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Finding the Right Price for your Created Items: Cost of Goods




Boxes with pictures of so many art tools

Cost of Goods is a pretty straightforward category, but I was surprised by how many things I wasn't realizing were part of this category, and that the other categories we will discuss are just as important if your goal is making money instead of losing it.


I believed that the goal is to charge double, or triple, what an item cost you to buy/create, and that's a great basic understanding. Depending on what you're selling, you may need to expect a lower markup or a higher one. More importantly, you need to know, before you get too far in, if what you're doing is actually sustainable as a business. That knowledge will help you decide if you want to keep it as a hobby, or a way to make special gifts for friends and family, or if you believe it's possible for you to make a go at doing it full-time as the way you sustain yourself financially.


To that end, let's break down what goes into the Cost of Goods category, and some of the most important considerations when you are purchasing supplies.


Tip #1 - Track Everything


There are programs you can get to help you with this. I just make my own spreadsheets and track things myself. An example of what my categories might look like can be seen in the table: This example will include a collection of supplies for something I make, but is not from my actual records. As prices fluctuate over time, and across resources, I'm just doing an example with current information, and this is not a design that I've made myself. In this example we will be making earrings. In the first table we will be sourcing things separately. However, everything pre-cut does tend to come with some things, so I will include the things that are in the $14.62 kit, plus the things that do not come with it as separate items.


ITEM

DATE

TOTAL COST

# OF ITEMS

COST PER ITEM

# OF ITEMS PER PAIR

PRE-CUT FAUX LEATHER PIECES

4.83

60

.08

6

EARRNG HOOKS

4.83

60

.08

2

HOOP RINGS

4.83

60

.08

2

DISPLAY CARDS

4.61

150

,03

1

BAG FOR FINISHED EARRING

4.61

150

.03

1

This 'kit' also includes a jump ring opener. I've never figured out how to use the jump ring opener, but I've had the jewelry making tools to open/close them for years so I've never felt the need. If you don't have the other tools, this might make the kit more appealing.


In the end, each pair of earrings will cost you $.86. You will have 10 pair of earrings, and you will have the remaining supplies of: 50 earring hooks, 50 earring hoops, 140 display cards and 140 packaging bags. If you don't use these supplies to make additional products, you will lose the money for them unless you recalculate your cost of goods. If you only intend to make 10 pair of earrings, the cost of goods is actually: $2.37per pair.





Tip #2 - Compare Prices


When I'm looking to create something I want to make sure I'm getting the best possible price for the materials so that I can maximize my profit. Personally, I try to find materials that are a balance of price, quality, ethics, and availability. I'll touch on ethics briefly, but first let's look at the costs if we purchase everything in a kit. This kit, including tax, is $20.62.


ITEM

DATE

TOTAL COST

# OF ITEMS

COST PER ITEM

#OF ITEMS PER PAIR

PRE-CUT FAUX LEATHER PIECES

5.76

96

.06

​6

SILVER PLATED EARRING HOOKS

5.76

96

.06

2

HOOP RINGS

5.76

96

.06

2

DISPLAY CARDS

​.48

16

.06

1

BAG FOR FINISHED EARRING

​.48

16

.06

1

This kit also includes a jump ring opener, and the included cards hold 3 earrings, but even if you use one for each pair of earrings, this kit only makes 16 pair of earrings!. So let's stick with the parameters this kit offers and consider what the cost of goods would actually be.


Each pair of earrings from this kit, 16 pair of earrings, would cost $.72. However, you would be left with 80 earring hooks and 80 hoop rings. If you only intend to make the 16 pair of earrings, you would need to include all of the cost in those earrings and that makes the actual Cost of Goods $1.29 per earring.



Tip #3 - Mix it up


Is that the real cost, though? I try to only use hypoallergenic earring hooks, so if I don't buy a kit with hypoallergenic earrings, I have to buy those separate. There is an excellent hypoallergenic earring hook that can be found $8.99 plus tax for 600 pieces. It's important to note, however, that this set includes 200 hooks, 200 jump hoops, and 200 rubber/silicone earring stops. You aren't paying $8.99 for 300 pair of earrings. You are paying it for 100 pair. That makes the cost .09 for the hook/hoop/stop - which is a great price! Unless you are only making the 10 pair, which makes this portion of the cost $.90, or, if you are making 16 pair, $.56.


I also am very picky about the cards that I use for displaying earrings. For small stud earrings I prefer small marble design cards that come in a pack of 1200 pieces for $10 plus tax. Don't get too excited though! The package includes 300 cards, 300 bags, and 600 earring backs. This is still a great price - but I emphasize this to point out how important it is to make sure you know how many of each thing you are getting. And to show that so many kits overlap with what they are providing. I have no idea how many of the earring backs I have, but it is way more than the number of earrings I've made - and that's no small number! I also enjoy using brown Kraft style circle cards that are $21.17 plus tax for 1200 pieces - which provides 600 cards and 600 bags.


I have beautiful marble cards for larger dangle earrings that break down to $.06 each for 250 cards. These also come with 150 bags but I don't break the cost down using that because 1) there are 100 less bags than cards, and 2) when displaying the earrings I do not use the bags. So, yes, all of the bags are only worth factoring in if you will be bagging the earrings - and you will need to buy 100 more or make sure you have another source for them, like from the earring kits. And my very favorite display cards are the inclusive images of women of all skin colors. One set I found was $15.19 plus tax for 160 cards, and another set was $14.99 plus tax for 200 cards. I purchased both sets because one would arrive sooner than the other and allow me to put the larger earrings out when I needed them out, and both sets included different representations.


As you can see, the actual cost of goods will vary depending on how intentional you are about what parts you use for your earrings. You can purchase the faux leather sheets and cut them yourself on a Cricut or other such machine. This will probably allow you to spend less on the cost of the pieces, but you will have to include more of your time and wear and tear on your machine, so you want to make sure you adjust for the shifts in cost. If I do make more earrings using this material in the future, I would like to cut them myself. I did not have the time to do so when I needed them, so time is also something that must be included as a consideration.


Tip #4 - A Thought About Ethics


When you are purchasing in wholesale quantities, you can expect to spend a fraction of what you would pay for a single item. If you are buying one pair of earrings, you will pay more than if you are buying the supplies for 15 pair. If you are focusing sales on earrings you will want to find ways to get the most supplies for the least amount - and often buying larger amounts will be the way to do that. At the same time, I encourage you to pay attention to when that deal seems way too good to be true.


Everyone will have their own ethical line - and, unfortunately, there are times that we honestly can't know the details of where an item came from or how it gets to us. It is possible to buy items you can know all about, and you will pay a premium cost for that. That cost will be factored into your Cost of Goods and passed on to your customer - who will most likely be looking for that level of accountability. You will definitely want to include that information in the marketing for your products so that people understand what they are paying that extra premium for. This is also easier to do if you are focusing your creativity to one type of creation. If you only make earrings, you would be able to source a high quality item and buy in an amount that would make it less of a disruption to your cost.


While I would never high five someone who is looking for the cheapest options - only because I have learned too much about the exploitation of the earth and her residents around the world in the pursuit of cheap supplies, I do not judge those who are buying what they can afford, or do not know where a particular piece they are using is sourced. I am always researching and learning more about these things and I try to find the highest quality items I can find - especially when I can buy them in an amount that makes them more affordable. Life is a journey and we are all in process. I hope that this mention will encourage you to consider where everything you purchase comes from. I am willing to pay a little more for something I know came to me through fairly paid workers using ethically sourced materials.


Tip #5 - Be Intentional


Being intentional is the best way to find what you need, make sure it's the sourcing and quality you want, and be confident in what you are making. As you can see from the examples above, sometimes the "cheaper item" ends up costing you more. When you see a large number attached to a kit, take a moment to make sure how many finished items you will actually have. 1200 items broken down into 2 things is a lot different than 1200 items broken down into 6.


Being intentional includes planning of every kind. If you look at the breakdowns above, you can see that every kit has lots of some items left over. Do you have a plan for them? If not, can you think of a way to use them? For example, if you make a kit of faux leather earrings, you might want to consider making some charm earrings, or some beaded earrings. If you don't have a plan in advance, make sure you're keeping track of what you have for supplies so that you can start future creations with supplies onhand and limit your out of pocket expense for the new pieces.


Putting It All Together


When it's all said and done, the first element you need to consider is Cost of Goods. If you don't know what it costs you to make something, you won't know what to charge others to buy it. As you'll see when we move into the other categories of cost, you don't want to dive into a new project only to find out you cannot sell it for the real cost of making it. You might decide to use such an item as a wonderful gift for those you love, but it won't work as a model for building a business. And that's what we're going for here!


Tomorrow we will talk about the value of your time.

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