It took me almost a year to start cash flowing. The business has been cash flowing since December 2011. (exception: I used my real estate account to buy a L&L kiln) I needed time to build a line and get a decent level of inventory. You have to allow for the time waiting for shows.
How long do you think it will take you to build an adequate level of inventory? I sell most (75%) of my wares in my small retail location, which is located on a major hwy between 2 small towns and is 9 miles from a casino. I have ebbs and flows in sales. At the end of May I did a complete assessment and found I had sold 80% of my yearly production, with 40% of my sales in the month of May. I am really trying to build inventory for 4th quarter, as sales for the pottery is following the same slaes pattern of retail gift stores. Last December I sold every piece I had and every piece I could make. I only sell retail, no wholesaling so I can push product to consumers at a wholesale price without the problem of alienating wholesale accounts.
The biggest limitation I face is production. I now have one full time worker and we put out a minimum of $2000 of finished product a week. (more if I doing a lot of jewelry) I use a cost based pricing strategy. I will share these numbers with you: (its a cut and paste and the table divisions didn't space. There are 3 sets of numbers for 3 different product categories.
Serve Ware, Larger Items------Ornaments/Crosses------ Jewelry
Cost of Clay 6%--- 2% ---- 1%
Cost of Glazing 10% --- 3% --- 1%
Electricity to run Kilns 5% 2% 1%
Labor Output Clay $400 Day $600 Day $900 Day
Glazing Output $500 Day $700 Day $900 Day
Assembly Time 0 ---- 0 ----$2500 Day (only on jewelry)
Finished Product $450/day $650/day $720/day
Labor Ratio to Output Value 17% 12% 10%(basically i have 4 days making, 1 day assembly)
Findings 0----0---- 5%
Gross Margin 38% 19% 18%
*Owners Profit (labor) 20%
**Profit Margin for Business 15%
***Operations Cost 20%
Advertising/Promotion (shows included) 5%
Net: 35-55% profit on gross production (35% serve ware, 55% ornaments/jewelry)
* If you don't have labor, this will even out as your production output will be less.
**A competitive profit margin is 15% in today's market (20% used to be the standard)
** Standard for production business ... I am seeing that this cost can be lower for a home based pottery business, around 10% or even lower. But I think this could be consumed on kiln expenses at a later date.
The biggest challenge for me is production. Sticking to quotas and getting out product. You have no time leverage at all. I've never had a "manufacturing" business before and don't particularly like the production limitation of inventory. I yearn for the old retail days when I could order more than I could pay for in 30 minutes. We are getting slightly faster and producing more. (glazing output has gone up to $600 a day now) I have no idea how these numbers stack up to industry averages because I have not seen any. I ran my retail stores completely on sales to cost ratios and I find these numbers acceptable. These numbers are the ones I calculated in May.
Good luck with your decision.
This is really great information - do you already have this modeled in a spread sheet and would you be willing to share the model?