Craft Venture: accounting for direct costs, part II

Encaustic sampler set of 5 handmade paints, by Jamie Ribisi-Braley

We’ve been talking about calculating your expenses as part of your product cost.  Last week, we started talking about direct costs.  In theory, your direct expenses – the materials and supplies used to make your produce or perform your service – are straightforward and easily identified.

Or are they?

Don’t forget “hidden” costs, easily overlooked, like fees charged by your particular venue(s) and Paypal or other online payment and banking systems.  Are there sales taxes that you’re not charging your customer outright, but that you’re still liable for?

You might be using vintage or heirloom supplies handed down to you, such as your mother’s button stash or beads from your grandmother’s jewelry.  Consider assessing each a “price” based on current value or using another methodology, which will help your prices remain fair, consistent, and (most importantly) ensure some level of profit for you.

How do you account for the cost of a major component when the price varies depending on when and where purchased?  Do you use an average expense for that component, to keep your prices for those items consistent, or do you vary the price of each item as it’s made, by the actual component use and cost?

How do you handle an unexpected increase in supply expense?  Do you raise your own prices accordingly?  Or decrease your profit margin in order to maintain your current prices?

Vintage sequins, metallic dark emerald, by narceine

The answers to these questions aren’t very straightforward, and vary from artist to artist.  I can make a valid argument in either direction for each case!  I encourage you to think through all of these and how each affects your business and artform.  Many of us are in business for some form of financial gain:  to make a living or cover the cost of your materials and supplies or to give to charity or to have a little pocket money.

In order to realize financial gain, your prices have to cover your direct and indirect costs and then some (e.g., “profit margin”).  It is perfectly alright – truly it is – for you to both want to make and achieve a profit!

Share with us what you learned by examining your own hidden direct expenses?  Do you have additional questions about direct costs?

Image credit:  1.  Encaustic sampler set of 5 handmade paints, by Jamie Ribisi-Braley; 2.  Vintage sequins, metallic dark emerald, by narceine

See you next week!  Brenda from Phydeaux and Phydelle

10 comments | Click here to reply

i love your idea of assessing a price for everything brenda, even if it didn’t cost you anything (like handed down items, etc). it seems so many of us often forget about hidden costs…like for example paypal fees! that has been my downfall thus far.
-brittni

papernstitch

It is tricky, and I think it’s particularly difficult for artists to do that – it somehow “feels wrong,” even though it’s not! Thanks, Brittni.

Brenda (Phydeaux)

I keep a very basic income/expense sheet. I claim my art earnings and expenses on my taxes, so it’s crucial that I do this along with keeping ALL receipts. When I price my work I take into consideration the Paypal and Etsy fees. Though they seem small, they do add up! When I purchase art supplies, postage, shipping supplies, advertising, etc. all of these expenses are recorded on my sheet. Basically, any income/expense (no matter how seemingly insubstantial) related to my art and Etsy shop is recorded on this sheet. Keeping this sheet allows me to track costs and compare to income on a regular basis, and when tax time comes around I have a nice neat packet of information to send off to the accountant.

I’ve worked in finance in an accounting related position for nearly five years now, and I highly recommend that small business folks consider taking an accounting course at a community college, adult ed center, etc. I’ve taken accounting courses for work at a local university, and they have been a tremendous help in my personal life as well.

Audrey

Audrey, You sound very organized! 🙂 Kudos. Absolutely, I agree with you that keeping track of everything is the way to go. Also, adding those receipts, fees, supplies, etc to your records asap (before you forget about it) is a good idea. If you continually keep track as you go, it will make a lot less work when tax time rolls around.
I love all your input!
-Brittni

papernstitch

Wonderful information! All of it is great advice– especially assigning a price to items that you’ve gotten for free. If the resulting product winds up taking off, you’re going to have to go out and pay for the item so make sure you’re already charging for it 🙂

Thanks for featuring my paint!! I did go through all of this and more when coming up with my prices.

Jamie Ribisi-Braley

Hey! Nice job here! I’ll be dropping by from time to time 🙂

aadi

This is GREAT info! Thanks for sharing! Let me add to this that you should also keep a record of your mileage for tax purposes. Office has an array of templates on line and all you do is fill in the date, reason for trip and mileage. The spreadsheet calculates it for you and keeps a running total.

Eileen
http://ruralwisconsin.blogspot.com

Eileen

Yes, indeed! Thank you for adding that – tracking business related mileage is important. And thanks for the tip on the MS Office templates!

Brenda

Oh, and thanks Aadi!

Brenda

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