June 24, 2016

You're not just buying materials: behind-the-scenes of a small business

In this blog post, I'd like to help bridge the gap that sometimes exists between buyers and sellers resulting from miscommunication or misunderstanding on either end, specifically regarding disagreement on the value of a product or service.


Thankfully, accusations of “overcharging” are seldom leveled at us; we and our customers seem to consistently be in a state of harmony regarding the value of our products. 

Once in a blue moon a customer (or potential customer) balks at our price or quote, but far more often, I hear people - hardly ever other business owners, mind you - bashing other businesses for “overcharging.” 


As a customer, it’s one thing to be enthusiastically eyeballing someone's products but be short on cash, and to approach the seller in a complimentary manner while explaining your situation, with the ultimate goal of “getting a deal.” In my opinion, it’s also perfectly acceptable to ask for some sort of a bundle or shipping discount in exchange for multiple purchases. (The key word here is "ask!" If you can do it with a reasonable or supportive attitude, even better!) 

However, it's entirely different to outright accuse a seller of "overcharging." At best, this is an accusation of inaccurately estimating or misrepresenting the value, and at worst, it's more like accusing the seller of attempted theft. 

We all know that sometimes mistakes are made on both sides in the market, and I'm not saying that all sellers price their items "fairly" (though this is a matter of opinion); I'm only saying that this is a very strong charge to make, and quite an off-putting one if you're on the receiving end of it! 

If you're wanting some kind of discount, leading with that particular attack is one of the absolute worst ways to go about it. It's like trying to get a date by leading with an insult. Best case scenario, it's regarded by the seller as a challenge, and one they're probably not even interested in meeting. 


What most shoppers don't seem to realize is that there's so much more factored into the price of an item or service than simply the cost of materials. That works great if you're a 10-year-old running a lemonade stand, but in the real world even the old "materials + time = cost" thing is ridiculously simplistic and bogus.


I believe that good sellers not only have the responsibility to respect their customers when determining pricing, but that they should work hard to see themselves and their products/services from their customers' perspective, as this maximizes the value of what they're offering and provides the best possible experience for the buyers. 

That said, I also believe customers have the responsibility to treat sellers respectfully, to negotiate with the intention of creating win/win scenarios, or at least make informed accusations of "overcharging." 

There is so much more to running a business than most shoppers ever see, or ever occurs to them - most of which costs the seller time, money, or both. These are often "built into" the purchase price of the items and/or the rate for their services. 

Before I elucidate, keep in mind that I'm primarily speaking as an artist/artisan (in my case, specifically as the co-owner of an online costume business), although I believe these issues could apply to just about any skilled labor or small business.


Before even opening a business, the seller(s) need to develop skills and/or products, so they have something of value to offer the marketplace - i.e. something to sell! 

This begins with some sort of learning, be it at a school or college of some sort, apprenticing, or self-directed education through materials such as books and online courses ... and lots and lots of practice! 


Even typical "best case scenarios," such as attending college on a full scholarship or learning via free materials on the Internet, still leave the would-be seller with living expenses! 

In terms of money, the education, training, and development of skills could cost the would-be seller as little as an Internet connection, a few hundred dollars in books, or tens of thousands of dollars in student loans. 

In terms of time, the would-be seller has probably spent years practicing and honing their craft (often while working other jobs to pay the bills), just to get to the point that they could professionally offer a product or service, and in all likelihood this is something they've done on their own initiative and nobody has paid them for this time.


Once the would-be seller is capable of working at a professional level, to operate as a business (i.e. to make money), they still need products to sell and/or some sort of a connection to their intended market. 

Accomplishing this can require considerable research; many questions must be answered and many decisions made, such as: What am I good at making? What do I want to sell? Do people seem to want to buy this? If so, how much do they seem to be willing to pay? How much would it cost me to offer them this, and can I make these numbers work so it's a win/win? How do I reach these people? Do I have competition, and if so, who are they, and what are they charging? Is interest in this area growing or declining? ... and so much more!!!

All this research takes a lot of time - again, time which the would-be seller is probably not being paid for.

In all likelihood, this research costs money, too, even if it's as little as having to pay for Internet. And unless the would-be seller is living under a bridge and using public computers, they still have living expenses in the mean time. Even if they were living for free, they would probably be saving all their money at this point to give the new business a boost!


At this point, the would-be seller is ideally familiar with what the market (i.e. shopper) wants and how much they're willing to pay for it, and it's up to them to make the numbers work in the product development. 

This probably requires quite a bit of experimentation, which, in our case (as a costume business), means a considerable investment of time and material costs just to develop something reasonably sellable. 

In other words, the seller purchases the necessary tools and materials out-of-pocket and spends a lot of (almost certainly unpaid) time experimenting and tweaking to develop a sellable product, based on the research they've done so far. And afterward, once the product is finalized, they probably make several of them for practice (to ensure consistent quality, and to learn to make them faster).


The would-be seller has invested quite a bit of time and money to get to this point, but at least now they finally have something to sell!


However, just because something sellable now exists doesn't guarantee sales; money won't magically rain down on the would-be seller's head. Having something cool and of value to offer shoppers is worthless unless they know it exists and they want it.



The item or service will then need to be presented as professionally as possible, which entails a whole slew of other expenses.

For us (as a costume business) and others like us, this means professional photos of our items. Fortunately, Kate is a talented photographer so we didn't need to hire one, but even if a would-be seller is photographing their own items, they need a camera of some sort (at least a high-quality camera phone!) and camera batteries. Better yet, a tripod, photography lights, and a decent backdrop. 

In our case, we also needed to purchase mannequins and/or hire models to display the costumes. Getting photos of the costumes in epic locations requires travel and the ensuing expenses such as gas, food, and hotels.


Then, if the would-be seller is taking their own photos, they may need photo-editing software better than Microsoft Paint, or even Gimp; if they're doing video promotions of their products and/or services, then they'll need video editing software as well! 

Oh, and, of course, learning about all these things and doing them takes time. A lot of it.

As a recent example, I spent literally dozens and dozens, if not hundreds, of (unpaid) hours researching the 10th Doctor's suits for our sewing pattern, traveled to a convention 7 hours away to present a panel on my research, filmed the panel with a camera and tripod we'd bought a few years prior, only to return home and discover that I needed video editing software more advanced than Windows Movie Maker just to display picture-in-picture. The software was $50 out-of-pocket, plus 2-3 work days to learn how to use it and put together my panel video to share with the costuming community and promote our work.


In addition to the ever-present (albeit relatively minor) cost of Internet, the would-be seller probably needs some sort of web site ... you know, to actually sell their stuff! Platforms like Etsy, eBay, Amazon, etc. are great, but having a custom web site can be essential, depending on the business. This leaves them having to pay for a domain and hosting plan, perhaps a web designer as well, just to get to where they can present their products and/or services for sale! 


After probably hundreds of hours and thousands of dollars, the would-be seller can NOW actually begin to be a proper "seller!"


Everything prior was just to get the business up and running; now let's talk about actually maintaining it, and operating expenses. 

Sellers need some sort of workspace; many of us work from home, in which case our rent or mortgage payment goes toward providing this. Many businesses work out of a separate office. Regardless, sellers need somewhere to actually work, and space isn't free!

However, an empty room, shed, or office probably isn't much good on its own. Sellers need furniture, such as desks, tables, chairs, shelves, trash cans, etc., as well as accessories such as chair mats and lamps - all of which they've probably had to buy on their own. (I highly doubt any customers are paying the seller to go out and buy a work desk.)

The seller also probably requires some equipment to do their job properly! In our case, we need sewing machines, sergers, ironing surfaces and irons, tailoring/dress forms, a washer and dryer, and a water heater, but pretty much every business needs some sort of computer and any relevant accessories (mouse, mouse pad, speakers, monitors, printers/scanners, etc.).


There's also equipment maintenance and repair. Machines need to be serviced, and when they break, they need to be replaced. Our $500 commercial boiler iron recently bit the dust, and we had to buy a new one just keep our business running - just so we could fill our current orders and continue to sell!

The workspace almost definitely requires at least basic utilities such as electricity and trash/recycling pickup. If you want a bathroom in your workspace (and who doesn't?), that requires water/sewage service, and of course you want your workspace to have Internet and phone (which requires physical phones and/or cell service). And guess who pays for all this? The seller!

Want to work here? 

The seller probably needs some sort of storage to store their product-making supplies; for us this means several commercial shelves and filing cabinets, with a couple dozen or so airtight tubs, for storing our fabric stashes and sewing patterns. We also have multiple commercial garment racks where we store our product demos and ready-made items, which of course require hangers (again, stuff nobody really thinks about). We also need to store our shipping boxes, shipping envelopes, and garment bags.

aka The Beards' house

Businesses larger than ours might need to actually pay for separate storage space, such as a shed in the back yard, an add-on garage, or an off-site storage unit. 

The seller pays for all this, just so he or she can actually fill an order when it's placed - the absolute minimum required of an ethical seller! 


Then there are all the usual office supplies such as pencils, pens, paper, post-its, notepads, highlighters, notebooks, etc., and misc. things like light bulbs. 

There's also the usual cleaning supplies such as brooms, a vacuum cleaner (especially important when you deal with fabric!), a dust-buster, trash bags, etc. (I've never heard of a customer paying a seller to go buy trash bags.) 

Depending on the business, the seller may require special supplies or tools; for our costume business, we keep a regular stock of distilled water for our iron, pattern-drafting paper, scissors, notions (needles, seam rippers, point-turners, loop-turners, bobbins, etc.), measuring tools (rulers, seam gauges, tapes, etc.), thread, laundry detergent, CDRs, CD labels, CD envelopes, and more. 

Again, the seller pays for all this, just to have a functional and convenient workspace! 


At this point, the seller has professional skills and products/services professionally presented to customers, and a fully-stocked workspace from which to fill orders - quite possibly all before the first order has ever been placed!

Waiting for your first order ... 

Now let's talk about actually selling stuff, and what that looks like for the seller. 


that, contrary to popular belief, the price of the item is NOT the seller's profit! Even if there are zero overhead and material costs (yeah right!), only a portion of it actually is. 







There is an abundance of other sales-related expenses the seller probably has to deal with as a result of the sale, the most obvious ones being platform-related (Etsy fees, eBay fees, and PayPal fees, for instance). 

While usually small, they are notable and can add up to surprisingly high expenses over time. (I'm not complaining, by the way! It's simply a cost of doing business, and I'll happily pay $1 for the opportunity to make $10 in return, but it's still just that - a cost.) 

Additionally, their bank may charge them account fees or processing fees, and if they have a legal entity (such as an LLC), they have fees associated with its creation and maintenance - plus other fees like business licenses. 

Then there's the dreaded income tax - again, I'm not complaining about this here, because we have to "feed the goose that lays the golden eggs," as Jim Rohn would say - but it can still brutally slice into the seller's income. 

It seems to me that most shoppers/customers/buyers are thinking like employees, whose taxes/social security/medicare/etc. are all taken out of their paycheck before it's ever in their hands. (Really - ask a person how much they make a year; if their salary is, say, $60,000, or $5,000/month, but their monthly paycheck is only $3,500 after taxes, they'll almost certainly tell you that they make $42,000/year, not $60,000.)


The thing is, though, those among us who are self-employed pay our taxes after-the-fact ... perhaps quarterly, perhaps annually, but we report our gross income to the IRS (along with our deductions), and they tell us how much we owe. This must be accounted for in the seller's pricing of the product or service. 

In other words, the customer may already be paying sales tax on the item, but the seller has to pay tax on the transaction as well, which is factored into the price - don't blame us; talk to the IRS if you have a problem with it! 


Sellers also probably have to pay some sort of insurance: mortgage insurance and/or home insurance for those of us that work at home (which goes toward providing workspace), rental/office insurance, car insurance, health insurance (our employer doesn't provide this for us; we are our own employer!), perhaps E&O insurance or a few other assorted types. 

So anyway, if you start with the price of the item and subtract platform fees, transaction fees, bank fees, sales tax, income tax, and material costs, you're looking at a much smaller number for the seller's "take home."

Every time we make a sale. 

Now that we've talked about start-up costs and operating costs, let's take a look at all the random stuff that sellers and businesses have to do that they don't directly get paid for, or they have to pay other people to do. 

Regular accounting is a big one. Sellers either have to take the time to manage and keep track of their own finances properly, or they have to pay somebody else to do it. (Kate and I do accounting roughly once a week, and it usually takes about an hour. Does anybody write us a paycheck for managing our business's money? Guess.)


Even more time-consuming than that is maintaining a regular dialogue with our customers. For example, we get a lot of messages and e-mails, many of which are requests for custom costumes we haven't made before. These must be read, researched, and discussed; numbers must be crunched, and responses/quotes given in a timely manner. We work hard at this, but they do pile up (which is a great problem to have, by the way, so thank you all!). Even though we hope to create a win/win situation with the potential customer (i.e. sell them a custom costume at a price everyone thinks is fair), not everybody purchases and frankly, nobody is paying us to sit around answering messages all day.


There's also the other necessary engagement, such as social media. (I, for instance, spend roughly half an hour to an hour a day on business-related social media, which - you guessed it - nobody pays me to do.)



Another major time expenditure sellers face is errands and travel time. If you're, say, a traveling violin teacher, you probably spend a lot of time going from one student's house to the next! 

In our situation, about the best possible news is that we receive an order, but considering the wide variety of products and color combinations, we're seldom able to have a permanent stock just sitting around; our materials are purchased once the order is placed and the money transferred. (In other words, somebody places an order, and we have to go buy the materials.) 

Packaging finished items and shipping them takes time (and gas), too, but at least the shipping/handling fee the customer pays can take the edge off a bit.

All these are regular (if not daily), unpaid activities that sellers must do to maintain their business!
Starting my "to-do" list every morning. 

Finally, I would say that a major goal for most businesses is to grow. 

There is a point at which a seller can literally not work more than they already do, which places a ceiling on both the amount of business they can do and their income (not to mention that hanging out in this place for an extended period of time can be severely taxing on one's health and well-being). 

To grow the business - and provide relief, and additional income - one will likely need to be ready for additional expenses, such as hiring employees, marketing, larger workspaces, and additional equipment. This results in larger overhead expenses built into the price of the product or service, but at the same time, that leap is responsibly made in reasonable expectation of higher order volume, which could actually result in the ability to lower the price! 

In any event, growth - the future - is something many sellers are always keeping in mind, and working toward.


As you can see, running a business is a very involved occupation, from its initial conception to its establishment and maintenance, all the way into its projected future. It can be a tough life, but I wouldn't have it any other way! 

Please keep in mind when you're shopping from artists, artisans, and small businesses, you're not just purchasing raw materials. 

They've probably devoted years (perhaps even decades) to their craft before you ever came along, just so they could offer you something of value. 

You're exchanging your money for a person's creativity, idea, expression, and personal initiative. 

You're paying for their talents and skills, their labor, and their time. 

The more passionate amongst us go above and beyond, pouring our hearts and souls into our work to create things we are truly proud of, not only for money but for the joy of the experience and in the pursuit of our dreams and major life goals - an opportunity we've worked hard to create for ourselves and are deeply grateful for. 

Remember that when you haphazardly accuse a seller of "overcharging," you may not only be displaying ignorant presumption and condemnation regarding their business management, but you may actually be utterly dismissing everything unique and special that that seller has brought to the table - and, by extension, inadvertently attempting to reduce their value as a person.


1 comment:

  1. This comment has been removed by a blog administrator.

    ReplyDelete