This week’s
topic was “The Business Plan”.
And the
conversation started at the most logical point, with someone asking , “What is
a business plan?”
And as Tammy Adams voiced her opinion, I felt it
probably spoke for a lot of us: “…There are so many
things about the business side of selling jewelry that I have had my head in
the sand about. I'm ready to pay attention to them, but can't quite figure out
where to start.”
Many
members spoke up about wanting to do this, so I am very grateful to Katherine Gingrich for putting this info
together for us and keeping us on task.
So
back to, “What is a business plan?” I
first took a quote from wiki: “A business plan is a formal statement of a set
of business goals, the reasons they are believed attainable, and the plan for
reaching those goals.”
Then
added a quote from this website, “Recently someone
asked me why they needed a business plan if they were getting all the funding
they needed from friends and relatives. It sounded to me as if they were
thinking of a business plan as just a fund-raising tool. In fact, a business
plan is much more than that: It's a tool for understanding how your business is
put together. You can use it to monitor progress, hold yourself accountable and
control the business's fate. And of course, it's a sales and recruiting tool
for courting key employees or future investors."
Marcia Zammit
stated, “Yes I do have a business plan although the
one that I have for my jewelry is not as formal as the other ones that I have
for my other online businesses. It's still very focused nonetheless -
especially this year's. I know where I am and I know where I want to be. I have a plan on how to
get there and I also know what it's going to take to get me there. “
Later Marcia went on to add: “A business plan is
simply knowing where your business is right now and figuring out where you want
it to be in the coming year/s. It is essentially what you're going to do to get
your business where you want it to be.
Because if you don't know where you're going, how are you going to
choose the road that will take you there and how are you going to know that you
got there. “
Dana Hickey shed more light on the subject of what and why, “It might be easier to think
of it as long term goals. What do you want for your business. What do you need
to do to make it happen. Then break it down into manageable steps. Your
business plan is something you can check in on to be sure you're still on
track, and heading towards your goals. It can be used to get you back on track
if you're not meeting your expectations. It is as flexible as your goals are.”
Katherine got us formally started with this
post: “It's
easy to get caught up in the creative process and forget just how expensive
running a business can be. Writing a business plan and doing periodic reviews
will help you make more money which is a very good thing. It will also help
keep you from investing in equipment that won't help your bottom line.
The overall parts of a business plan are outlined in the U.S. Small Business
Administration's website. This is not the order in which you will write your plan. It's
the order in which the final printed version is shown to investors.
A business plan is an ever-evolving process rather than a single document
(unless you are looking for investors). At the end of each year, I review my
sales data with a CPA and make changes to my plan as needed. You may or may not need a full-blown Business
Plan. Even if you don't complete the
entire plan, there are some sections bear some scrutiny to increase your profit
margin as much as possible. Ultimately,
this is going to be your business plan so you need to do the research and write
your own plan. I will discuss some of the things you may want to consider in
your plan.
Finally, everyone has a different method of writing a plan. I tend to write my
personal business plans on half-sheets of paper so I can shuffle parts around.
It's portable and writing by hand helps me organize my thoughts more
effectively. Others use word processors such as WordPerfect or Word. There are
some free programs out there like Open Office. Google Documents is another
option if you need more than one person to read/write your plan.”
I
then remarked that, “… with such a daunting task ahead it's easy to get all
"deer in the headlights" and just freeze... and do nothing.
Nohline
L’Ecuyer added, “Writing a business plan can be a huge amount of work
and particularly for a lot of people who live off creating, I can understand
how writing a business plan would draw time away from "making things to
make money". That being said however, a business plan is a useful tool to
keep you on track. We had done one in our management company but it was'nt
updated fro several years. I had to do one for my graduate degree and that was
a huge job that involved some serious market research. To be quite honest, I
don't want to spend that amount of time writing a business plan. I do however
think that a quick, really no more than 2 pages, plan for our kind of
endeavours would suffice. But I will refer to Katherine on this one, she seems
to have far more experience.”
Katherine
then gave us the typical parts of a business plan and numbered them based on an
idea of what order we should tackle them in.
- Executive
Summary -- 7
-
Company Description -- 1
-
Market Analysis -- 3
-
Organization and Management -- 6
-
Service or Product Line -- 2
-
Marketing and Sales -- 4
-
Funding Request -- Probably not needed
-
Financial Projections -- 5
-
Appendix -- As needed
“Since this is the SRAJD, I'm guessing that almost everyone here already makes
jewelry and/or jewelry components. We'll start with that premise. I would write
the sections in the order above because that would make the most sense to me.
Other types of businesses may write in differing orders.
You
don't need to sit down and write your entire business plan in one swoop. I did
that when I started out. You can just put it in with the maintenance portion of
your week or month. Whatever time you can devote is going to be beneficial. Even just looking at a
specific bit of your business such as online venues would help. It's easy to
get lost in the creative process and lose track of the bottom line.”
Now
I will post, without interruption, the information Katherine provided:
7: Executive Summary
If
you are looking for financial backing, you will need to write an Executive
Summary. This is usually the last part of a Business Plan that gets
written. Most of us will not need to do
write this section but certain elements of an Executive Summary are useful to
at least look at so you can include this information in packets to be handed
out to galleries/retail stores if you're going to go that route. I'll discuss
some of the relevant points if you're writing for a promotional packet:
Mission Statement -- A couple of sentences that explains your company
and what you're trying to accomplish. Eg. My Jewelry Company specializes in
bridal jewelry for the upscale executive woman. Our designs use traditional
materials such as pearls and precious metals but in unique designs that may be
worn with business attire after the wedding.
Company Information -- State if you're a sole business owner or a
partnership etc. How long have you been in business? Where is your business
located?
Products and Services -- What types of jewelry do you manufacture? Just
a brief description. Eg: pierced earrings with dangling lampwork beads.
Future Plans -- If you're writing this to include in promotional
packets, it wouldn't hurt to put in some of your future plans to show that
you're thinking ahead and plan to be around for a while. Artists are notorious
for disappearing and not fulfilling orders. It helps to appear to be planning
ahead.
1: Company Description
This
is a short description of what you plan to do. What you manufacture and where
you plan to market your product. What is your consumer base? How do you plan to
compete in the market place?
For example: My Jewelry Company manufactures lampworked focal beads. I will
market my beads both as a finished necklaces and bracelets and also as
components to be used by other jewelry designers. My finished beads will be
marketed to retail consumers online and through shows. They will also be sold
wholesale to other retail stores and galleries. The beads will be marketed
wholesale to other jewelry designers online and through brick and mortar bead
stores. Although lampworked beads are currently manufactured by many others, I
am confident that I will succeed because ___________________
The hard part is filling in the blank. I tend to write as an engineer. Most of
the detail stuff gets thrown into an appendix. At this point, I would start
files for the Appendices:
Online venues to market finished necklaces and bracelets.
List of shows I wish to attend to market finished product.
List of galleries/retail stores that may want to carry finished product.
List of components you will need to purchase to complete the
necklaces/bracelets and sources for those components. eg: leather cording,
clasps, etc.
Online venues to market beads.
List of wholesale bead shows.
List of bead stores currently operating in desired market.
That's why I use half-sheets of paper. It allows me to scribble down these
things as they occur to me and then I can file them appropriately. Your
experience may vary. This is just a business plan -- it will evolve over time.
Don't get too wrapped up in making it perfect (unless you want investors).
3: Market Analysis
This
is the big one and probably the most important one you'll write (in a bunch of
manageable appendices, of course). Most artists have a pretty good idea of what
they're going to make (whether or not it's actually profitable). This is the
section that will help decide whether or not your idea is marketable and if it
will make you money.
Take a good look at the jewelry industry -- historically and current state.
This is an industry that rides on trends and marketing. Tiny jewelry one year.
Huge statement necklaces the next. Cuffs are everywhere then completely
disappear. This can make or break an artisan company. Sticking your head in the
sand and making a style that's long over isn't going to help your bottom line.
You need to keep current and make money to continue as a business.
Take a look at all of the markets in the jewelry business. When do people
traditionally buy jewelry: weddings, engagements, Valentines, Mother's day,
birthdays, special events. Women buy jewelry to go out socially. They also buy
jewelry for work. Men don't buy nearly as much jewelry as women, but are easier
to sell to since the market isn't oversaturated. What kind of jewelry do you
plan to make? You might be tempted to "keep your options open and design
for everything" but that's probably going to up your production costs
significantly.
I live just outside DC, so I make small to medium size contemporary jewelry for
female business executives. Biggest return on my investment in the area where I
live. We also have a farm in PA. Not a chance in the world of selling
contemporary jewelry in this area of Pennsylvania. I'd have to create a more
nature-inspired line if I were to sell around the farm. You will need to decide
what will sell best in the market you wish to conquer.
Market
Analysis -- Part 2 Demographics
Determine the demographics of your potential clients. This is extremely
important if you're doing shows. Whenever I book a show, I do demographics on
the state and county of the show. I also do demographics on the closest towns.
This allows me to determine what price points to use to fill out my inventory.
It makes no sense to book a show then come with jewelry completely outside the
expected price range.
I write an appendix for each show that I do. I also keep my show stats in this
location. That way I can look at trends for each show in relationship to the
demographics. Yes, I know. Lots of bookkeeping and statistics. That's how you
make money. You turn your company into an actual business.
Fortunately, demographic information is readily available online. In addition
to the regular government information, you can do regional searches for brick
and mortar stores to determine if it's a Walmart area or a Bloomingdales area.
Look at the local restaurants to determine cultural diversity so you can adapt
your product line to the individual show.
Market
Analysis -- Part 3 Pricing
You will need to determine how to price your items. Don't be tempted to look at
similar designs and price around the same amount. Pricing doesn't work that
way.
First, determine how much you want to charge per hour for your labor.
Determine how much time it takes to make a type of item in your line. For
example, how long does it take to make a pair of lampwork bead earrings? Be
sure to include the approximate amount of time it takes to order the
components. There's also overhead time for packing and shipping if you're
selling online (or time at shows otherwise).
What is the material cost of the item (include postage, etc)?
There are many formulas used to actually calculate the price of the jewelry.
Ms. Laura has a spreadsheet that works well. I have my own formula in a
spreadsheet form.
The secret jewelry markups are gold -- 5X material costs. Sterling 20X material
costs. That's what you encounter if you walk into a large retail jewelry store.
Plus labor and overhead, of course.
Whatever formula you choose to use, if you plan to sell wholesale, my advice is
that your markup should be high enough so that you can wholesale at 50% of your
retail price and still clear a healthy profit. If you can't do that, you need
to look at your production method to see if you can make it more efficient or
you need to modify your product so you can do this. Most of the
stores/galleries that sell my line(s) do so because I am able to sell to them
at true wholesale rates. Telling them that you'll knock off 20% probably won't
get you very far. Your results may vary.
Market
Analysis -- Part 4 Competitive Analysis
Here's the hard part. Now that you've got a product and a price, you need to
analyze the competition. You've got a lot of it. Jewelry is one of the most
lucrative DIY hobbies and there are a lot of people who are just trying to sell
enough to feed their hobby.
The competition you face will depend on where you're planning to sell. No
matter what venue you choose, you will need a website of some sort. Some people
use a site like Etsy as their primary website. That's fine if you're planning
to stay a small, independent jewelry designer. It does make you vulnerable to
changes in their policies -- for example offering an IPO and changing listing
guidelines to please stockholders. sigh...
In most cases, you'll want a .com type of site to call your own. Even if you
don't sell off that particular site, it is very beneficial to have your own
site if you plan to approach galleries/stores to carry your line(s). It implies
that you've made a genuine commitment to your business as opposed to the
perceived view that you've got a hobby and sometimes list stuff here and there.
If you list on sites such as Etsy, eBay, or Amazon, you need to take a long
hard look at your competition on those sites. One of the easiest ways to look
at this data for eBay is goofbid.com. For
Etsy, there's craftcount.com andhandmadeology.com. I'm sure there are other sites out there for this
purpose. Sometimes it's just best to type in your idea of a search phrase for
your type of jewelry and see what comes up.
In any case, it's helpful to have an appendix for collecting this type of data.
You'll need to categorize your jewelry -- Earrings Type 1 (E1): sterling,
single lampwork bead, beadcaps; Earrings Type 2 (E2): gemstone stud set in
sterling, etc. Then, look at each of your intended markets and look for the
number of them in a variety of price ranges. Note little things that jump out
at you when you look. For example:
eBay E1: search phrase "sterling lampwork earrings" 1/18/15
Price <$5 -- #350 ---- all from China
$5-$9.99 -- #97 -- UK, Australia, mostly made with Chinese lampworked beads
etc...
$125 - $150 -- #2 -- well known lampwork bead makers
Obviously,
this data will change over time. It's also comprehensive. If you're strapped
for time, you can always just look at the pricing bracket around your product
(see #3 Pricing above) instead of looking at all the prices at once. I print
out a little form so I can just fill it in periodically and add it to the stack
of data.
From this quick look, you'll note the obvious things like stay out of the price
range of under $10. While you already knew that, having this in your notes will
help save you when you are desperate to make a sale and decide to "make a
few bucks" by selling some earrings on eBay. Even I get drawn into
"get-rich-quick" ideas. My business plan saves me from myself at
those times.
While you're looking at this eBay data, you'll become aware of the sellers with
a lot of inventory in your prospective market. Run these seller's names through
the goofbid site and see if they're really making money or not. Unfortunately,
I did not see a similar site to look at the data from Etsy.
This
is just plug and chug busy work. I tend to do stuff like this when I'm eating
or cooking since my computer needs to spin to do the searches.
In any case, since you have previously designed your lines and chosen prices,
now's the time to look at reality and see if you need to adjust your design to
a different price point.
I know that this is a lot of data to collect. However, if you have a CPA, then
you can hand this packet to him/her and ask for help. My CPA told me to trash
one of my product lines even though it was selling quite well. The profit
margin was significantly less than my other products and I was losing money
without realizing it. Yup. That was my get-rich-quick scheme that I didn't
bother adding to my Business Plan. Oops!!! Had I crunched the numbers before
launching that line, I wouldn't have done it.
This is pretty much a case where you gather all the data and stare at it for a
while. Eventually, you'll begin to see patterns and know which direction to go.
Here are a couple of sites I use to keep up with the changes on eBay and Etsy:
http://www.ecommercebytes.com/
http://www.ecommercetimes.com/
6: Organization and
Management
The
traditional approach to this section is to discuss how people are arranged and
managed. Not too useful to me even though I'm a partnership company. Instead, I
took Organization and Management to be the organization of my studio space to
optimize production and time management.
Take a look at the steps you outlined in section 2 when describing how you make
your jewelry. If you can re-organize your space to take fewer physical steps,
here's where you should make those notes and implement those changes.
I also looked at time management at this point. How much time do I need to produce
the work? How much time do I need to apply to shows? How much time do I need to
contact retail outlets? How much time will I devote to preparing for shows,
doing them, then unpacking? This is an ongoing issue for all artists. There are
only so many hours in the day to work and still get things done like laundry
and dishes. Keeping track of all of those business time commitments will help
you establish prices for your work since you will actually know how much labor
is involved.
2: Service or Product Line
Describe
how your jewelry will benefit your intended customer. How is it different than
your competitors? For example: Do you make jewelry for business women? Do you
make jewelry that's likely to be picked up on vacation? Do you specialize in
"occasion" jewelry?
Are you planning to take legal steps to protect your intellectual rights?
That's something I don't do because I don't particularly care if someone copies
me.
Go step-by-step through the procedures, supplies, and equipment you need to produce
your jewelry. This is a great place to spawn yet another Appendix. I do a
separate section for each type of jewelry I plan to produce. This is very
helpful if you intend to expand your product line in the future. For example,
if you are... unfocused as I am, you'll want to know what investment is needed
to produce something else... like enameled metal pieces....
That leads us to the research and development part of your company. You'll need
to budget resources to expand your product line in the future. If you keep
doing the same thing for years, your sales will eventually dwindle to nothing.
You need to keep abreast of trends and adapt your product line to keep up. How
much time and money can you invest in your company to keep it moving forward.
Take a hard look at how jewelry is evolving and try to project where you will
fit in the scheme 5-10 years in the future. Write it down. Re-evaluate it
frequently.
4: Marketing and Sales
As
as self-representing artist, you are the marketing and sales force. There's a
limit to how much time you can devote to your business. Sadly, most of your
time will be eaten by the marketing and sales part of the business.
It basically boils down to getting your product into locations where your
customers can buy them. This part of the business will change even over the
space of a few months. You will saturate markets with some product lines and
will either need to adapt and change those lines or move to different markets.
With social media, it's now easier and less expensive to reach customers.
Unfortunately, there's now a sea of jewelry designers out there competing with
you. SRAJD has been very good about trying to keep it's members in the
limelight. Thank you admins.
Usually, you'll need a combination of approaches to maximize sales.
Online/social media, printed materials (business cards, fliers, catalogs,,
etc.), advertising, blogspots, newsletters, publicity, promotions, shows, etc.
This is pretty much an area of trial and error. Sometimes, you just have to
shake your head... power bracelets, bubble necklaces... What the heck???
Sometimes marketing and sales are just apparently random. This is when you put
your nose in the statistics and try to make sense of it all.
Funding Request --
Probably not needed
5: Financial Projections
For
the most part, financial projections are used for enticing investors. There are
some aspects of financial projections that may be useful to you. It never hurts
to see exactly where your company stands financially. One thing
you will need for taxes is a balance sheet which shows your assets vs.
liabilities.
Assets:
-- Cash and credit on accounts to other companies
-- Accounts receivable (money owed to you by customers)
-- Inventory and equipment owned by your company
Liabilities:
-- Accounts payable (people you owe money)
-- Taxes owed
Committing these numbers to paper will help you understand just how you're
doing as a business. A surprising number of business fail to do this on a
regular business. An accountant can help you out with this if you need help.
The inventory and equipment can be scheduled for depreciation (again, an
accountant helps here).
Appendix -- As needed
Then
the discussion continued, with me remarking on something from section 3 part
3 (Market Analysis, Pricing) where Katherine mentioned “Don't be tempted to
look at similar designs and price around the same amount.” I countered with, “I think almost everyone I
know tries to price (at least at one point) based on similar items in the
market.”
Katherine
explained, “It's really tempting to try to do that but that method fails for
several reasons. First, you don't know how your competitor sources their
materials nor do you know how they price their merchandise.
You need to independently price your items then look to see if they are
marketable at that price. If they aren't then you can either decide that you're
doing them anyway no matter what or you can alter your production source and
methods or you can make something else. It's your decision at that point.”
I’m
sure the discussion will continue.
Katherine,
I can’t thank you enough for being so thorough in helping us get started on
this. I hope to hear from some of the
SRAJD members when they’ve drafted their business plans. I’m getting started on mine today.
