Wednesday, 7 October 2015

Leon Bear and a Discussion on Pricing

Hello!  This is Leon - first really new bear in a while.

Whilst I was making Leon, I was trying to find something inspiring to listen to.  I tend to have Radio 4 on, but if I can't find anything that appeals to me, I often end up watching videos on iPlayer or Youtube - and then I only work at half the speed!  I'd love to listen to something directly relevant to my business while I'm working, but it's difficult to find a good 'match', so to speak.  I've listened to lots of crafting and small business podcasts which are so vague or wide-ranging, they put me to sleep (no doubt that says more about me than the podcast) and quite a few which seem to be directed purely at high-flying 'tech entrepreneurs', which I don't understand a word of.  

However, I recently discovered Tara Swiger's podcast series.  It is fantastic!  I highly recommend it, particularly if - like me - you have a small business making and selling handmade items.  I love her enthusiasm and the way she breaks everything down into small, quasi-psychological problems to be solved.  It suits me down to the ground.

It has made me think about some aspects of my business that I usually prefer not to look at too closely.

For example, Swiger repeatedly emphasises the importance of knowing where you are going, and what you want your successful business to look like.  Then you can plan what steps you need to take to get there.  Strangely, I haven't spent a lot of time thinking about this in detail - beyond 'I want to be a successful teddy bear designer/maker.  Steps required: make and sell teddy bears successfully.'

Another example is profit margins.  In Swiger's view, you should know exactly what your profit margins are and exactly how many of any item you need to sell in order to meet your targets.  It sounds such an obvious thing, but I've never had financial targets and I don't know what my profit margins are.  My approach has always been, make as much as possible and sell as much as possible.

I was so convinced by what she was saying though - and I so want to be that person who knows exactly what their profit margins are(!) - that, when I'd finished making Leon, I sat down and worked out his costs/profit margin.  It wasn't any more comfortable than on previous occasions, but I was feeling quite pragmatic, thanks to Swiger, so it was definitely less depressing than usual.

I haven't brought the figures out with me, but I can remember them roughly.  Leon cost around £33 in materials/components (£23 of which was the mohair).  He took about 11 hours to make.  If I charge £2.50 per hour, the time comes in at £27.50 - so around £60 in total.  This is about in line with the rest of my prices.

However, £2.50 an hour is hardly sustainable.

I then worked it out using the minimum wage rate - which is £6.70 (or $10) per hour.  That would be £73.70 for 11 hours work - around £107 including the materials.  This seems to be roughly in line with other mohair teddy bears of the same size, available on Etsy.

But most of my customers tend to be non-collectors who just take a fancy to a particular bear and buy him on the spur of the moment.  £107 might be within the realm of expectation for someone who visited my stall at a big collectors fair, but for someone who saw Leon at Dedham, or at some small craft fair somewhere, it would seem astronomical.  I don't think I see enough collectors to be able to charge that much (and I'm afraid I feel uncomfortable charging that much anyway).

An alternative pricing method (and the one I have used over the past couple of years) is one I read about in a teddy bear magazine, where you double the cost of your materials to account for your time.  In Leon's case, this would end up with a final price of around £66.  This sounds much more reasonable, but the reality is that I'm still not making much more than £2.50 per hour.

The way I see it, I have a number of options:
  1. Continue pricing as I do (i.e. by doubling the cost of the materials) but work on selling more bears.
  2. Include time in the price calculation, and work harder to reach actual collectors.
  3. Include time in the price calculation, and work on finding alternative fabrics to use which don't carry the high costs of mohair.

Selling more bears and finding collectors are obviously things I'm always striving to do in my business, but neither of them is going to solve the fundamental problem that my profit margin is too small.  I think the third option is more promising.  Although I'm very attached to mohair myself, I'm a little dubious as to how much value non-collectors put on it.  Everyone seems to like a tactile fur, but does it matter whether it's mohair or some kind of fleece/faux fur arrangement?  

I do make some creatures in other fabrics - the linen crows, the cashmere hares, mammoths and moose - they all sell reasonably well.  Maybe I should simply work on extending this range of non-mohair creatures.

So, in pragmatic Swiger-fashion, my goal is to deal with the problem of low profit margins and the steps I am going to take to do this are firstly, to create a number of mohair bears for the next Hugglets show, which I will price according to both materials and time, to see if they sell.  Secondly, I am going to investigate non-mohair fabrics and try to make some bears/creatures where the materials form a much smaller part of the cost price.  Thirdly, I am going to make a practice of establishing costs for everything I make!  No easy task, but hopefully with practice it will get easier - and then the figures won't be quite so shocking when I do look at them.


Anonymous said...

Hello Ruth. I can fully understand your dilemma. I would not describe myself as a Collector but I do have 4 of your gorgeous bears. My only concern would be that I do not buy on-line and get to very few of the shows you attend, and yet I definitely prefer the mohair bears

Ruth said...

Hi. I can't see your name from here (apologies) but thank you very much for that. I think with four mohair bears though, you are definitely in danger of becoming a collector! :-) It is interesting what you say about preferring mohair - I suppose mohair must, in some degree, appeal to non-collectors for mohair bears to have endured so long. I'm not going to stop making them; I will just make some adjustments, and be a bit more experimental with other fabrics. At the moment I am making one of my designs in denim. He's not quite finished, but he has a lovely shape to him - the fabric has held out really well. With his joints, and his solid feel and his beautiful crisp seams, he still feels like a bear in the tradition of mohair artist bears, if you know what I mean. I guess that's the crux of it for me: if I can sell him, the money will be almost entirely a return on the work and care that has gone into him. The value will be in the craft of bear-making, rather than half in the craft, half in the fabric.