Of all the basic business concepts that people must learn when starting a home craft business, one of the most difficult to grasp is that your time is valuable. You hear that a lot as a platitude, but this time you actually have to put a dollar amount on each hour you work.

Wow.

When we first got into the business of making wooden drinking tankards 14 years ago, we had a rather naïve approach to paying ourselves. In those early days we were so grateful to be selling anything—anything at all—and being able to pay our mortgage and bills, that the thought of paying ourselves some sort of hourly rate seemed ludicrous.

Interestingly enough, so did a lot of other people.

How long can it take?

Now I'll grant that most people have no idea how long it takes us to make our tankards. One of our most common questions is, "How long does it take you to make one of these things?" My standard reply is, "One takes about a week to make." (Their eyes will widen at this point.) I'll add, "Of course, it takes a week to make 100 tankards, too." I'll go on to explain the assembly-line production techniques that we use.

My point, though, is that with the drying times between steps for the glue, varnish, and epoxy resin coatings that we use, and including the vagaries of the weather (cool, rainy, or cold weather hampers drying time), it is not a fast and easy procedure to make one tankard.

That's why we don't do individual pieces. It is not efficient. It is not worth our time. I cannot count the number of people who, over the years, have asked if we can make them a custom tankard.

"We can't," we tell them, "because it would be too expensive for you."

"Oh, we'll supply the wood," they confidently tell us. "Then the tankard will cost—what—$5, maybe?" Honestly, that's what people have asked us.

"No, the tankard won't cost $5," we reply. "The cost of wood in each tankard is negligible. The largest part of the price is paying for our time."

The number of people who walk away insulted at this idea—that we need to pay us, that we deserve to earn some money for our time—is startling. These people have no idea how to conduct a business.

We are not in this line of work for the sheer joy of making tankards (that's not gone, but let's say it's faded). We are in this line of work to pay our bills and support our family. It's the same if we were working in an office for a corporation, which would pay us for our time spent at a desk job. The only difference is that we work at home, for ourselves. Surprisingly, some people conclude that this means we shouldn't be "worth" anything.

What most folks don't grasp is that the material costs of many home-crafted products are negligible. It's the time involved in making the product that jacks up the price and earns a living wage for the manufacturer. This has its good side as well: we have been able to avoid raising our prices as high as we might. Despite the increase over the years of material and shipping costs (as well as the general cost of living), we've been able to hold the line on a lot of our prices by increasing our efficiency and thereby reducing the amount of time it takes to make our product.

In simpler terms, we make our tankards faster, so the cost to us, and therefore to our customers, is less.

Perfect vs. suitable

Here's a shocking thing about hand-made craft items—they're hand-made. Surprise!

Something that is hand-made often has slight imperfections or variation between items. That's the nature of the game. A hand-crafted item is not stamped out uniformly by a big machine somewhere in mainland China. It is hand-crafted in somebody's garage, workshop, or sewing room, often one at a time or in small production runs.

We do business with a fellow who has been a loyal wholesale customer for well over a decade. We have an excellent working relationship with Peter, and he represents us at a number of large venues around the country.

However, one year Peter hired on a new manager. This woman was something of a perfectionist. While this sounds spiffy in theory, the truth was that her perfectionism led to unrealistic expectations.

We had shipped 100 pieces to Peter. To our surprise, his new manager shipped about 50 of those pieces back with instructions to re-sand this, re-coat that, and generally fix things to her superior expectations.

We called Peter, baffled by his new requirements, only to learn that this had been done without his knowledge. We then got on the phone with the new manager and explained that yes, we can produce Absolutely Perfect Pieces, but for a Far Higher Price. Since perfection (by her standards) would take a hell of a lot longer to achieve, then the price per piece would have to reflect that extra amount of time.

We explained that our prices were mid-range because the quality was too. Our tankards have a three-year guarantee against leakage, and hold hot as well as cold. That's what people pay for. They look earthy and hand-made rather than sleek and glossy... because people who attend the types of events we do (such as Renaissance Faires) have no interest in paying for that kind of thing.

It took a while, but she finally got the message. She wasn't happy about it though, and her association with Peter did not last very long because her understanding of the business side of hand-crafted items was not realistic.

Sometimes it ain't worth it

Along this same line, we sometimes have to stop making a beautiful product because it's not worth our time to make it.

For example, we used to make lovely solid-wood dome-lidded chests of various sizes from steamer trunks to jewelry boxes. These were popular items, and when we did shows we sold quite a number of them.

It's not just the cost of materials that will set your price, but the time you have put into making your craft.

Eventually much of our business went wholesale, and that's when the trouble began. A chest that used to sell for, say, $50 when we sold it ourselves, would now have to retail for $100 if one of our wholesaler customers sold it. That's because the $50 price tag reflected our minimum amount of compensation for the time and materials needed to make each chest.

The chests were worth $50. They were not worth $100.

This happens a lot to us—someone will ask why we don't make such-and-such any longer, and we'll have to honestly reply that we can't make enough money doing it.

We made as much money making trunks as we did making a tankard, but the wood costs were higher, the weight (for shipping) was a lot more, and it took longer to make. When all this is added up, we made just as much money selling a tankard; and tankards can be shipped more cheaply, sold wholesale, and made assembly-line style.

Some things simply don't lend themselves to a home craft business. I repeat, a home-craft business—something that supports your family and pays your mortgage. Lots and lots of things lend themselves toward a home craft hobby. Please understand the difference between the two.

It's the time, not the materials

To refer back to an earlier point, the materials cost in most products are not what establishes the price. It's the time involved in making the product that accounts for most of the cost of manufacturing, especially when the product is hand-crafted.

This is hard for a lot of people to understand (unless they're on the manufacturing side of the business, that is). So, as usual, I'll illustrate.

We were approached by a friend who wanted us to make a series of wooden trunks for home storage. Since he was a friend, we figured we'd cut him a deal.

He gave us his specifications, which essentially were that each trunk should be approximately 18" x 24" at the base, and about 18 inches high, and made out of solid oak. We priced each trunk and came up with a figure of $100 each.

He was appalled and said it was way more than he wanted to spend. What if we made it out of pine instead? Pine was much cheaper than oak.

We agreed that it was. We re-priced and said they would cost $80 each.

He was aghast because at the time, pine was about 1/3 the cost of oak. We had no luck trying to explain that, to a large extent, it wasn't the cost of the materials that determined the price. Making the chests out of pine took just as much work, effort, materials (glue, nails, etc.), and most importantly, time.

In the end, we suggested he buy what he needed at an Army-Navy Surplus Store.

Set your hourly wage

Okay, we now understand that your time is probably the most costly aspect of making your product. Now you need to figure out how much to pay yourself per hour.

If your product takes 15 hours to make, such as a quilt, first pay yourself an hourly wage, such as $30/hour...

Wait a minute... $30 an hour? You're kidding! Wow! I'll be rich!

Hang on there, cowboy. Remember, when you work for yourself, you'll be paying your own taxes, your own health insurance, your own social security, etc. Thirty dollars an hour often translates to $15 an hour take-home pay.

For the record, roughly, you can double your hourly wage and add three zeroes to get your approximate before-taxes yearly income, so working 40 hours a week at $30/hour is approximately $60,000 a year. Factor in the cost of materials, advertising, packaging, shipping, and then price your product accordingly.

Remember, this is before taxes. It is also before your mortgage payment, your health insurance payments, and other expenses. It also assumes full-time 40-hour work weeks.

This exercise separates the wheat from the chaff. If you can find someone to pay $500 for your quilt, then perhaps you can make money. On the other hand, if it takes you 80 hours (two full-time work weeks) to make a quilt, your market will be thinner as most people won't want to pay $2,500 unless it's a darn nice quilt.

How much does it cost?

There is also a psychology to pricing. If we sold our tankards for $5, we might indeed sell more tankards. However, the unspoken question in customer's minds would be, "If the product is so good, why is it so cheap?" High-quality needs a price to match. It goes without saying, of course, that the quality of the product must be worth the price.

As our own rule of thumb, we price our items at five times the materials cost for wholesale sales, and 10 times the materials cost for retail sales.

This rule of thumb changes for more expensive items. A cabinet-maker might be able to price his product at twice the materials cost and still make a profit.

But if you are making bead necklaces and your materials cost $2 (costs might include beads, needles, clasps, thread, shipping, etc.), then you can reasonably charge $10 per item for wholesale, and $20 per item selling retail.

We are often experimenting with new products for our home business. How we set prices on a new item involves two parts.

The first part, obviously, is the amount of materials cost in each piece. The second, and far greater consideration, is how long it takes to make something. Obviously a piece that slips easily into our standard production run will cost less because the techniques are comparable.

For example, we have a new product (flasks) that are much more complex to make than a tankard. They also require new manufacturing techniques such as laser-engraving, mouthpieces (ugh!), special coating requirements both inside and out, etc. These will have to be priced accordingly because frankly, they're a pain to construct.

These flasks are also something that we will sell at our one and only retail venture of the year, the Kansas City Renaissance Faire. The reason we won't sell flasks wholesale at the present time is that they're too complex to make and not worth our time except at retail prices. That might change as we get more experienced and efficient at making them.

Shrug. It's a living.

Get it? Got it? Good.

I hope these examples have illustrated why some crafts will work as the basis for a home business, and some crafts should stay as hobbies. If the time involved in making a single one of your craft is too much, then you won't be able to support yourself making that craft.

Remember, time on the road selling your craft is also time that must be paid for, either by the customer or by you.

There is nothing wrong with a craft remaining a hobby rather than a business. Far from it. But knowing in advance which is which might save you a lot of time, money, and heartache when you conclude your hobby should have stayed a hobby.