This is a question I get asked a lot or overhear as someone walks past my shop/stall and says "god they're expensive" or "they don't cost that much to make" or (the one that makes me really wince) "I could make a doll cheaper than that". I so want to snap back " go on then!" sometimes.
So I thought I would share how I work out my prices for my dolls (not the clothing but you'll get the idea).
There are lots of variables that go into doll making, cost of materials, wages at the time of making, overheads, VAT (although I'm lucky enough not to have to charge that at the moment.) and of course the profit.
These, for me, are threads, jersey fabric (currently purchased from the Netherlands), stuffing, eyes and check wax. This makes up around 16%. This is only a small amount as most of the costs that go into making dolls is in the actual making.
This is split into two areas - cost of wage time and cost of overheads time. First, wage time is simple to calculate. That is how long it takes to make a doll. I allow 3 hours for making the doll and 50 minutes to sew on the hair - yes it really takes that long! So 3hr 50min times the living wage (at the time of writing this, it is £7.50). I would love to give more to my doll makers, but until i'm making my millions, I cant. This is about 38%
Second, the overheads time. This is the, kind of, difficult part. You see this is the place which differs from doll maker to doll maker. I have overheads. I have a building in which i work, with electricity, gas, water (don't get me started on the water bill!) but it also includes my contents and business insurance and my public liability insurance. I've also got all the little things that don't come to mind when thinking of overheads. These include:
- Etsy fees
- Paypal fees
- Ebay fees
- Entreprenuer Circle (everyone needs to keep learning)
- machine services
- postage costs (boxes, tapes, paper, printer etc)
- HMRC (yes you have to pay them too!)
- Companies House
- and more
This comes to about 46% of my costs.
So how do I work out my overheads?
I calculate an honest total of all the items I HAVE to pay for even when there is no money coming in. These are the MUST HAVES to keep the company running. I add all of these up and work out the total cost for the year. Lets call this total 'OH'
Next, I calculate the time i actually work at the Rag Dolly HQ. I work 48 weeks of the year. Lets call this 'WK', and 35 (official) hours per week, call this 'HR'.
Use this equation
OH divided by WK = overhead costs per week (PW)
PW divided by HR = overhead costs per hour (PH)
PH x the time spent making the dolls (from walking in the room, collecting fabrics and walking to the cutting table etc - to make a business work you have to include this much detail.) = The overhead cost of making a doll.
This area is about 33% of my price but is also the one that I work most hard on trying to reduce, thus allowing me to pass the savings onto the final price of my dolls.
I now have my raw costs but these costs alone will not move my business forward. I guess this is the difference between those makers who "don't charge for my time (and the overheads)" - the hobbiests, and those, like me, who have doll making as their main income, ok it may be a cottage industry at the moment, but i have a Big Dream for my dolls! But that's another story.
The 'P' word (Profit)
The last and many times the one area that isn't calculated into a price of a handmade doll, Profit. Yes, I said the 'P' word. it's not a naughty word - you are allowed to make one, even if it is small and after reading Profit First by Mike Michalowitz, it is also the most important. Its the bit that tells you "your are worth it", "you deserve success" and the bit that will help you get to your Big Dream! So you MUST add a bit - no matter how small. It can also change depending on the product. I don't put a big profit on my dolls, but I do make a little more on the follow up clothes and accessories. Apparently this is called a lost leader (I won't go into it, but there is a whole theory behind it). After a lot of soal searching (and watching dragons den when a handmade memory making team exclosed their profit margin) I add between 10-28%. This is then used to reward my team and push the business forward.
So there you have it
I have shared why handmade can be so expensive, that i'm not sat in a little shed at the bottom of the garden with no overheads. and yes my girls and myself put our hearts and souls into making each one of these gorgeous dolls perfect, just for you.
image by Kate Creates