WGM Ep. 12: How to Calculate Baseline Cost of Goods and Why

WGM Ep. 12: How to calculate baseline cost of goods and why

In the previous episode I discussed the importance of setting a budget not

Only for your personal finances but also for your business.  I really hope you take this information seriously as a business owner and creative.  The functional glass or pipe industry is going to eventually come into a territory where corporations might become the front runners of success when it comes to the American glass pipe.  Whether you’ve been a glass artist for a year or 20 if you haven’t started taking your business seriously now Is the time.
print out and follow along 

downloadable blank form for you to fill out

  We need to think like a big business whether or not you are. All to often artists get stuck in the mindset that being a corporation has a negative connotation, but the reality is if you don’t change this mind set, one day in the near future you could be out of a job or even begin working for a bigger glass studio that has taken themselves seriously and has found success as a corporation.  If you want to survive as a business then you need to change your mindset and daily habits and start thinking and acting like the CEO of your company.

It's the CEO Mindset that will Make Your Business Grow
According to Entepreneur.com, "By thinking with this mindset from the get-go, and ensuring it’s at the heart of all the business activities, other people will view you differently. Even if it’s just you sitting around your kitchen table with a laptop, the outside world–including clients, suppliers and potential investors–don’t have to know this if you have an attitude and philosophy that screams ‘CEO’."

When figuring baseline costs you will need to repeat this process for each item you're creating. This will give you a clear picture of what each item you produce costs, the time it will take to complete an order and the overall profits associated with your orders. 

This might sound a bit confusing but bare with me… there's a link in the show notes that you can download and print so you can follow along at home and use for reference.  Plus a separate form that is downloadable too for your use to find your own baseline costs.

So lets begin with a single basic item that a lot of us has made and are still making. A 3" wrap and rake spoon or hand pipe. Now when it comes to figuring out material costs this is how I do it.

1. Go to www.mountainglass.com and use their online catalog to figure out material costs. You'll see that this is a great reference point since they have already done all the work and broken each item of raw material down to costs/piece or gram depending on the material. Don't forget to estimate a small amount for shipping costs too. If a 48" tube  of 32x4mm of pyrex costs $8.00 that means it costs $0.17/inch. In this example to create a 3" single color wrap spoon I would use a 2"section pulled into a point . Whether you use a blowpipe or pull a point there will be an extra cost from that material being used. So consider the point handle being created from 1/2" of the 32mm. So the point being used is 2.5" at a cost ($0.43)  And you would be able to pull approx. 19 points from one tube of 32mm.
2. Color used is approx.  1" or 10grams. An average 18" rod weighs …….
3. Now you need to do a time test to get a good approximation of how long it takes to make 3-or 1 item. The reason I say 3 is the first one is the warm up  the second is at full speed as is the third. For me a 3" wrap spoon takes approx. 15-minutes which includes the time to pull the point. Keep a notebook of all your times and estimates to refer back to. This will help you stay organized and then you can see progression when you recalculate these estimates annually which I recommend.
4. Now that you have some general estimates for 1- item you will want to repeat this process for each item you create. When you do this I also recommend that you keep one of each item as a sample and with a marker write SAMPLE on the pipe or whatever the item is you are creating.
5. You will also need to figure out how much you are spending on oxygen, propane, power, etc. to really figure out the costs per item. If you are renting space that is all inclusive then this can be a little easier to calculate. If you don't just go through your invoices or if you’ve done your budget use those numbers. If you spend 150.00 a month on oxygen and 75.00 on propane then add those totals and divide by 30 to figure out how much you spend daily.

So as you can see if you treat your business like a business you pay the business first, then the government, then yourself and whatever is left over can then be allocated to a savings account for retained earnings. With this you can break it down even further and save a small percentage for your emergency fund in case you are injured and cannot work.

 

If you have taken the time to figure out both your personal and business expenses then you will have a clear picture of how much you need to have saved in emergency fund for both the business and your personal life. The business emergency fund is there to cover the costs of rent and other overhead expenses that will keep your doors open. The emergency fund for your personal is there to cover your bills and other personal expenses. If you take the time to figure out all of these expenses then you can have a clear mind knowing how much is coming in and going out and wont have to worry about how you will pay the next power bill. You can also use these calculations to begin scaling your business by bringing on an assistant or apprentice to begin helping you make some of the basic production items that you create and know how much you are able to afford to pay in piece work.

 

For example with the 3" pipe if you were to pay yourself $5.00 each then instead you can pay help $4.00 each and that artist can still make $16.00/hour. 

Take all of this to heart and put it into action You will be ahead of the majority of the artists in the industry and grow your company bigger then you ever dreamed possible