Greeting Card Business - Know Your Margins - Part 2

August 15, 2016

Greeting Card Business - Know Your Margins - Part 2

In Part 1 of this 3-part series, we looked at the supply cost of your greeting cards. At a very basic level, the retail price of your cards is somewhat restricted to what the market will bear. Currently, the market price for a single A2 card is about $4.50, while the market price for an A7 card is about $5.50.

Since you are somewhat limited by market price, the most effective way to increase your margins for a single card (wholesale is another matter), is by controlling your supply costs.

Keeping on top of your supply costs - and continuously looking to improve them - can have a dramatic impact on your profit. Supply costs, however, are not the only costs involved in running a greeting card business.

Step 1 - Figure Out Your Overhead, Marketing, Commissions, Wages & Taxes

Eeeeek! You mean this is a real business and not just a hobby? If you want it to be. And if you do, that means you will have to begin treating it as such, and planning for it as such.

The first thing to look at after paring your supply costs down, is basic overhead. If you rent an office or storefront, that should be pretty easy to figure out. If you work out of your home, you will have to take a percentage of all your bills (rent or mortgage, utilities, etc.) to come up with one big number.

Of course, that one big number is WAY too big for one single greeting card to cover. What we need to know, however, is what your obligations are for one year. Then we'll figure out a percentage of that big number that each card has to cover.

So, as an exercise, figure out your yearly cost for rent, mortgage, utilities, etc. It doesn't have to be exact, but it should be close. If you are using a percentage of your house bills, maybe one-tenth of your overall bills because your office/studio/workspace is one-tenth of the square footage of your home, fine. Use whatever number makes the most sense to you.You can always refine your numbers.

Let's say your overhead is $1,000 per month. Keep that number handy.

Next, look at the costs of any marketing you do. This could be social media marketing (Facebook ads, Google Adwords, Promoted Pins, Promoted Blog posts, etc). If you haven't done any marketing, do some basic research into marketing and assign yourself a monthly budget. Again, you will refine this as your numbers solidify.

Next, figure out how much you spend - or should spend - on wages and/or commissions to outsiders. For instance, if you hire a salesperson to get your cards into stores, what is that person's commission? What is it per year? If you hire someone to help you with social media, what do you pay that person?

Add up all the wages and commissions you spend - or plan to spend - and come up with a monthly number.

Next, assign yourself a desired salary. If you want to earn $50,000 per year from your greeting card business, then so be it. Write that number down, as well as $4,166.67, which is what you would earn in a month at that pay rate.

Don't forget to add in any state or federal taxes your business has to pay.

Now, just because you should, add in an amount that you will plow back into your business for growth. Maybe each month you will increase your marketing budget by 10%, or you will plan to attend a trade show that you haven't in the past. Make sure you build in something to go toward growth opportunities.

I know, I know, I know, these are big numbers. That's OK.

Step 2 - Add It All Up

First, add all the numbers and come up with a yearly cost. Again, the number will be huge. Let's say around $75,000, to give it a number.

Next, divide it by 12 to come to monthly cost.

$75,000 divided by 12 = $6250.00 that your greeting card business as to cover - on top of your supply costs - each month to make this a worthwhile business venture.

Now, if you refer back to Part 1 of this 3-part series, you'll see that under different pricing structures, you can earn between $3.32 and $4.68 per card after paying for supplies. Let's take a realistic number (because $6.95 is a little high for a card, which you would have to sell a card for in order to reach an after-supply profit of $4.68) and say you can earn $3.32 per A7 (large 5 x 7 card) card, after accounting for supply costs.

So, let's then figure out how many cards you'll have to sell in a year - and a month - to cover the other costs of doing business.

If your yearly overhead, etc., is $75,000, then divide that by $3.32. You will see that you will have to sell 22,590 cards to cover the other-than-supplies costs of running your greeting card business, or 1,882 cards per month. Remember, the supplies costs are already covered in this scenario.

Backwards, it looks like this:

$3.32 per card x 1,882 card sales = $6,248

$6,248 x 12 months = $74,976 per year

In this scenario, you should aim to sell 22,590 cards per year, or !,882 per month, or about 434 cards per week, which is 62 cards per day.

Of course, this is making a lot of assumptions. It's assuming you'll clear $3.32 per card after paying for supplies, that you have correctly estimated your overhead, etc., that you can keep your supply costs down, and that your marketing is effective.

Any change at any point in this scenario can blow your budget out of the water. For that reason, as the numbers solidify, as you get a better handle on them, you have to update your spreadsheets.

Ideally, you create a spreadsheet that shows you various scenarios, ones where the numbers differ and so your outcome differs. In this way, you'll quickly learn what the best and worst case scenarios are for your business and so you'll know when you have to adjust.

In Part 3 of this series, we'll pull it all together and look at a few alternatives that can keep your business afloat while you are growing it.

 



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