How to Transform Your Craft Hobby into a Business

by Cristian I

Transform Your Craft Hobby into a Business!

Thanks to the digital platforms offered today, such as Etsy, it is easier than ever before to transform your crafting hobby into a business.

The market for handmade crafts continues to grow, with even online retailers like Amazon offering a specific store which features these items.

You might think of yourself as a hobbyist or crafter, but you can also become a business owner to start earning a legitimate side income without much of an investment.

You’re already spending time crafting anyway.

Why not earn a little extra cash?

Thousands of crafting hobbyists earn enough to make their car payment, pay for groceries, or even take care of their mortgage because of their choice to form a business.

If you’d like to join those ranks, then the following steps are for you.

1. Choose the appropriate business structure for your new business.

There are four common business structures to consider using when you form a business around your crafting work: sole proprietorship, partnership, limited liability corporation (LLC), or a full corporation.

Most crafters will form a sole proprietorship. This business model doesn’t usually cost anything to register.

You would just tell your local Secretary of State or similar governing body that you’re forming this business.

Then you can get to work following the other steps.

If you’re married or have a recognized domestic partnership, you may have the option to add a significant other to the sole proprietorship without needing to form a different business structure.

Choosing a partnership may require you to file an agreement with your governing body.

This document outlines the responsibilities of each party to ensure accountability.

If you work with a friend on your crafting and want to go into business together, then this is the first business structure you may consider.

An LLC is the first business structure which separates your personal assets (like your bank accounts, house, vehicles, and other property) from your business assets.

Unlike sole proprietorships and some partnerships, you must keep separate books at all times.

It costs more to form an LLC, and you’ll have reporting requirements to follow, but it will also give you an extra layer of protection if your crafting items might create future legal liabilities for you.

Corporations are for larger businesses that require independent life outside of their shareholders.

Most hobbyist companies would not need this structure until they outgrew the previous options listed.

2. Get any licenses or permits you may need.

Even though you will likely form a home-based company as a crafter, your community will ask you to hold a business license.

Depending on where you live, a state, county, and city business license may be necessary for your company to operate legally.

Selling your crafting items exclusively online does not exempt you from this requirement.

Every community is a little different, so you must check with each authority before you start selling in earnest to determine what requirements must be met.

Some cities require you to purchase a home-based zoning exemption permit which allows you to operate your new company from your property.

The advantage of having this document is that you can then serve customers at your house by selling items directly.

Depending on the ingredients or materials included with your crafting items, some specific certifications may be necessary before your licenses or permits are issued to you.

Some governing bodies may require you to show proof of liability insurance covering your new business before they issue a license or permit too.

Plan on this process taking at least ten business days to complete.

3. Remember to file your taxes when asked.

Your city and state (or province) will ask you to pay business taxes in specific ways.

This process includes the collection of sales tax on the products you sell with your crafting talents in some communities.

There are also federal taxes to pay each year from your new business income with the crafting company formed because of your talents.

Since most companies will form as a sole proprietorship or a partnership, the process is similar to your current tax setup.

You’ll need to report the profit or loss from your business on the personal tax returns you file each year.

Using automated tax software like TurboTax, along with accounting software like QuickBooks, makes it easy to report your earnings or generate needed reports.

As your business grows, you may wish to consider hiring an accountant to take care of this administrative work for you.

One essential component of this task is often ignored: making your books open for inspection.

Some states require you to provide a copy of your ledger at their request.

Make sure that you keep this information up-to-date whenever possible to ensure you stay in compliance with local regulations.

4. Think about how to include profits in your pricing.

This area of the crafting business becomes the most challenging for new owners.

You must earn an actual profit from your company to make it a worthwhile experience.

That means you must know how to price your products correctly.

If you price your crafting items too low, then your talents might be thought of as “cheap.”

If you overprice your inventory, then you could find competitive crafters outselling you because their profit margins are more reasonable.

You must understand your full costs of doing business before you can set a fair price.

That means you must calculate what your overhead costs are.

Elements of overhead include fixed and variable costs.

Here are some examples to consider.

– Your home office share of the mortgage or monthly rent, along with utilities.
– Shipping and stocking fees that you pay to order your crafting items.
– The amount of labor it takes for you to create each piece.
– How much the raw materials cost to start crafting in the first place.
– The equipment that you need to begin making items.

Once you know what your actual product costs, including your labor, marketing, and selling costs, then you know what your break-even price must be.

Now you must factor in the overall percentage you want to make.

Most crafters try to make a profit margin of at least 50%.

Let’s say you can make 100 items per month. You would combine all the overhead costs together, then divide that figure by 100.

If your overhead costs are $1,000 per month, then your break-even figure is $10.

If you want a 50% profit margin, then you would need to sell your crafting items at $15 each.

Selling all 100 of them in the month would earn $500 profit that you could pocket.

5. Look for ways to improve your processes.

Now that you know what your overhead costs are, it is time to start reducing the impact of labor on them by increasing your efficiencies.

You should always look for ways to improve your processes while crafting because this will increase the profits you earn each month.

There are a few ways that you can begin to streamline everything as you transition from a hobby to a company.

– Figure out a physical workflow that allows you to make your items quickly.
– Create a workspace which supports your talents and work.
– Find productivity hacks that stop distractions while making the tasks more manageable for you.

If you’ve heard someone say that they’re trying to “work smarter instead of harder,” then this is the step they are working on with their business.
One easy way to improve your processes is to create products with your crafting ability that are quick and simple to reproduce.

Could you offer digital crating patterns to sell?

Is it possible to make prints of your work that you could duplicate and sell?

One-of-a-kind items are always a foundational component of any crating business.

If you can create reproducible designs that can be listed with your unique products, then you will have a more accessible path toward profitability.

6. Start building your new brand.

When you first start your new business, you’ll discover that your friends and neighbors will start calling you something like “the crafting lady” or “the craft guy.”

They’re doing that because you haven’t established a brand identity yet.

Once you have your business setup and products ready for sale, it is time to start building your brand.

That process begins when you have a logo created for your business.

You can use your crafting talents to design an image which speaks about the products you make.

Another option to consider is outsourcing the graphic design element of this task to a freelancer.

Numerous platforms allow professionals to use their talents in logo generation or graphic design as a business opportunity just as you’re pursuing a crafting company.

Once you have a logo, it is time to think about a mission statement.

Create one sentence which exemplifies what you hope to do with your new business and how it will help others.

This process may lead you to a vision statement.

If you haven’t created one yet, now is the time to develop a full business plan too.

7. Talk to your current customers about new products they’d like to see.

The reason why many crafting businesses struggle to survive is that they focus on the owner more than they look toward the customer.

Crafting is a creative passion.

A business requires what is called a “value proposition.”

Your customers must find value in what you offer.

If they don’t like what you make, or they think it won’t meet their wants or needs, then they will take their purchases elsewhere.

Just because you love something doesn’t mean others will.

That’s a challenging lesson to learn when starting a crafting business.

Talk to your current customers (not your family or friends) about what they’d like to see you make.

Ask for feedback from them about what you do right and what could benefit from some improvements.

This information will help you start crafting new items which meet their demands.

8. Find a credit card processor.

Our societies are moving toward cashless transactions a little more each year.

If you want your crafting business to grow, then you must find a way to accept debit or credit cards as payment for a transaction.

There are five excellent credit card processing companies to consider using for your new small crafting business.

Square Payments makes it easy to process small transactions without paying monthly fees.

If you think that your business will only clear about $2,000 in sales each month, then this option is worth a closer look.

Another option is Dharma Merchant Services.

They offer a low monthly fee while charging you interchange rates plus a small markup.

The rates for 2018 were 1.8% per transaction (set by Visa, MasterCard, and others) plus a 0.2% markup with an additional eight cents.

Square charges 2.75% with each transaction.

If you plan on doing several thousand dollars worth of business each month, then switching from a flat-rate processor to one using interchange rates and markups will help you to make more money.

FattMerchant and Payment Depot are two other interchange processors to consider.

If you like the idea of Square, then you might look at PayPal Payments as a way to manage credit card transactions too.

The benefit of using this option is that PayPal can issue you a debit MasterCard which gives you instant access to your current balance.

9. Establish your expertise within a specific niche.

When you move your hobby work to an actual business, it feels like you want to please everyone in some way.

Disappointments look bad for business.

That thought leads many crafters to a place where they spread themselves too thinly.

When you try to be everything to everyone, then the quality of your work goes down.

Pick one thing that you do exceptionally well. Stick to this item when you first start your business.

Then create variations of this item to establish your niche expertise.

Stay in this niche until you feel like it is possible to expand your business further.

10. Develop a positive customer experience throughout your sales funnel.

Your customers require positive interactions at every crossroads point in their purchasing decision.

If they experience something negative with your new crafting business, then they might abandon their intent to buy.

The average person has an attention span of eight seconds when they shop online.

That time is what you have at each stage of your sales funnel to leave that positive impression needed for advancement.

That means any research your potential customers do on your business and brand must leave them feeling good about who you are and what you do.

Use authentic product descriptions while telling your story to begin the first steps of a relationship.

Then offer samples of your work whenever possible.

If you’re selling crafts online, then meet this need by taking detailed photographs of each item for sale.

Your website must be easy to navigate. There cannot be any glitches in your shopping cart that prevent a purchase.

Any hint of negativity can cause them to abandon their cart.

Then you must take the next step, which is something that many new business owners forget to do.

You must follow-up with each customer after the purchase to see how they like what you made them.

11. Take your crafts on the road.

When you establish a strong core of loyal customers that help your business achieve profits each month, then it is time to take a road trip.

Literally.

Trade shows, art fairs, and similar events give you new opportunities to meet potential customers for a price that is more competitive than standard advertising.

You might spend a few hundred dollars on the trip (including registration or table fees), so take a little bit out of your company profits each month during your first year to pay for this trip without generating extra debt.

There is no guarantee that the added brand exposure will create new business opportunities for you.

That’s why this, and many other marketing options, involve risk.

If you do not continue to take smart, measured risks, then your new company will struggle to grow.

Forming a business was the first risk you took.

If you’re making a profit of any kind, then it is starting to pay off.

Take another chance to see what happens.

12. Develop a home office if you don’t lease commercial space first.

Most crafting businesses operate from the owner’s home.

There’s nothing wrong with this setup. It keeps your costs down while still giving you access to customers.

What you must think about doing with a home-based crafting business is space development.

You should have a dedicated spot for your work where distractions are minimal.

This area would be where you keep all your supplies too.

By developing a home office, you’ll create some tax advantages for yourself when the time comes to file each year.

There is a long-running credit associated with your home office expenses.

Keeping track of what you need for this space will help you bring down your net revenue numbers to limit your tax responsibilities too.

You don’t need to pay for everything all at once.

Create the space first, then slowly fill it up with equipment and supplies as you need them to work.

If you get large enough, then start to consider a commercial space where you can create and sell from the same location in your community.

13. Connect with a wholesale vendor to purchase supplies.

When you have an established business for your crafting talent, then the days of running down to your local Michael’s, Hobby Lobby, or similar retail store are gone.

You now have the opportunity to work with wholesale vendors.

Purchasing your raw materials through a wholesale vendor will reduce your product costs.

It gives you better control over your supply chain as well.

The first vendors you work with will likely be online.

Here are some options that you could take a closer look at to see if they can meet your needs.

– Bulk Apothecary is an excellent resource if you require essential oils for soaps or similar
products that you make.
– Darice.com allows you to purchase bulk lots of numerous items for an affordable price.
– PandaHall offers European beads, high-quality glass, and several shipping options.
– Warehouse Craft Supplies gives you better discounts when you order more, going up to more than 60% off on some orders.

14. Build your own website.

Creating a website for your new crafting business is an easy way to let the rest of the world see your skills.

There are several low-cost options to consider using, such as Wix, to create an e-commerce platform for your new company.

You could choose to sell exclusively through sites like Etsy or Amazon to bypass the need of having your own domain.

The best option to use if you want your own domain is WordPress. This open-source platform gives you thousands of themes and plugins that make it easy to start generating online sales.

Incorporate WooCommerce for a straightforward online store that can have you start selling your handmade items in less than a day.

If you’re not sure that you could build a website on your own, then talk to a local business or well-rated online freelancer who can create this foundation for you.

15. Use email marketing as a way to promote your brand.

Although email marketing seems like it would be incredibly complicated, it is one of the cheapest and most effective ways to speak with your prospects and customers.

Unless you send out spam on a regular basis, that is.

Email marketing is a way to add value to your brand.

You can share crafting tips, product discounts, or personal advice that gets delivered right to the inbox.

There are several excellent companies which can help you add this element to your website for a minimal cost.

Some even offer a free trial.

Take a look at them all to see which one meets your needs the best.

– Constant Contact
– GetResponse
– SendInBlue
– MailChimp
– ConvertKit

16. Hire employees to continue growing.

Most businesses which start from a crafting hobby stay as a small family business.

There’s you, a spouse or significant other, and maybe the kids helping you create items for sale.

If you discover a large market for your crafting skills, you might find that the demand for your products is more than what you can make on your own.

That’s the time when you should start to consider hiring.

Hiring your first employee is a momentous occasion.

There are six steps you must follow to do this legally in the United States.

– Get an Employee Identification Number (EIN) from the IRS.
– Verify the work eligibility of each person through IRS Form I-9.
– Satisfy the state and federal tax reporting requirements.
– Report new hires to your state directory.
– Obtain workers’ compensation insurance.
– Post the required notices on worker rights in your workplace.

Don’t be afraid to ask for help if you decide that hiring someone is the right move to make.

Navigating through the different tax procedures and legal regulations can feel intimidating.

Each community, state, and province offer materials which can guide you through this process.

17. Maintain the relationships you create each day with your customers.

Checking in with your customers from time-to-time after they make a purchase is good for business.

It will let you know if your items are living up to their value proposition.

Try to speak with your past customers at least once per month in a way that doesn’t include a mass email letter or bulk marketing activity.

Phone calls, social media comments, or a personalized email are the best ways to do this.

Although this effort does require a time investment, it can pay off with repetitive purchases too.

The probability of selling an item to an existing customer is as high as 70%.

If you’re trying to sell the same thing to a new prospect, then the success rate could be as low as 5%.

If you know the birthday of a customer, then send them a card. Send out greeting cards during the holiday season.

Mark any special events you know about, like an anniversary, with a note wishing them well.

Don’t focus on an additional sale here.

You’re not trying to pitch them.

You want that relationship to stay strong.

That must be your primary goal.

A Final Thought on Turing a Crafting Hobby into a Business

What makes the idea of transforming your craft hobby into a business opportunity so intriguing is the fact that it is a personal journey.

You get to shape this new company in your own image.

From the products you create to the way you process payments, each element of customer service comes from the heart.

Some businesses will succeed.

Many will not.

The odds are in your favor, however, as 70% of companies that start today will still be going strong after 24 months.

Pursue your passions.

Take a risk.

A crafting business could be the next successful chapter in your life story.

 

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