With the economic downturn and increase in joblessness, there are more people than ever trying to make a living off their hobbies. Cottage industry is on the rise, and it could well be the incubator for American recovery. Unless craftspeople, business proprietors and Americans quickly learn the toughest lesson of business, it will be a long, hard slog back toward the rat race.
Defining profit margins
It’s the most basic lesson of capitalist business — buy low, sell high. For many businesspeople, including craftspeople, making something and then selling it for any profit is a good thing. The problem, however, is that many small business owners consider only the cost of their product. If the yarn to knit a hat costs $6, then many consider selling it for $10 a profit. That $4 could be, and often is, considered profit.
Valuing time in business
When trying to make money, most small business owners forget to pay themselves. That $4 of “profit” on that knit hat does not take into consideration the 30 to 90 minutes it takes to knit and finish the hat. That means, at best, the person selling it makes $8 an hour — less than minimum wage in some states. By not valuing time as a cost equal to all others, businesspeople end up working themselves to the bone but not making a living. The American dream is not, and should not be, working to stay at zero.
Paying yourself first
If you are in business or just making a purchasing decision, paying yourself first should be the first consideration. You should always consider the amount of time or money an item will cost before you buy — or sell — an item. Figure out what kind of hourly rate you need to make to make a living and make judgments based on that. If that cheap toy will break in two weeks, then is the cost really that much better than a toy twice the price that will last five years? Is giving yourself a $4-an-hour pay rate really worth the work you put into selling it? Whether you are trying to make a living or make ends meet, you really should pay yourself first. It’s the only way to make a smart living.
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