S.H. Day 5: Back of Napkin Profit

back of napkinToday’s job is to calculate the profit my business idea might make, using very basic assumptions.  This was a great exercise! In the book, Side Hustle, there are examples of doing this in a spreadsheet.  For simple ideas, this could easily be done on the back of a napkin. I wanted to have this in a form I could continually tweak, and use for my business, so I used Google Sheets.

Because I am thinking of making a variety of different sizes and shapes of bags & purses, and I wanted to include some kind of estimate regarding the complexity to make various types of bags and how much I thought the labor would cost, I made a spreadsheet with the following rows:
Profit FactorsThen across the top I listed Size of Bag and Complexity to Make (e.g. Small/Low, Large/High). This was an incredibly insightful exercise.  I benchmarked prices of bags online earlier today, and my initial reaction was “Wow, those seem a bit high!”  However, when I did my simple calculations, I better understood why.  While I might sell more of the simple bags at a lower price point, the prices I could reasonably charge would give me the lowest profit.  The more complex bags may not fetch enough to recoup the cost of labor (particularly small ones) – but the medium complexity bags (e.g. shaped, multiple zippers and pieced fabrics) no matter the size will likely be the best area to focus on.  Interestingly (perhaps obviously) the profit is driven by labor, more than material costs.  I guess this makes sense, and makes clear the driver to move garment manufacturing to areas with lower wages (not that I’m a fan of that approach – but let’s not get into an debate about economics!).

Initially, I think I will be doing well if I can make enough product and do enough sales to earn $50/week online.  Craft shows will be different I think, hopefully I will be able to sell more product.  People will be able to touch and feel the bags.  One thing that I thought about as I was browsing other products today was to give my designs names, (like how LuLaRoe© product designs all have a unique name).  No decision yet on that though, as it just occurred to me that I always have a hard time remembering the “names” of the LuLaRoe© leggings and dresses!

I have not done a similar estimate of knit or crocheted items, or vintage resale items, but given the labor involved in anything handmade, I think the vintage re-sale area is going to ultimately be the most profitable.