Monday, March 16, 2009

Getting Down to the Nitty Gritty of Finances

On the days that I make soap, I admit that I get very excited in anticipation of the day. Because I work full time at a secular job, I don't devote my time entirely to soaping, but have to set aside a time in the week for it. The time I set aside is a real treat for me and I look forward to that day that I have set aside immensely.

So, at this point at least, making soap is not my method of making ends meet, not even close. It IS a desire of mine to make that a goal, however. With that thought in mind, I chose to review what my costs are to make my soap, and how much I am making as profit on my soap...or am I making a profit?

As with most new little start up businesses, and this is a business for me, they don't always make money intitially. In the first few years of opening my little soap business, I showed a loss because of buying equipment and getting enough supply to make it viable. Then, it was drawing customers to my soaps and building a customer base. It all takes time. Now, I am at a point where I am breaking even (whoo hooo!) I am learning to make the most of my soaping methods. Still, I would certainly like to do much better than "break even".

It was time for me to review how much it is costing me to make my soap. Am I charging enough for this amazing stuff? Am I counting in all my cost factors? So, I began to break it all down...the results were just a bit eye-opening for me. I already know basically how much soap I will make this year based on customer purchases and trends from the previous year, so base my cost per estimated bars I will make.

Here is how I broke it down:
I added up the cost of the supplies I use most often in my soap per batch, such as oils, sodium hydroxide; the basic stuff.
I added up the cost of the "extra" supplies that I most often use per batch, accessory stuff like, calendula blossoms, rose petals, fragrance or essential oils, oxides, micas and other fun little additions to the basic soap formula.
I added my basic cost of packaging each bar of soap.
I averaged the yearly cost of supplies that I use regularly, such as soap molds, wax paper, bowls, scales etc and broke it down per bar.
I added basic prep and production time per bar of soap (like paying myself wages for making them)...about 1/2 the amount per hour that I make on my "usual" secular job.
I added Paypal fees, etsy fees, and average per year craft showings fees per bar of soap.

I did not add cost of electricity, sewer, water, phone, internet access, although I should if I were to be more accurate.

The end result?

At my current charges per bar of soap, I only make about $1.62 per average size (4 to 4.5 oz) bar over and above what it takes to make it!

At that rate, it will be years before I get a vacation! The good thing is that I'm not totally losing out this year if I sell what I make...which is better than last year and better than the few years before.

Could I cut more corners and make more? Absolutely! It would take some additional sacrifices of freshness of the oils I purchase and quality of my product to do it though. If I bought more bulk product, it would certainly be much less expensive. The down side is that I don't make enough product right now to ensure freshness of my oils if I bought bulk, so resort to making smaller batches at this time. There are a lot of other small ways I could cut costs and am still in the process of streamlining and revamping some of the things I do.

If you run a shop of your own and have never broken things down this way, it may open your eyes a bit too. I have come to realize that many soapers and other shop owners on etsy may not be making money on their product that they think they fact may be LOSING money. (The big thing) They may be doing this to establish a customer base too. Perhaps. Perhaps they just don't know they are on a losing end either.

Doing this was a great reality check for me even though I already knew based on keeping decent records that I wasn't making the thousands that I always envision.

It won't keep me from continuing to make soap. This is wayy too much fun!


Gioia Made Soap said...

Hi Trish, stay blessed and positive, I read this story, but don't let it upset you ...
there are worse things in live!
Love, and blessings to You and Your family,
Stay cool,
Georgette and Gioia