Understanding Profit Margins in the Handmade Products Industry
- by Alian Software Collaborator
It's one thing to design and create furniture and home decor as a hobby. But it's an entirely different thing when you turn your craft into a profitable business. It's not as simple as creating awesome products, marketing them, and selling them. There's a lot that goes into any business model - no matter the industry! There are nuances with understanding profit margins in the home design industry. How will you make a livable income as a self-employed designer? And what's a profit margin, anyway? Read on to learn everything there is to know about how to make money as a self-employed home designer!
What’s a Profit Margin?Profit is profit, right? It's not that easy! Sure, profit refers to financial gains, money made... but a profit margin is a little more specific. Profit margins are a measure of your profitability. It's a percentage that reflects the amount of revenue which exceeds production costs.
How Do You Calculate Profit Margin?First, subtract all business expenses from the total amount of revenue. This includes material costs (raw materials/shipping supplies/tools/etc.), taxes, and operating costs (rent/electricity/etc.). Remember that your total revenue is your gross profit amount before business expenses. Then, take the difference and divide it by the total revenue amount. This leaves you with a profit margin. Let's say a wood maker has a total revenue of $5,000. Her business expenses equate to $1,000. This would leave her with a profit margin of 80%. Profit margins are something you'll routinely calculate throughout the course of your business. Now that we understand how to calculate, what can you do to optimize your profit margin and take in the most income? We'll explore that next!
How Do You Price Products and Services?As you get your business up and going, you may wonder how much product you should create each month. If you offer design services, you may be wondering how many clients you should work with every month. To figure this all out, you need to first answer this question: How much are you looking to earn? And to reach your target goals (you should make them weekly and monthly), how much product will you have to sell? You may now be wondering what to charge for your products. And to figure that out, you'll need to take the following into account:
- Rent & utilities (for your workspace or store)
- Internet (if you run an online store)