers, etc. This is starting to look like a win win situation.

So what happens when Judy is running at the equivalent rate of one full time worker a year in additional to her own efforts? Now her gross is in the neighborhood of $135,000 a year, and she’ll be bringing home more than forty thousand dollars before tax. She’s now within striking distance of her goal. A small price increase in her one-of-a-kind offerings, one or two more good retail shows, or a little more volume squeezed from the new line of production work and she can be over the top. Exactly how she gets there is not important right now. What is important is that she now has a plan for growing her business that makes sense to her, and which allows her to make a substantial move toward her goal. She also knows what the significant elements are to watch for in achieving that goal: staying on top of her costs, ensuring that the added sales are there to support her new level of operations, and thinking through any further design work with a eye to reproducibility. She can track her progress, and react quickly to any variables that start straying off course, for better or worse.

It may take a couple of years or more to get there, but Judy’s goal is reasonable and attainable given the base she is working from, and the viability of her newly conceived line of production pieces. The most difficult part for her now is to structure this growth so that the paperwork and office time required to manage a larger business don’t detract significantly from her creative time. And as it grows, she will no doubt become more comfortable with the administrative duties associated with owning a small production studio. On-the-job training will give her the rudimentary business and marketing skills to become a successful crafts professional.

Current
w/Production
Sales revenues
$50,000
$135,000
Direct costs
15,000
60,000
Gross profit
35,000
75,000
Selling expenses
10,000
15,000
Overheads
10,000
15,000
Income before tax
$15,000
$45,000


   
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