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Revenue to Income ratio


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Hi All,

I am in the early phases creating a living from ceramics.  I have a long ways to go before I would be able to transition out of my full time employer to employing myself.  I am currently trying to determine what monetary production amount is needed to match my current income.   I do not have any concept of how much my materials will cost, or how much I would be using.  I plan to focus mostly on functional wear and small scale decorative vases and such.  What is your acceptable range of overhead costs?

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I have always used 7-8% clay cost, 8% glaze cost, 10% electricity (it's less than this because I fill in gaps with lots of small items).   Making COGS 25%.   Realistically it's  less., more like 22%.  But 25% is a safe number.   That gives me a 75% gross operating margin if I make everything myself.   If I add labor into that equation, the employee cost has to come in at  maximum less than 25% of total retail cost.    If they can't meet that quota, I don't keep them around.   I have 2 part time workers that glaze and they come in at about 7-8%.  A maker will be 10% (don't have one right now ... I'm the only maker)I sell all my pottery in my free standing retail store.  This puts me at a traditional  retail key stone (2x) markup.   I drop anything from the line if I can't get at least 2x what I have in it.    And some items have less than 50%.  

  The freight is added in my clay & glaze cost so already in retail product cost.    I don't add "freight" for carrying my product the few hundred feet to my studio showroom, it's rolled out in a wagon.

My business experience is that you need key stone mark up to make a specialty business work.  2x the cost (which has freight in that amount).

My businesses always shot for 20% operational costs (rent, electric, supplies, etc.)

10% store employee expense.  

50% cogs plus 20% operational plus 10% store employees ... leave you with a 20% profit margin  (taxable income).   The key to making real money in retail comes from cutting these numbers.    Which can be done.    I've always "subsidized" employee retail costs by having them do something else.  Right not my retail sales person makes jewelry whenever not waiting on customers.   Your operational costs would include shows, which I've only done 2 a year for the last 8 years and have stopped doing those 2.

I would say you need about 75K a year in production, if you are solo to net around 50K.   People have disagreed with this number  but that's the number I would want if I did nothing but pottery and had no employees.    In my experience, you need to put out about 2K a week of finished product.  2K x 4... 8k a month .... 10 months of year.   That would allow weekends for shows, if that's how you will sell.   I'm seeing a lot of successful vendor marts these days.    You have to determine your selling venue to get more specific on profit.   But I'm going to throw out $2k a week.  I'm sure many here will not agree with my numbers.  I've always padded my numbers so I come out on the upside of profitability.    Never had a problem making money in this business.

Click on my link to see my retail operation and the other 2 product lines I make and sell at this locaiton.

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