Craft Venture: accounting for overhead, part I

I don’t want to panic anyone, but the holiday shopping season officially starts in just three and a half months or so! Now is the time, if you haven’t already started, to prepare your online shop! If you’ve already worked on your photos, descriptions, shop announcement and other suggestions from our past Craft Venture posts, you’re already in pretty good shape.

I thought a good place to start preparing for the holidays is for you to take another look at your prices. Good pricing makes or breaks your business. You can lose money on each and every sale without realizing it!

Every item for sale has a … price! Behind every price are fixed and variable expenses (materials/supplies, wages, overhead, fees, taxes, advertising) and (hopefully) profit. Materials and supplies are hopefully self-explanatory:  the cost of the items used to make your product. This can include your packaging expense, unless you’re accounting for that in your shipping and handling charge. Your fees, taxes, and other expenses charged to you for selling your product are fixed – you’re not able to adjust your state’s sales tax. You set your own wage, or wages you pay to others; we’ll talk about that in the near future. You are able to adjust wages to a certain extent; certainly, you may adjust your own wage as much and as often as you’d like. Overhead is probably the most nebulous and least understood of the components to your product pricing.

Overhead is an “indirect” cost to your product:  fixed expenses you incur as a business owner that aren’t specific to an item. Rent, electricity, phone, high speed internet are all examples of overhead expense. Your monthly rent or mortgage is an amount usually set by your bank, lender or landlord. You have some flexibility in how much of your rent or mortgage you include in your price structure.

Have you gone through the exercise of accurately capturing all of your overhead expenses? I’ve been working on that myself this last week, as I’ve been recalculating my prices. Every time I come back to my spreadsheets, I remember another expense to include!

This week’s exercise is for you to list all of your overhead expenses, along with dollar amount. Expenses to look at include:  rent/mortgage/lease, electricity, phone, hispeed internet, health and dental insurance (if you’re self-employed), city/county property taxes, business insurance, life insurance, internet domains, professional association dues. Be thorough and honest with yourself! Don’t panic as you see the list grown and expense increase. Next week, we’ll talk about your options for including overhead in your pricing structure.

Share with us what surprised you about your overhead expense? If you’re an old pro at this, what other “hidden” overhead expenses should folks be sure to include?

See you next week! Brenda from Phydeaux and Phydelle

Image credits:  (1) Shoes on a wire by Pearson Maron, (2) Take out light by ideaka,