Greeting Card Business - Know Your Margins - Part 1

August 15, 2016

Greeting Card Business - Know Your Margins - Part 1

In this 3-part series, we'll look at the numbers behind a greeting card business and whether you can make them work for you. 

In Part 1, we'll look at the costs of the cards themselves. In Part 2, we'll peek behind the curtain at the costs of running a business - including your own salary - and in Part 3, we'll put the numbers together to figure out your margins.

Early on as you build your greeting card business, you might be tempted to cut your own profits in order to undercut your competitor's prices. After all, people make greeting card purchase decisions based on price, right?

Not so fast.

Greeting cards are not pencils. If you want a pencil, you can pretty much use price as a factor in deciding which pencil to buy. Unless you are an artist or illustrator who needs a specific type of pencil, they are are similar enough that the company you buy it from won't really matter.

Unlike interchangeable pencils, people buy greeting cards because the cards say (and/or show) something specific that is important to the sender and the recipient. For that reason, they are not interchangeable. 

And, because they are not interchangeable, price does not play as big a role in the purchase decisions as it does with pencils. Within reason, of course. And, that being the case, you should be careful not to cut too deeply into your own profits in order to try to attract buyers' notice.

As long as your message is right, your quality is high, your service is impeccable, you should be able to price your cards to the market and still make profit.

So, how do you determine market price?

Step 1: Determine Market Price for Your Greeting Cards

It's pretty easy. Your first step should be to do a little bit of comparison shopping on Etsy (or Amazon or wherever you plan to sell your cards). There you'll find that smaller greeting cards (A2 size) generally sell between $4.00 and $4.50 each, while the larger A7 cards sell between $5.00 and $6.50. These prices include an envelope, usually a Kraft paper brown card with the A2 sizes and possibly a colored envelope with the A7 cards.

Now, I make a point to use the world "sell." You will find higher priced cards on Etsy, but they are not necessarily selling. You will also find lower-priced cards but I am not sure the sellers are (or can) make enough from those sales to support an entire business.

Step 2: Figure Out the Cost of Your Greeting Card Supplies

When you know the retail market price of cards similar to yours, you have to delve into your own costs. How much does each of your cards cost in paper? In ink? In printing, if you outsource? How much is the protective poly sleeve, if you use one? The shipping envelope? Any stickers or stamps you use? Your thank you card or note?

All these add up and you have to have a very good handle on the cost your supplies. 

In the greeting card business, we are dealing in very small margins and you have to make sure these margins offer enough to not only cover the cost of supplies and your time, but the other costs of running a business. In Part 2 of this 3-Part series, we'll look at overall business costs including overhead and your own salary. Here, though, let's look at the cost of each card.

First, add up the cost of a single card including paper, ink, poly sleeve, sticker, thank you card, and mailing envelope. Next, add in the cost of doing business on Etsy (or Amazon or whichever other online retailer you sell through), including the $0.20 per item "listing fee", the 3.5% transaction fee, etc. 

If you have Excel, you can put these numbers into a spreadsheet. This way you can update as you find new suppliers or as prices change. I keep all my supply costs on Excel spreadsheets because they are easy to update and because they allow me to look at different cost and pricing scenarios.

As you can see from this snippet from one of my spreadsheets, I have entered my supply costs, itemized by column, and then have included a range of potential retail sales prices. Carrying each line over to the far right, I can see the profit in dollars, as well as a percentage, that each different retail sales price would bring at those supply costs.

 

Profit Margin spreadsheet

 

Now, this spreadsheet doesn't tell the entire story. This only shows me what this particular paper (100# card stock) in this particular size (5 x 7) costs from this particular vendor, and includes standard items such as the poly sleeve, ink (an estimate from my Epson 3880 printer), thank you card, etc. 

As you can see, if I were to use this particular paper vendor, my basic product cost per item would be $1.14. That is here in my studio. Once I sell a card, I have to include other costs including the cardboard mailer and Etsy's fees (but not shipping fees because the buyer pays for the postage). 

Still, it looks like I am earning a nice profit, right? Not so fast.

While this snippet shows me earning between $3.32 and $4.65 per card (depending on the variable retail sales price), that so-called "profit" does not include any of the other costs or running my business, namely marketing, overhead and my own personal salary.

But, it's a start.

Something else this snippet shows me is that if I can get better pricing on any of my supplies, my earnings automatically increase. So, how can I improve the costs of my supplies?

Step 3: Always Look for New Opportunities to Improve Your Supply Costs

I already know that I can't increase my retail sales price out of the market. Generally speaking, my A2s should be around $4.50, Kraft envelope included, and my A7 should be priced around $5.50.

But, while I can't (or shouldn't) price my products out of the market, I can - and should - always look for better pricing for my supplies. 

At least every couple of months I check in with the different paper vendors I've sourced. I'm looking for new - hopefully lower - paper prices. I'll also pull out their sample books to see if the quality of my cards will suffer if I use a different paper.

Truthfully, the prices stay about the same.The only thing that changes is that I will occasionally find a new source for the paper I use and, rarer still, that new source will have lower prices.

Another thing I'll do every couple of months is inventory my supply stock. When I find that I am running low on stock, I'll use that as a reason to check back in with my suppliers. When I can, I'll increase the size of my order if it means I'll get a better price.

Recently, for instance, I found that I could get poly sleeves for my A2 cards cheaper from one supplier than another if I only doubled my order. Since I know that I will use the poly sleeves in time - and faster as my business grows - getting the lower price was important.

When the price of any of my supplies changes, whether because my vendor lowered its prices, because I've found a new vendor, or because I've increased the size of my order, I'll go back to my Excel spreadsheet and adjust accordingly. In that way, I'll know at a glance what each of my cards costs in supplies.

In Part 2 of this 3-Part series, I'll look at the other expenses involved in running a greeting card business.

 



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