Tuesday, December 29, 2009

How To Earn Six Figures Sewing For Etsy

Today I set up an Etsy shop and all will be revealed in due time. I had an epiphany while sewing Christmas presents. I realized that something I was doing, I have always been doing -- naturally drawn to doing -- since childhood, but in different ways over the years. There are commonalities across drawings I made as a child, newspapers I designed as a teenager, apartment decorating I did as a young adult, and a sewing technique I am doing now. So it must be some essential part of me. If it's true that you should align yourself with what you're drawn to, to be true to yourself, then I need to try to do this.

This is a very opaque description, yes. Someday I will tell more.

I have no illusions about Quitting Your Day Job or earning six figures while making things. I think it's unfair of Etsy to promote that. Or if they are going to promote it, there should be relaxation of the handmade rules. You must have help producing things in order to make six figures. (and by "help," I mean paid help not free help from relatives)

Here's why:
-- Assume you'll work full-time at 40 hours a week, so you'll work 2,080 hours in a year.
-- To earn $100,000, you need to charge $48/hour for your time (100,000/2,080).
-- If you want health insurance, 401K and other typical benefits you may receive when working for others, then you need to add to that $48/hour to cover your benefits costs.
-- You cannot earn $100,000/year with $100,000 in revenue. Don't be misled. Don't your materials cost something? Aren't you paying Etsy fees? Other marketing costs? All of those costs, and all other business-related expenses, must be in addition to the $48/hour.

Now, let's assume we're trying to replace a typical corporate job that offers benefits. Plus now you'll need to pay taxes and FICA, etc. As rough estimate, I'd add 30% to $48/hour = $62.40/hour.

So if you allocate one hour to sew something, anything, what does that product need to be, to be paid $62.40 for that hour of your time, plus the cost of materials and all business expenses? Plus, um, profit??? Is there any room for profit here, at all.

Now, think about all your time that you won't be spending sewing product. You need to allocate time to research and develop new designs, market, provide customer service, pack and ship, post listings, handle finances. So realistically, your production time must be valued much higher than $62.40 in order to cover all the time doing other business-related tasks.

OK so maybe this isn't possible in 40 hours a week. What if you're willing to work 60 hours a week? Which if you're doing what you love and you can spread it out in chunks across all hours of a 7-day week, maybe it doesn't feel like working 60 hours a week. That's why you wanted to work for yourself, right?

60*52 = 3,210 hours/year
100,000/3,210 hours = $31.15/hour
$31.15*1.3 to cover fringe = $40.49/hour

Charging prices to cover $40.49 per hour + all business expenses makes it pretty challenging to reach a six-figure income, even when working a consistent 60-hour week, for 52 weeks a year. There is no vacation time figured here.

I wish I had the answer to this post's title. I have always sucked at math, actually (NOW I tell you!) so maybe there's something fundamentally wrong with my logic and calculations. You can try to double-check and tell me what you get. Or if my logic is flawed, I'd be happy to hear what to change.

One assumption people may disagree with is the six-figure challenge. And you're right. You don't need to earn six figures. Many people would be happy with $60,000 annual income. That's perfectly alright. Refigure the above numbers to produce $60,000 plus fringe, corporate taxes, etc. See what you get for an hourly rate. Then remember to account for EVERY materials expense, ALL marketing and Etsy fee expenses. This should all be figured into your pricing. Don't count stashed materials as free. You did pay for them at one time. If you depleted your stash, you'd need to pay for new materials.

Anyway, this is the calculation approach I'll use as I proceed forward with pricing. Not necessarily based on six-figure income assumption. Rather, we'll see where it produces a sales figure that customers would be likely to pay. I have no illusions of leaving my day job, but I live with a Finance MBA who will want to know that the time dedicated to producing for a shop, and not just a fun hobby, makes sense.

Nevertheless, I do believe there is a business model where it's possible to achieve a six-figure income sewing handmade products for Etsy customers, but production time/cost must be covered by a carefully designed process with out-of-the-box thinking. And I think Etsy should relax some rules or perhaps add a second tier for handmade items that allows for a more mass production (all by hand of course) environment.


Kristin said...

AMEN! I sure wish everyone priced their items to compensate for EVERYTHING and not just go with the flow! Great thinking... my thought exactly.

Happy Sewing, good luck with your shop!

Lori Nelson said...

Wow. Perspective is imperative! Thanks for the insight. I am still learning the ropes...just want to stay afloat.

raj said...

Sellers should read this to get a better perspective of what they are doing and how they're pricing items.

TutusChic said...

LOL. I loved your article and it is soooo true! I don't think we are in this for $ but more for the love of it and ..... some $
Thanks much

deb said...

Thank you for the encouraging comments. I was worried about posting this. But if consumers were exposed to more pricing that accounts for all, wouldn't that be good for everyone selling their handmade goods.

Beach House Living said...

Well said! Thanks for sharing

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