by Carolyn Edlund
There can be a world of difference between making a sale and making a profit. Do you know if your small business is profitable?
I recently talked to a friend who was having images of her paintings reproduced in miniature to create a line of jewelry. She was ecstatic. Another way to sell her work! But once we took apart her costs and how she planned to sell wholesale to stores, it became apparent that she actually wouldn’t make any money at all with her current plan. She needed to rethink everything.
Wholesaling is a model that can work for artists who are able to put their work into production and create multiples. The formula for pricing at wholesale is:
Materials + Overhead + Labor + Cost of Sale + Profit = Wholesale Price
Profit is an essential part of this formula, and normally should be about 20% – 30% of the wholesale price. But what is profit anyway?
Profit allows you to grow your business. It lets you buy new equipment, or to expand and grow your business by investing in ways to produce, market or sell. Profit is not what you pay yourself. It is money that gets reinvested in your business.
If you are a 2D artist pricing by the inch or foot, do you understand your costs? Do you understand what the gallery will take and does the remainder you have left cover overhead, materials, labor, and profit too?
How do you get to the profitable point? If you are not profitable now, you must lower your costs and/or raise your prices to build the profit in. It means that you find sources for materials at wholesale prices, rather than buying at retail, perhaps ordering in volume. You may need to lower your labor costs by creating a system to “work in production” in your studio, making things more efficiently. It may mean that you scale your business by having reproductions of your work made and selling them, rather than only selling originals.
Materials
The more complex or finished the materials that you buy, the more expensive they will be. If you use found materials, you have a distinct advantage (although figure your costs in sourcing them.) If you are purchasing silver and gold as materials, you well know how volatile prices can wreak havoc with your pricing, and proceed carefully.
Labor
Do you spend umpteen hours on one piece, and cannot possibly get the price you would need from it? This labor of love results in art that would not be practical to sell profitably. Understand why you are choosing this approach, and that it would not fit as part of a business plan for a profitable business.
If it’s important to you to become a full-time artist, you must take a hard look at the potential ways you can sell and what you need and want in your business. If you cannot reach the point where you pay your costs, yourself, and create profit as well, you may not really have a business – just an expensive hobby.
Carolyn, I agree with everything you say, except one point – “you may not really have a business – just an expensive hobby.”
To be brief, we use the term “art” very loosely these days to cover a wide territory. And yes, it is certainly very important to understand the real costs including your overhead, labor and profit. But at some point, there may be artwork or craft that is worth creating even thought it may not be profitable. This art or craft may have value beyond the dollars and cents. This could be an artistic expression that is not easily sold in the marketplace, but advances your career, reputation, vocabulary or field into new territory beyond what is easily sold.
Harriete Estel Berman
Thanks for your comment, Harriete. Although I totally agree that art is valid whether or not it is sold, the paragraph starts with the phrase “If it’s important to you to be a full-time artist” which would imply that one is selling their work. I suppose one could be a full time artist and not be supporting yourself, but the main focus of this blog is to market and sell art successfully, so that is my meaning here.
Hey Carolyn, I totally agree to your words “There can be a world of difference between making a sale and making a profit.” and your formula for pricing i.e. Materials + Overhead + Labor + Cost of Sale + Profit = Wholesale Price is also great.
Being an artist I was thinking that we can reduct many overheads and can directly grab the profits like in our case we usually have a piece of art and an art lover and thats it, no overhead, no labor, no cost for sale etc. But still we are not that profitable if we take a comparison with some business people around.
I would love if you can through some light on “how an artist can get to the profitable point?” this is really important for me and I am sure for many other artists around. I am currently a member of http://www.artorca.com its an online art gallery and thinking to become a member of some other top notch art galleries, but would this work? How can I stand out of the crowd where there are a lot of artists using the same tips and tricks?
Rabiya, You have an excellent point. Pricing your work for profit means that you are creating a system that works, by keeping costs low enough, and offering a piece of art that has a high enough perceived value, and that you reach out to target exactly the right market. You will have determined your best market and your ideal customer through planning and strategy. Although one comment is too short to describe a complete business plan, keep reading other articles on this blog for much more on how to do this. I also offer personalized business consultations, where I work with artists individually on their businesses.
Well and succinctly said! I appreciate the formula and seeing the reason especially that profit is not what you pay yourself. A reminder usually needed!
Thank you Carolyn for another article that speaks the truth. Ignorance is not bliss. I am continuously heartbroken and frustrated by Artists who are serious about building a business with their art yet they ignore the numbers and refuse to create financial plans. This is just the right kind of no nonsense advice they need.
Thanks for responding, Renee, and you are exactly right. Yes, numbers are boring – but they don’t lie. And there is nothing worse than working hard to find out you are actually losing money.