The Importance of Adding Value and Upselling

The jeweler in front of you carefully pulls the necklace you asked to see off the table and hands it to you.  She watches as you carefully inspect the piece and then place it down on the table.  "I'll take it," you say. 

"Fantastic!" she says happily, "I have two clasp options for you; the first is a basic ribbon that will adjust as you like; the second is a handmade 'S-hook' that will fasten it close to your neck.  Which would you like?"

After a few moments deliberation, you say "I'll take the 's-hook'."  She smiles and pulls out the silver piece for you, almost a piece of jewelry in and of itself.  After handing you the necklace, she points out a small box.

"Since you purchased one of our necklaces, you can pick out a charm or pendant if you like, for only five dollars."

In the scene above, there are two examples of business savvy: adding value and upselling.  Both are important to any business, including businesses that are built around getting your art out rather than making a large profit.  If you are selling your art for a living, it is even more important.

Adding value can be a simple thing; it can consist of offering several options for clasps, as our jeweler did in the example above, or it can be more extravagant, such as offering free pieces for people that purchase a certain amount.  When adding value, many times it is better to focus on the small things, as 1) adding value does cost money and usually generates no revenue (or income) as it is free, and 2) if your added value is too extravagant, the customer may think you sell cheap products.  Consider this TV Sales Ad:

This is the new, hand-crafted, Steampunk Lawn Gnome!  It comes with a pointed hat that can either be in brass, copper, or leather!  Goggles are hand crafted and can be placed over the eyes or up on the cap!  Fully articulated and made out of brass and wood! the Steampunk Lawn Gnome is a must for any workshop or aviary and can be yours today for only $19.95!  Start, by calling 1-800-4-STEAMPUNK.  But Wait!  Call in the next ten minutes, and we'll include a handpainted Kai Gun for your Lawn Gnome, a $15.00 value, FREE!

It's not hard to see the problem here.  First, it's obvious that our hand crafted Lawn Gnome is actually Mass Produced, which means that if it is hand-crafted, it will probably be quick work. Even if it is excellent work, the maker is undoubtedly using Guilt Math^TM.  By throwing in a relatively expensive addition, he is reducing the value of his work by essentially saying each piece is worth about ten dollars.

In the example above, however, there is an instance of adding value that does work.  Offering options to your customers such as different hats, or styles of goggle, would be a relatively inexpensive set of options, and adds perceived value as it gives the customer the ability to choose exactly how they want their lawn gnome to look.  Let's see how this product should likely be sold:

So I see you like the Steampunk Lawn Gnome!  It is hand-crafted and painted, and comes with a hat of your choice.  The goggles are also hand painted and can be moved so they are either on or off of the Gnome's eyes.  He costs $40.  I also have some extras for him, like this Gauss Rifle that I'm selling for $15.  It's a replica of the Man-Sized Gauss Rifle that Julien Harrison carries on the Steampunk Empire, fitted for this Gnome.  I'll take $50 for both, if you're interested.

In this example, the seller used three methods to ensure a good sale of a quality item.  First, he used Business Math^TM.  Second, he added value by offering several options for a hat for the Gnome's head, and showed how the goggles were articulated.  Third, he tried to upsell the customer first by showing the accessory and telling the customer the price, then by offering a deal on both together.  By offering the $5 discount, the customer sees a perceived increase in value for cost and if you used your Business Math^TM, should have little effect on your ability to make more art.

How to Upsell

Unlike adding value, deciding how to upsell your customer can be tricky.  Many times, merchants will offer the customer a valuable item from their wares that may double the bill the customer pays; even more often the merchant will try to offload an unwanted good.

When trying to upsell your customer, offer them an item that relates to the original purchase.  For instance, in our Steampunk Lawn Gnome example, the Gauss Rifle is an accessory to the original work purchased.  So if you sell hand made wind chimes, offer your customer charms that can hang from the centre of the pipes.  Another example would be having a piece of work that is made of the same materials and has the same artistic style.

Any way you spin it, the customer above would be much more likely to buy a second hat for his Lawn Gnome rather than a steampunk dog collar.  So make sure your upsell attempts, when made, compliment their original purchase.  And if you don't have anything that fits, try the closest item that costs less than half of the price of the first item.  Though you'll get a lot of "nos", eventually someone will say "yes."

Sales is an incredibly diverse field, and although it is not your primary reason for having your business, it would behoove you to read up on some of its better features.  Sales books can easily be purchased online or in your local bookstore, or through my partner stores page at www.amway.com/vallerand.  The Little Books Series by Jeffery Gitomer is especially easy to read and have helped me on many occasions (no this is not a paid ad!).

Conventions and other Retail Events

When you decide to start marketing your art as a business, conventions and events become more important than ever.  While the average person goes to a con with the intention of spending money and having a good time, you are there to work and make money.  You will sacrifice your ability to see much of the con with the intention of raising enough funds to not only pay for your attendance at the event, but to fund future projects and pay your normal bills.  For the business artist, cons are no longer joyrides; they are serious trade shows.

Preparation is the key to success in any business venture, and Retail Events are no exception.  In fact, most of your work will be in preparation.   To start, you need to make sure you keep a file for all receipts, orders and other paperwork for each retail event.  As all of your expenses are tax deductible as a business expense, it is very important that you keep all of your receipts in an organized fashion.  If you are computer savvy, I strongly recommend using MS Excel or Open Office Calc to keep track of all of your expenses.  If you own a PC, Excel is usually packaged as part of Windows.  If you don’t have Excel, you can download Open Office from www.openoffice.org.  It’s free.

The first thing you are going to need is a table. While some events provide you with a table, this is not always the case, and you don’t want to be caught without having a place to put all of your wares.  Most tables are reasonably inexpensive; you can usually buy a six foot long, three foot wide table for about $30.  If you sell particularly large items or have a lot to sell, buy two.  Real Estate is very important when selling your items; usually the vendor with the largest space has the most items to sell, and is more likely to make a profit. Also, don’t forget the value of vertical space. Stacking t-shirts, for example, is fine, but having cubes that stack four high to show off those t-shirts and still allow for the shirts to stay folded is better and quadruples your inventory. Nearly everything can be displayed vertically. You only have so much real estate. Use all of it.

Rule One of Retail: Presentation is EVERYTHING!^TM  When you build your display, you need to do so in a fashion that allows you to make the most of how your products look.  To do this, buy a simple, soft black tablecloth.  You can usually achieve this by going to a local fabric store and picking up a good fabric.  Spare as little as possible when choosing your table cloth.  To the average person it may seem silly, but a soft table cloth against hard metal creates a contrast that is pleasing to the eye.  Even when you feel that your wares are supposed to look like items that came from the Zombie Apocalypse, how you present your wares can mean the difference between making your sale and sending your customer to your competition. 

Take the time to make your own price tags.  I suggest Parchment (or Resume Paper) which can be picked up at your local Department Store.  Put your Mark on the back and your price on the front.  Always make sure your Price is visible!  Sam Walton once said, “Show the value, and they will buy it.”  If you show them the value, they will hand you their money.  If they didn’t, Wal-mart would not be the largest department store company in the world.  Did you use business math or guilt math^TM?

Arriving at the convention early is very important.  Most events allow vendors to come early to set up their wares before the crush of attendees makes any effort to do so problematic.  Check with the vendor coordinator (in their various names) to see if vendors are allowed to arrive early.  If they can, do so.  There is nothing more difficult than trying to set up shop when your customers are walking through your shop space because they think it is a good place to get past everyone else.  When you set up your booth, here are a couple of tips for making sure you have the best advantage over your competition.

First, try to reserve some space behind the table.  By arranging tables in a manner that gives you space behind them, you provide yourself space for your cash box, extra merchandise (if you have any), snacks and other needs.  It also provides a safe place to stand when your customers are crushing around your tables and you need to keep an eye on your wares.

Second, make sure your table cloth covers the whole table.  It is also preferable if it reaches the floor in front of the table, so you have privacy for anything you need to keep under it.  This is something you need to be sure of before you even leave home.  It is important that the cloth reach the floor in front of the table (customer side) instead of behind it (your side).  This gives you access to the storage space without having to lift it. Also, if it isn’t bringing in money, holding money, or helping you survive, take it out of the retail area. Put it in your car, hotel room, whatever. Get it out of your way. It will cause no end of trouble trying navigate a cluttered area and you’ll bring the containers back in when it’s time to break down.

Third, arrange your wares so that they are in groups.  This may seem like a very obvious requirement, but you would be surprised how many vendors do not place like with like.  When you do, you provide customers looking for one particular type of good an easy way to compare your products.  If you have two masks, one with gears on the forehead and one with goggles, they will be able to stand with them together and decide which one they like best.

Fourth, everything must have a price tag.  Although price tags were covered briefly earlier, it cannot be expressed enough that this is possibly the most important part of your retail venture.

When you set up your table, make sure your money is organized.  A simple cash box can be purchased at your local Department Store, or a file book can be used.  Most importantly do not allow yourself to wad it up into your pocket.  Not only does this look bad, it also wastes precious time you could be using to sell to another customer.  When you do inevitably leave your stall to admire other pieces or enjoy a part of the event, make sure you secure your lockbox in a vehicle or have someone you trust (a spouse or companion)  watch over it that isn’t going to steal it.  While most people are honest, opportunity is the watchword of a thief, and while they may not understand the culture, a thief can easily fit into a convention with just a little research.

Finally, make sure you always give a receipt.  This is useful for two reasons: first, it tells your customer that their product is paid for in full.  Second, it makes accounting much easier.  You can add the receipts at the end of the event and drop them into your Excel or Open Office book that lets you find out if you made a profit.   

Always keep track of how much your calculated cost (including labour.  You aren’t using Guilt Math^TM right?) and never put your cost on your receipt.  Only the amount they paid you for it.

If you follow these simple rules, you should have a successful retail event.  There is a lot more that goes into actually selling your products, most of which can be learned through books on sales, available from your local bookstore, or by visiting www.amway.com/vallerand, registering if you are a first time customer, clicking Other Products; Partner Stores; Barnes and Noble.

One last word: if your first few events are a loss, don’t get discouraged.  Most businesses take five years to turn a real profit.  The key is never giving up, and working at getting your name and product out there.  And always keep a positive attitude!

Business Math and Guilt Math

When calculating the amount to charge for your products, there are two types of math that are commonly used.  Guilt math, which states that you must charge the absolute minimum for your product and labour because it is wrong to charge people too much; and Business Math, where you set a price based on the actual retail value of your product. 

Something that needs to be addressed first is the issue of money.  There are many artists, having struggled to make it by while practicing their art, that believe that monetizing their art is wrong; they should produce art for the sake of producing art.  While it is noble that an artist would be willing to donate their time and money to another person in such a manner is noble, this leads to the creation of Guilt Math; the form of math where an artist charges far too little for their product.

The brain, complex as it is, cannot run on ramen noodles forever.  At some point it’s going to need vitamins, and to do that you need money.  It is also an unfortunate truth is that nobility does not pay your bills.  Using Guilt Math, I have seen artists have to work two extra jobs in order to keep up with their necessities and still be able to produce products to essentially donate to the Steampunk Community.  The community appreciates their effort, but since they cannot focus on what they are producing, results are few and far between.

For example, we’ll take a Lawn Gnome that originally cost $30 in materials.  The artist completely converted our Lawn Gnome to carry two detailed pistols, goggles, a faux leather jacket, and chaps.  Then he sells it for $50.  The original thought is that the average retail outlet charges a 20-50% markup on all products sold except groceries.  Therefore if you charge $50 for a product that cost $30, you are making a 66% profit.

Forgotten by the artist, and so many others (like my wife) is the amount of labour put into each piece.  The piece that retailed for $50 took almost fifteen hours to make.  It had a lot of intricate detail work and had been pieced together using tools.  If you divide the 15 hours by the $20 in “profit” the artist made, he received $1.33 per hour for his work.  That is less than the minimum a restaurant that claims tip credits can give its wait staff.

As of this writing, in the United States, the minimum wage is $7.25 per hour.  If the artist charged only minimum wage for his work, and added no mark up, he would have had the right to charge $128.75 strictly because of this wage.  This price does not add in the costs of storage or marketing the item.

Before getting into the math of doing business for yourself, which can be very complex, there is something to be said about labouring on your own products.  Unless you keep a time clock in your workshop, it can be very difficult to calculate the actual and precise amount of time you worked on your product, which makes it very difficult to calculate the proper amount of labour to add in.  So instead of using a per-hour rate on pieces built from scratch, there is a simple formula that we can use to generate an appropriate retail price:

R=(x+xm)+z

R stands for your final Retail Price.

x is the Cost of Materials

m is the difficulty of production

z is the mark up

While High School Algebra Teachers are probably cheering right now, this formula can look a little perplexing, so let’s plug in some values to make this work better for those with less of a head for chalkboard math and more of a head for making things.

Taking our often cited example, we’ll set the cost in materials of our product to $30.  So now our formula will look like this:  R=(30+30m)+z

Now we need to calculate “m”.  In order to do this, we need to decide how difficult it was to create the product, as this multiplier calculates your labour.  In general, the simpler the piece was to make, and the shorter the time it took, the lower the multiplier will be.  The longer the time, and more complex it is, the higher the multiplier will be.

m=t+c, where t is the amount of time it took to make, and c is how complex it was.

To calculate t, use the following chart:

0-2 hours: 1    2-6 hours: 2    6-10 hours: 3    11-15 hours: 4  16+ hours: 5

Then calculate c, which is much harder as it is far more subjective.  When in doubt, calculate high, as you can always mark the  product down later:

Simple: 1   Moderate: 2    Complex or Difficult: 3    Very Complex or Difficult: 4

For the sake of our example, we’ll say that the piece took 15 hours (which it did) and was only moderately difficult to make.  This means t=4 and c=2.  If we plug this into our formula m, m=4+2.

So now we can plug this into our original formula.

R=(30+30(6))+z. or R=210+z.

Now we must calculate the amount for Retail Mark Up.  Already we are beginning to see how much money was lost on the sale of our $50 piece because of using Guilt Math; the actual cost of the product he made was $210.  Now we must account for the costs of storage and marketing the product.

Retail Mark Up is usually based on the amount of money a company wishes to make on the product.  This is the Gross Profit portion of the product, or the profit earned before expenses.  Standard mark up for most pieces that can be “mass produced” (even by hand) is 20-25%.  This assumes the product can move quickly and be sold at market with minimal storage time.  Custom pieces, or pieces that move slowly or are a very specialized good, have been marked up as much as 60%.

While it is up to the retailer (or in this case, the artist) how much to mark up their products, it is important to remember that storage and events to sell at cost a lot of money, especially when storage becomes long term.  For the sake of this example, we’ll say the artist will be able to replicate the product with reasonable ease, and sell it quickly.  So he decides to mark up his product 25%.

Plugging this into our example, our formula now looks like this:

R=210+(.25)210.

Percentages are calculated as a decimal, with 100%=1.  All Mark Up is based on the Cost of the product, so our mark up will be $52.50.  This may look like a lot of money, but remember, the costs of running your business, such as paying for events, food, and any applicable taxes must be built into the price before you can make a profit.

This means that the Final Retail Price, R, is going to be $262.50.  Most people will drop the decimal, so $262 will be a good price for retail on this piece.

This is the Price you would charge using Business Math.  While it looks high, and indeed $262 is a lot of money, that is the market value of the finished Lawn Gnome, and it is likely that a handmade product found in a store would be found for that price.

As an artist, you should never be ashamed to charge the true value of your work.  If customers are willing to pay the price, then that is what your piece is worth on the open market, and you should be proud of your accomplishments.  If they do not wish to pay so much, they will not buy it, and you can always lower your mark up later.  Remember not to sell yourself short; you’re worth it.

Monetizing Your Art

Recently, I have been watching several prominent members of the Steampunk World worried about how they can be artists and still manage to make it by.  When talking to them about their art and how much they charge for it, it was unsurprising that they almost all charge very little above the materials cost because they feel guilty about charging people money.

I would like to take a few moments to talk about Monetizing your Art, Capitalism, and what it really means.  When you decide to do something for a living, it means that your own well-being and that of your family relies solely on your ability to work your art as a business. Many artists have a hard time doing this, either because they are more focused on the art (as honestly it should be) or they are diametrically opposed to people that charge too much money for bad work.  What it comes down to is a guilt complex of "I shouldn't charge a lot because I only paid X and therefore should only get Y because most retail stores only get Z%.

Now remember, Z% markup is based on the cost of the product including labour.  Most artists forget the time and effort they put into things costs them money as well; the electricity, water and food that they consume.  There is also lost personal time working on a project for which most professional artists get paid between 15 and 30 US Dollars per hour.  I once saw a beautiful piece of work that took ten or fifteen hours to make go for fifty dollars, a price that doesn't even cover the cost of labour.  While the piece sold, and quickly, the artist lost money on the product.

So I'm going to provide everyone with a simple formula that has worked for my family business.

The cost of a product of value should equal the cost of the materials plus the labour.  Depending on what you do and how long it takes, charge labour based on materials.  So if you make garments, as my wife Rachel does, perhaps Materials x2 for labour would suffice.  For example, if the cloth costs $5 then the labour costs $10 and your total cost is $15 for the garment.  On the other hand if you hand make a gas mask that actually works that costs $5 in materials, it may be better to charge materials x5 or a total of $30 for cost.  Yes I know these amounts are dreadfully and impossibly low but work with me; I didn't want to find my calculator.

Now remember, it is going to take some time to sell this product, and the longer it sits on a shelf, the more money you lose in storage. Storage is an actual business expense, even when you store product inside of your own domicile.  Check your nation's tax collection agency for more details about this.  In the United States, check:   http://www.irs.gov/publications/p535/ch01.html#en_US_2010_publink1000208606

Therefore you must mark it up!  This does not mean you need to have a profit of 500% like diamond sellers (unless you are a diamond seller) nor a profit of only 4 cents on the dollar like petrol dealers (That's right people oil companies make about four cents on the dollar or 9 cents per gallon, who do you think gets the rest?).  An appropriate markup is based on the type of good you make.  You can always mark it down later if it doesn't sell.

If you make an item that is easily mass produced even by hand, such as most small leather goods or certain pieces of jewelry, an average of 23-33% markup is standard.  Believe it or not, that's what Wal-mart makes, it's the industry standard.  So, your $15 cost item is now worth between $20 and $25; final price will depend on if you want to scalp your competition by undercutting their prices or you are the only one selling it.  If you're a specialist that does long and convoluted projects that take months, do not feel ashamed to mark it up by as much as 200%.

In conclusion, when selling your art, think of it as a business and not just a hobby.  Make sure you are charging enough for your own labour.  Your customer is purchasing your product because they either can't, or won't, produce it themselves.  When you place a price on your product ask yourself if you're using the Guilt Formula or the Business Formula.  The Business Formula is more profitable and will help provide you with more funds to continue your work, like a miniature plasma generator for that Gauss Rifle.  Or a Lawn Gnome to carry it...