Common Costs of a Craft Business

When I left my first few craft shows with a handful of cash (this was before credit card readers were popular), I counted that as money I made. I didn’t know the difference between revenue and profits and was completely ignoring expenses outside of booth fees and production costs.

The same applied when I sold my products online. I didn’t think about how many hours I put in, photographing items and creating listings, packing items and making trips to the post office, etc.

Once I started looking at all my expenses, I realized I wasn’t making very much money. I was more so spending time and money making items, only to earn that money back. 

 

Revenue vs. Profits

Revenue is considered all the money that comes into your business through the sale of your goods (and/or services). If you sell a necklace for $50, the $50 you receive for that necklace is considered revenue. 

Profit is considered money that’s left after a business subtracts all its expenses from its revenue. If you sell a necklace for $50 and you spend $20 to make, market, and sell that necklace, $30 would be your profit. 

There are other ways to break revenue and profits down, but for the sake of this article, we’re going to keep things simple.

 

The importance of profits

Profits tell you how much money you’re making; rather than spending and earning back. Would you still run your business if you spent $100 each month and simply got that money back at the end of the month? 

Profits are how you get ahead. They help you:

• Earn more than an hourly wage
• Grow your business
• Be prepared for rainy days
• Take vacations

When you calculate your profits, you get a clear picture of where you should and should spend your time and money. 

 

Expenses & Wages

To calculate profits, you need to track anything you spend time and money on for your business.

Time is an important one that most craft business owners ignore. But if you don’t track how much money your business owes you in hourly wages, you can’t calculate your profits. 

And if your business doesn’t pay you for your time, you’re not running a sustainable business. 

 

Craft Business Expenses & Wages

This is not an exhaustive list of the expenses a small handmade business incurs. Nor is it a list of tax-deductible expenses. You may or may not spend time and money on each area listed here. But this will give you an idea of the things craft business owners commonly spend time and money on and areas you may be ignoring. 

1) PRODUCTION

Expenses

• Materials
  • materials you need to purchase for each product you make
  • materials that are used for several products (such as a spool of thread)
•  Tools
  • one-time fees for purchasing the tools
  • maintenance fees
• Price tags
  • Tags (paper tags or stickers)
  • Supplies for attaching tags (pins, ribbon, plastic fasteners)
  • Tools for attaching tags (tag fastener gun, hole punch)
• Packaging
  • Labels
    • Permanent – fabric content labels or care instructions sewn into the product
    • non-permanent – informational stickers or tags attached to the product
    • Container (bag, box, jar, etc. you may sell your products in)
    • Decorative elements (tissue paper or ribbons)
• Travel – gas/mileage to pick up supplies or costs to have them shipped

Wages

• Researching (brainstorming new product ideas, learning about trends)
• Sourcing (browsing the web to find the fabrics you want)
• Purchasing (driving to the fabric store, standing in line to purchase, picking up orders from the post office)
• Production (start to finish, the time it takes to create each product)
• Creating and attaching price tags
• Creating and attaching labels
• Placing products into packaging and adding final touches

 

2) STUDIO SPACE

Expenses

• Rent – whether you’re renting a studio from someone else or using a portion of your home, the space you use to create your products is an expense
• Monthly expenses
  • Power & hydro
  • Internet
  • Phone line
  • Parking
• Supplies
  • Office paper for printing invoices
  • Tape, paper clips, stapler, etc.
  • Laptop/computer
  • Phone
  • Camera

Wages

• Driving to and from studio
• Paying bills
• Shopping for office supplies

 

3) MARKETING ONLINE

Expenses

• Website
  • Hosting fees
  • Design & development fees
  • URL registration
• Membership fees
• Advertising – any paid ads
  • Google Adwords
  • Facebook boosted posts
  • Banner ads

Wages

• Creating Content
  • Taking photos
  • Uploading photos
  • Creating listings (titles, descriptions, pricing, etc.)
  • Writing blog posts
  • Updating information (updating upcoming events)
• Social media
  • Posting
  • Updating
  • Commenting/sharing/interacting
• Emails
  • Checking
  • Sending
  • Responding
• Newsletter
  • Updating subscriber list
  • Planning content
  • Creating newsletter & testing links

 

4) MARKETING OFFLINE

Expenses

• Craft fairs
  • Table fees
  • Items donated to swag bags
  • Travel
    • Gas & mileage
    • Hotel
    • Parking
  • Childcare
  • Display
    • Table/tent rental
    • Tablecloth
    • Props
• Wholesale/Consignment
  • Travel – gas/mileage/shipping costs to drop off or pick up orders
• Marketing
  • Advertising
  • Graphic designer
  • Printing
    • Business cards
    • Postcards/Flyers/Posters
    • Promotional material (pens, t-shirts, pins with logo)
    • Coupons

Wages

• Craft Shows
  • Applying
  • Marketing
  • Driving to and from
  • Set up & take down
  • Selling
• Wholesale
  • Sourcing Retailers
  • Meeting with retailers
  • Creating a lookbook
  • Keeping track of orders
  • Filling orders
• Marketing Material
  • Designing (if you’re designing the material yourself or going back and forth with the graphic designer)
  • Handing out marketing material

 

5) SALES

Expenses

• Taxes charged to customers
• Credit card fees
• PayPal fees
• Commission fees
• Shipping
  • Envelopes or boxes
  • Printing labels
  • Printing Invoices
  • Bubble wrap
  • Postage fees
• Wrapping – sales made in person require:
  • Shopping bags
  • Decorative elements (tissue paper, ribbon, thank you cards)
• Samples given away

Wages

• Customer service
• Getting order ready for shipment
• Driving to and from post office

 

6) ADMINISTRATION

Expenses

• Hiring – any jobs you can’t do yourself. For example:
  • Accountant or tax software
  • Lawyer
  • Hiring a helper
• Operation expenses
  • Registration (business registration)
  • Permits & licenses
  • Insurance
  • Banking fees
  • Memberships (for online tools you may use such as PicMonkey, groups you’re a part of)
• Loans – if you’re paying back money you borrowed from the bank or family
• Shrinkage – any inventory lost due to being damaged, stolen, lost in transit, mistakes, flaws, etc.

Wages

• Anything you do to run your business. Consider this: if you wouldn’t do it for free for an employer, don’t do it for free for yourself.

 

 

Tax-Deductable Expenses

If you have to pay taxes, you’ll pay them on your taxable income (profit). The more you document as an expense, the less your taxable income is, which means more money left in your pockets. The list above is not a list of tax-deductible expenses. What’s tax deductible varies by country and system.

Talk to an accountant before you start adding up your expenses for tax submission. This article should not be taken as professional advice. Speak to your accountant for the most accurate and up to date information for your profession and jurisdiction.

 

Tips for tracking expenses & wages

• Get a separate checking account / credit card – using one account to put revenue in and take expenses out makes it easy to track your business’s money and allows you to keep a closer eye on whether you’re getting ahead or going under.
• Add up expenses regularly – set a day each week or each month to enter all your expenses and revenue and file your receipts. Leaving it too long is going to make it feel like a daunting task. You should be checking in each month to see how your business is profiting.
• Create a receipt filing system that works for you – it’s important that you keep all your receipts if you’re filing expenses. If you’re writing off portions of your home, car, etc. the government may come looking for proof of these expenses.
• Make it fun – I’m a sucker for pretty stationery so I used tracking expenses as an excuse to go out and find a cute notebook and accordion file to keep track of my expenses and receipts.

 

This article is for information purposes only. Speak to an insurance professional for the most up-to-date information for your profession and jurisdiction.

You may also be interested in:

• 7 Ways to Make your Craft Business More Profitable
• 5 Business Metrics to Track Monthly
• The Success Planner for your Handmade Business