Author Archives: don Gonzales

How to Basket Stamp a Leather Belt Quickly

We posted a video to our YouTube Channel on “How to Basket Stamp a Leather Belt Quickly.”  If you are new to leatherwork then you most likely have already given one of these a go.

When most of us start out in leathercraft, we quickly come up with the notion that we want to make a belt.  Belts are one of those items that everyone uses.  And, for the most part, the majority of these items are still made from leather.  No matter if you are a businessman, a waitress, a lawyer, or a burly Harley riding biker… we all need something to repel the effects of gravity on our pants.

The basket stamp pattern seems to always be the entry level tool among new craftsmen.  It also becomes the old standby pattern for well established shops.  The reason is because this pattern is easy to run and has a classic look about it that seems to stand the test of time.

In my shop, I often will use a basket stamp to add a little variety to a project.  The pattern is subtle and seems to appeal to the majority of people that see it.  It isn’t a pattern that is so unique that the person has to specifically request it.  For the most part, I use this stamp mainly as a filler pattern that adds texture to a piece without taking away from the focal aspects of the rest of the artwork or design elements.

If you are wanting to try your hand at basket stamping a belt, or any other item, check out this video and see how I set the pattern up and run the stamp.  I’m sure there are other ways to accomplish this, but this is the best way I have found to ensure that the pattern comes out correct and even.

Your Dollars Should Work to Strengthen Your Business

For the majority of us in Leathercraft, we absolutely love what we do.  But, if you are like me, you probably don’t love working on the financial side of your business.  If you want to strengthen your business, then the financial aspect of the business has to be discussed.

Tell me if this sounds familiar to you in your life or your business:

You have been working hard on a big project and you are wrapping it up.  Oh boy, now time to have it picked up and get that big check and feel the relief of cash flow coming into your business.  Time to pay yourself and payoff those material bills that you have been piling up over the course of this project. Happy Days!

After the customer leaves with his beautiful project in his hands and his check in your hands, you feel a sense of accomplishment. You know that you have lived to fight another day and your shop thanks you.

After the deposit is made into your bank account and all the checks to your suppliers are written and mailed out, you now look to see what great amount you will be “taking home” to enjoy.  

Suddenly you realize looking at your account and books that you have very little, or none, left for yourself.  WHAT?  How can that be?  

“I bid the job correctly… I think.”

“I didn’t buy more material than I needed for this job… did I?”

“I should have more money than this, what happened?”

This is a very common scenario among many entrepreneurs… not only in our industry either.

This article is somewhat of a sequel to the article that we did recently called “Price Your Product to Increase Profits.”  In this article we talked about how I approach pricing my products and services.  Here we are going to talk about how to manage the money that comes into the business and how to create a system to strengthen your business financially.

What Most of Us Do With Revenue

The common practice for most business people is to deposit all the money in one account and then pay all the bills and themselves out of that account.  The thought is that if we bid the jobs right and don’t over buy on materials and tools then we will always have enough to pay ourselves.

This is not the case.  The finances of any business are not spontaneous reactions… meaning that they do not operate themselves in a positive manner automatically without any energy or work being applied to them.

In science, the majority of reactions that are considered “spontaneous” (requiring no added energy or work applied to complete) react towards a state of chaos.  If you don’t believe this, just stop doing ANY work inside your home for 30 days, just live there… no cleaning, no sweeping, no laundry, nothing.  By the end of 30 days the entire inside of the house will be in chaos and completely filthy.  This is a spontaneous reaction towards a state of chaos.

Business, and personal, finances are not exempt from this law of physics.  If you do not apply energy and work to your money it will leave and the business will move towards a state of chaos financially.

Chris Hogan with Retired Inspired says, “There is a name for money that’s not budgeted, its called “SPENT.”

This way of operating your business blinds you to your spending, your revenue, your long term growth planning as well as paying yourself on an upward trend… which we all want to do within our businesses.

With this operating practice, you do not have a clear picture of your finances and can not accurately prepare for downturns in revenue nor how to properly use a sudden increase in revenue to better yourself and the business.

What We Should Do With Revenue

Some of what we do financially in our business is hard to prepare for and we can certainly have (most likely will have) things come up in the business that will compromise our intentions financially.  But this is not an excuse to not do a budget and have processes in place to protect against them.

Since starting my business in 2004, I have struggled and failed more times than this article has room to illustrate for you in the realm of finances.  As a 24 year old wannabe saddle maker when I started, I had no idea what it took to keep a business running correctly. I was a bit stronger on the workflow side of things and handling project management, but when it came down to money I just figured if I worked hard enough then the money would take care of itself.

After my first 10 years in business, $170,000 in debt, and one year where my income was $11,000… I finally realized that I was pretty bad at this money stuff.

I tried many different systems and processes, read a ton of business accounting books, and talked to anyone who owned a business that would listen, just trying to get a handle on my business.

The best advice I received was from a young retired business millionaire that specialized in buying businesses in bankruptcy and turning them around and then selling them for a profit.  He gave me this equation:

Revenue – Expenses = Profit

If you do this equation and there is a positive number in the Profit spot then you are doing things right.  The goal is the make the Profit number as big as possible.  This alone will strengthen your business.

“Well, Duh”  I thought to myself…

If business is that mathematically easy then why don’t we do it?  I didn’t.  I spent the next years, after gaining this nugget of absolute truth, just focusing on the top number of a Profit and Loss Statement… Revenue.

The reason is, because I always thought as long as the Revenue was up then I was making money.  And the Revenue did go up… A LOT.  Seven years into my business, I had tripled the revenue of my business from the very first year and was on an upward trend… the problem was I had also tripled, maybe a little more, my expenses.

What’s the Point

So what do we do with this information?

Most of you know the above equation.  This is not revolutionary.

The point is that we all know this but never do anything to make sure that it happens.  Just like knowing that eating two half gallon tubs of Blue Bell Ice Cream will make you a bit on the extra heavy size… pass me a spoon!  Blue Bell is delicious!

For me, I couldn’t ever figure out an easy way to insure that week by week, month by month and deposit by deposit my money was going where it needed to go so that at the end of every month this equation showed a positive number without fail.

I could not clearly see the numbers and make sense of the chaos.

In this article, I will show you my Financial Allocation Process that I have been using for the last four years.  This process is my attempt at using my limited understanding of business finance to create a system that allows me to appropriate all revenue to where it feeds the business for growth and security.

This is not some high dollar software program that you put on auto pilot and all the sudden your business is profitable.  This is a hands on, all you, taking control action plan that will teach you more about your business and help you to feel in control.

The great thing about being in business for yourself is that you are in control of your life and career… and if you don’t like what you get paid in this position, then you know exactly who to talk to for a raise… yourself.

Finding Your Profit Centers

Profit Centers are simply the different areas of your business that generate revenue for the business as a whole.

For example in my shop we have these profit centers:

  • Custom Saddles
  • Saddle Repair
  • Custom Leatherwork
  • Retail (not so much these days)
  • Teaching

These are the five different ways that our business generates revenue.

It is important for you to know where the money is coming from and seperate it within your bookkeeping.  This allows you to be able to see which areas are more profitable than others.  As well as maybe letting you know what areas are maybe not worth investing in anymore due to underperformance.

If you want to get super nerdy on this, and some of us do, then you can also track expenses in the business based on these profit centers so that you have a detailed profit and loss on each one.  For my business, no one category can stand on its own profitably and they all work together to share expenses and profit for the overall business.  This would be different if I focused all my energy on one of the profit centers and didn’t do anything else, but I enjoy all of them so I choose not to focus on only one at this time.

Understanding your revenue sources in this way will help you to further understand your business as a whole.  You will be able to see where your energy is better spent on a daily/weekly basis and can also help you with your marketing strategy.

Your business may be small and you only do it as a side hustle.  In this case you may only have one profit center and that’s fine.  Knowing this about your business may open you up to other possible profit centers that you haven’t noticed before or that you may want to create.

Understanding Your Expense Categories

Now that we know where the revenue for the business is coming from and from what sources, we need to decide what to do with it.  This is crucial!

If you don’t make a conscious decision at this point to decide where you want the money to go, it will decide for you on its own and just leave.  I’m not kidding.

Take a moment to think of the key areas of your business that cost you money.  Write them all down… all of them!  These can be buying new equipment and tools, material purchasing, taxes, building repairs, savings, and most important of all… PAYING YOURSELF.

Now look at all these categories of expenses.  Don’t they kinda look like your Expenses section of your Profit and Loss Statement for your business when you do your taxes?

That’s because come April 15th they all will be in the Expenses section of your Profit and Loss Statement.  These are things that your business uses money for… month in and month out.  You know about all of these things obviously because you just wrote them all down.  So we have no excuse for not allocating money to cover these things over the year.

So let’s do a little organizing here.  Take all the things that you wrote down and start grouping them together with other like items.

  • electric, water, rent, paper towels, coffee, etc – maybe this is considered Overhead (items to operate the business)
  • leather, hardware, saddle trees, glue, custom hardware, etc – maybe this is Material Cost (raw material for each job)
  • sales tax collected, income tax to be owed, property tax, etc – part of the revenue that is owed in Taxes
  • contract labor, payroll, payroll taxes – if you have employees this would be Payroll
  • paying yourself – this would be a standalone category maybe called My Pay

When you are doing this, try to consolidate all these expenses into as FEW a categories as possible… I have only 6 as of the writing of this article.  These are my six expense categories:

  • Overhead
  • My Pay
  • Profit (savings)
  • Income Tax
  • Payroll
  • Material

You should now have a small number of categories that represents any and all expenses for the business to operate and pay you and your employees or contract laborers.  Every one of these are crucial to the survival of the business and each requires a certain amount of money to stay alive.  If they are all funded with cash then the business is healthy and if not then the business is struggling.

The Allocation of Revenue

Now we need to decide how much money needs to go into each of these categories.  This will be different for every business and will take you some time through trial and error to get it dialed in.

I take a percentage approach to this.  What I mean by this is that every dollar that comes into the business comes in as a complete dollar made up of all of your categories.

$1 in revenue = %My Pay + %Overhead + %Profit + %Income Tax + %Payroll + %Material

The dollar is not a whole dollar.  If you take that dollar and buy a Dr. Pepper with it instead of allocating its portions to each category then you have not replenished the categories that worked for you to have that dollar.  Basically you have stolen from the business and it isn’t as healthy as it could be.

We first must break our dollar into what percentage of it each category represents.  This is where the Profit and Loss Statement can be very helpful.

If you have some history within your business, then you can very easily look at last year’s P&L sheet and have a pretty good sense of what these percentages are.  If you are new to the business you will have to make projections on what percentage each category may be and adjust as time goes on.  But have no fear, even those of us that have been around awhile need to adjust them periodically as our business changes.

Take the Material category for example.  Your total number of dollars spent on raw materials last year should be right at the top under your Gross Revenue.  This will be called Cost of Goods Sold (COGS).  You can take this number, say $10,000, and then divide it by your Total Gross Revenue, say $80,000.  This will give you 0.12 or 12%.  This means that last year your business spent 12% of revenue on raw material.  We can assume, on average, that every month was around 12% expenses on material, every week and so on.  This is on average, some months may have been more and some considerably less.  With this then, we can assume that out of every Dollar that comes into the business, then 12% of that dollar needs to go into the Material category.

Now do the math to figure out the other categories that you have that you can easily get from the P&L sheet.  Depending on how you broke down your expenses into categories, this should be fairly simple to calculate.

These figures will give you a clear understanding of what percentage of your Dollar is going to what I call hard expenses.  These are things that have measurable amounts every month that must me paid.

If you add up these percentages when you are done, you will notice that they don’t add up to 100%.  If they do, then this is why you may find it hard to pay yourself or grow your business.  The hard expenses within the business are eating up the whole dollar.

If you see this, then there are only two things you can do to fix this.  You have to decrease the expenses within the business or you need to increase the revenue of the business.  It sounds easy, but both of these may be difficult.  Nonetheless, this is where the simple equation from earlier (Revenue – Expenses = Profit) comes in.  The math doesn’t lie and something has to be done to change it.

If your business is profitable and your percentages add up to say 52%, then you have 48% of your Dollar to work with still.  This is where we can now look at the categories that aren’t within the P&L sheet… such as My Pay, Profit, Savings, Equipment Purchase, or whatever you may have.

I would suggest that you decide what My Pay should be first.  The only trick here is that you have to take it from the 48%.  You can take it all if you want, but understand that if you want to save money within the business to expand or buy equipment then you will not have room for that because you took the whole 48% home.

An easy way to figure this is to look at what 48% of last year’s Gross Revenue looks like.  So if Gross Revenue was $80,000 then that would be $38,000.  So that is the most that you could pay yourself out of the business, if all numbers stay the same, and still have money to operate the business.  But this would leave no room for growth or savings.

I would suggest having at least a little percentage towards savings within your business.  This will cover slow months and give a little cash flow margin for the business.  Even if its 3-5% that’s fine.  Just be putting a little back so you have a small stash of cash in case you need it… because you will need it at some point.

So out of this 48%, or $38,000, any other category you have will come from this.  Play with different percentages and see what would work best for your business and you.  Refer back to your P&L sheet when possible and see if you can compare for accuracy.

The goal here is that when you are done, all your category percentages should add up to 100%.  Now you will be able to look at your Dollar and know what percentage of it goes to each category.  A dollar is not a whole dollar.

How does all this Help to Strengthen Your Business?

Now all the hard work is done.  Now that you have a better understanding of the mathematics of your business you can begin putting it into action easily.

We will do this from here on out with every deposit that you make into your bank account… everytime.

This is how I use the Allocation Process in my business.  I am using arbitrary numbers here in this example.  These numbers are not the numbers I suggest you use.  Every business is different and you need to figure your own percentages as we showed you above.

I use a small notepad to figure the allocations periodically.  Since I take credit cards and only go the bank once every couple of weeks, I usually do this about every 2-3 weeks depending on deposits and revenue.  But you can certainly do this every time you make a deposit no matter the size.

Write down the date at the top each time you do this.  If you are looking back on your online banking statements for deposits, you will know the last date you did this.  Then you can total the deposits since that date to now.

Next Deposit  (Date)

Total of all Deposits  (all deposits since last date allocated) – $1895

My Pay (25%) = $473.75

Overhead (25%) = $473.75

Profit (9%) = $170.55

Income Tax (6%) = $113.70

Payroll (15%) = $284.25

Material (20%) = $379.00

 

As us can see from the above example, we had a total deposit of $1895.  I multiplied this total deposit by each percentage for each category and this represents the amount of that deposit that should be allocated for each of them.  This is a representation of where the money in this deposit needs to go based on the business’s expenses and goals.

If you were to use $1,000 of this deposit to buy leather without knowing this information, then you can understand why you may come up short in another area… like paying yourself or saving money in the business.

This is a very powerful technique to getting control of the revenue coming into the business throughout the year.  With this practice, each category is funded systematically throughout the month and these categories become independent and secure because they are properly acquiring the funds they need to perform their duties within the business.

Now when you go to buy material… there will be money there and you can spend more wisely.

Now when you pay your contract labor or employees… there will be money there.

Now when you want to pay yourself… there will be money there just for you.

In order to fully implement this process, I have separate bank accounts for each category.  This may seem overkill for some.  But for me, if it’s all in one account then I lose track of what’s what.  You can certainly do this with a spreadsheet and use one account if you have more self discipline than I do.

Everytime that I do my allocations, I get the above numbers and then transfer that amount into the appropriate accounts.  I have a Payroll account, Material account, Main Business (Overhead), Savings, etc.  You can combine some of these and then just have a overall savings, overhead and then a materials account.  It’s all up to you.  The point is to create an environment to where the money is actually allocated to a specific duty within the business and not just put in one huge bucket to pull from.

When it comes to paying myself, I simply just transfer whatever “My Pay” is for that allocation into my personal account everytime.  This is great too because I am never behind on paying myself (a real struggle in the past… the business still owes me money! Ha!).  So some deposits I may pay myself $127.00 and others I may pay myself $1,350.00.  But either way it is correct based on revenue and the business isn’t shorted on funds.

Conclusion

Running your own business, no matter the size, can be tremendously rewarding or it can be the scariest thing you ever do… and most of the time you get a little of both.

There are so many aspects of our businesses that we have to tend to and some of them are not something we are good at.  But they are all things that you can learn to strengthen your business so that it can serve you during your long career.

The biggest mistake we can make in a business is “hoping” that we will get enough work to support ourselves and our business.  Your marketing ability, your craftsmanship skill level, your storefront appearance, the amount of trade shows you attend… none of these will replace your ability to manage the money that comes into your business.

There is no difference between managing $50,000 a year in revenue in a business versus $1,000,000 a year in revenue… they are both equally difficult and the same equation applies:

Revenue – Expenses = Profit

How you decide to manage those dollars is up to you.

I hope you found this article informative and helpful.  I make no claim to be a financial guru or that this is the only way to manage finances within a business.  I only hope to offer up this idea as an example of how a small time leatherhead approaches the art of business finance.  If it helps, use it.  If it doesn’t, then keep on keeping on!

Thanks a bunch folks!

 

 

 

How to Make a Clutch Wallet

In this video I show you how to make a clutch wallet.  These wallets are a great item for rookie leather craftsmen as well as the experienced.  There are many variations that can be made from this simple design.

I walk you through my entire process of creating one of these popular wallets.

These are great gift ideas for the woman in your life or to offer to your customers who are wanting to give that special everyday carry gift.

Clutch Wallet Companion Pack Available

If you would like to make one of these yourself and would prefer to use my patterns, then you can purchase the Companion Pattern Pack that goes along with this video.

This pattern pack is an INSTANT DOWNLOAD PDF that includes all the cut patterns and 8 different tooling patterns.  The patterns have all the line up marks and hole patterns that you need to accomplish this build with ease. 

Useful Companion Links for this video

As mentioned in the video here is the link to the video that we did on Slicking Edges… so if you haven’t viewed this video and need help with slicking edges then check this video out.  There is also a blog article that I wrote on this as well and you can check that out by Clicking Here.

If you would like to make a neat gift set using this wallet, then I would suggest pairing this wallet with a Wristlet Purse which would make a really cool gift set.  You can see how I build one of these by watching our Wristlet Purse Video.

Here are some other useful links for supplies and other tools you may find interesting:

http://makersleathersupply.com/

https://www.leathermachineco.com/

http://www.barrykingtools.com/

https://www.panhandleleather.com/

“Daily Rituals” by Mason Currey Book Review

I have another book review this week and if you are interested in Daily Rituals then this book is for you.  Have you ever wondered how artists work?  What routines and disciplines do successful artists put into place to insure that they are as productive as they can be each and every day?

Daily Rituals by Mason CurreyIn “Daily Rituals” by Mason Currey, he catalogs the daily routines and rituals of many successful artists from past and present.  We get a glimpse into their lives and how they maintained a consistent and productive work schedule despite the pressures of normal daily life.

I have to be honest, I have listened to this book probably six times on Audible while working in my shop.  I tend to listen to a lot of books during the workday.  I get bored easily just listening to music, so Audible is a very important part of my sanity throughout the hours and hours of working alone in the shop tapping away on leather.

Oh sure, Freddy is there with me the majority of the time but he listens to his music in his headphones and doesn’t waste time chattering away the day with me… although I enjoy being able to focus on my chores, I do miss conversation at times.

“Daily Rituals” is a book that I feel is a must read (or listen) and doing so more than once is quite enlightening.  This book is basically a collection of short tellings of famous artists and their daily routines for achieving the great success that we know them for.

From writers, painters, physicists, actors and all types in between throughout the 19th and 20th century, Mason does a fantastic job of taking us into the daily rituals and discipline of these artists and creatives.  I bought this book in 2015 and the first time I listened to it I knew that I would have to listen again just to consume all the information.

If you are the type of creative that geeks out on other creators’ routines and daily rituals then consider adding this book to your “To Read” list.

Within this book, are stories of quirky superstitions, obsessive compulsion, drunkenness, and down right debauchery. 

  • There are are artists that maintained a very mundane morning ritual of very little excitement, despite their accolades and fame.
  • There are others who lived on the verge of homelessness and bankruptcy.
  • One or two that commited suicide.
  • One that maintained a 40 marriage with the same woman, all while having multiple affairs with both women and men.
  • As well as one that maintained a household in the suburbs with her husband and children and only wrote while the kids were at school and her husband at work.

The thing that I found most interesting in these stories of success was how differing these daily rituals were from artist to artist.

  • Not all used drugs and alcohol.
  • Not all were torchered souls using their art to express their turmoil.
  • Nor did all of them think of their gift in their art as an anointed gift from God that they were called to lay upon the world.

The main idea to me that rang true through all of these depictions was that no matter the art or how it is to be created, the artist must create an environment and daily routine that allows for that art to flourish.

The majority of people that I speak with usually have a very romantic view of the artist archetype.  And usually that view could very well contain some of the above attributes.  This makes for fantastic movies about them when they are dead and gone, but this is not  the case among the majority of artists.

There are many artists that battle demons in order to create the art that they want to express.  They work hard to redirect this energy into the production of art that is truly a part of them.  I don’t feel that this is only a cross to bear by the artist, I believe that all humans deal with this in all types of work and careers.

Those within this book were able to create fantastic collections of work within their lifetimes despite their sometimes tragic routines and rituals.  This is the amazing part.  These were not the ones who were only creative because of their routines, they were the ones who surprisingly made it work despite these routines.

As you read this book, think about how much greater or more profound their works would have been without these hindrances.

“You are not artistic, creative or different because of your anxiety, depression or addictions… you are these wonderful things despite them.” 

-anonymous

We all have things keeping us from our creations.  It may be resistance, fear, addiction, ADHD, PTSD, putting kids through college, or just a 12 pack iced down in the cooler.  We don’t always win against these adversaries but we can always begin again tomorrow and continue pushing forward.  Some days we win and some days we don’t, but that’s okay and just part of the journey.

In my book review of “The War of Art” by Steven Pressfield, I found a similar tie in as I found in this book.  These Professional Artists had to put rituals and routines in place in their lives to combat Resistance (whatever their Resistance was) on a daily basis.  Doing the work was all that mattered… every day.

“The warrior and the artist live by the same code of necessity, which dictates that the battle must be fought anew every day.”

Steven Pressfield, “The War of Art”

 

Price Your Product to Increase Profits

Price Your Product Introduction

Learning how to price your product to increase profits is a valuable skill set and a must-have if you want to start and/or grow a successful business that is both fulfilling and prosperous.

You have designed and created a product… now how do you price your product so that you can maximize your profits? 

If you sat down and visited with five different saddle makers or leather craftsmen, you would certainly get five different methods to accomplish the same goal.  Some of them would be good ways to go about this and some would be not so good ways.  There is always more than one way to skin a cat… or maybe here, skin a cow… or use a cow’s skin… you know what I mean.

When I started my shop in 2004, I was a kid fresh out of college with many hours of science and chemistry on my transcript but not one business class.  This whole world of entrepreneurship was very new to me and pricing was not my strong skill set.  I read a lot about pricing strategy and proper accounting to maximize profits in a business.  I also talked with many different craftsmen about their pricing formulas and the feedback I got was all over the map.

Over the last 14 years or so, I have bump along learning from my mistakes in pricing and am currently using a system that I feel is a great starting place when I am pricing goods and services in my shop.

This system is nowhere near perfect and I am always looking at the data and working to improve it.  I do not make claim that this is the perfect formula to price your product.  I do feel that it accounts for many areas of pricing that so many craftsmen and business owners leave out of their equations.

If you would like to have a Free PDF Worksheet to use in reference to this article, then just enter your email address in the form at the end of this article and we will send that right over to you!

Hourly Labor Wage-Your Time is Worth Money

Obviously, the first thing we need to do is decide on how much you want to charge per hour for the work you are doing.

The thing that I like to always look at is, how much could I make working for someone else doing something else and not have all the stress and responsibility.  

It is really easy for us, since we love what we do, to just do an “apple to apple” comparison of other jobs we have had or a job we currently have and say well that is what I want to make an hour.  This is leaving out some real key areas of your business that do not exist in an employment situation… lights, water, insurance, nighttime tooling sessions trying to stay caught up because you are the only one working in the business.

You can’t just say “Well I make $25 an hour at my day job, so I want to make that doing leather work.”… or worse, “I would “like” to make that doing leather work someday.”   This will insure that you are always short on cash and struggling to grow your business.

Let’s define the hourly “Shop Rate”…

Shop Rate definition:  Total of what you need the shop to generate for every hour that it is running so that ALL of your costs, overhead, and labor charges are accounted for within that hourly shop rate.  

To come up with the shop rate, I like to look at the entire business as a whole from a previous year.  The Profit and Loss statement is a great way to quickly gather this data… you can get this from a recent tax return.  Take all the total expenses for the business and what you would like your salary to be out of the business.

This is important, you need to include a salary or wage for yourself in with expenses.  Your income is technically whatever is on the bottom line as a sole proprietor but you still need to include a reasonable wage for yourself as an employee.   The profit of the business is not your wage.

Add these two numbers together and this will give you a number that is minus cost of material… we know what material cost is per job so we don’t need to figure that in here… plus it is different per job.

Now take that number and divide it by 12 months in a year and this will tell you what the business needs to generate per month to not only break even but also pay you.

Now take that monthly number and divide by the number of days you want to work each month on average.

This is your daily shop rate and what your business needs to generate in revenue each day that you work.  You can now easily divide this number by the average hours you work in the shop in a day and now you have a hourly shop rate.

*Note:  If you have full time employees working with you in the business, their payroll expenses and wages should be included in your expenses total from the Profit and Loss statement as well.  If this is the case for you, then you will need to divide this hourly shop rate by how many employees you have total including yourself.  If you have one employee, then you would divide this number by two and this will give you the hourly shop rate per employee.

Look at this number now and see if it is even close to the number that you would normally charge per hour to price your product…. now you can be sure that you are charging enough per hour to do more than just cover your expenses.

A great video that I shared about the daily shop rate was done by a guy I follow on youtube who does woodwork named David Picciuto and he has a great way of looking at this.  I don’t think this should be your only pricing strategy as it leaves a lot of the variables out, but it is useful when you are trying to ballpark a custom job for someone on the fly.  You can see that video by CLICKING HERE.

Time is Time… Whether Repair or Custom Work… Your Time is Worth Money

Now that we have our hourly shop rate, we can use this number against any billable hours of labor used in the shop on a project.

This does not change between types of work being done.  Whether you are doing a repair on a lady’s $10 handbag from walmart, or you are creating a high end saddle for a wealthy client, you should price your product and services using the same hourly rate no matter the job.

Sure, the charge for the purse repair may very quickly get over what the cost of the purse was new… this is not your fault.  The customer is the one that purchased the item and now is wanting it repaired so that is their cost to absorb not yours.

If you can get your full rate working on the high end saddle, then why would you pull off of that job to repair the $10 purse… sounds crazy, but I have seen (and done myself) many quality craftsman do this on a daily basis and then wonder why they are struggling to make ends meet.

You have to decide what is worth your time and what isn’t.  It’s not being ugly or snobbish, it is simply a math equation and you have to be sure that you are doing the best you can to give your business the best opportunity for it to survive and grow.  So from repair to custom to high end art pieces… set your hourly rate and stick to it.  This will insure that all your project bids are fair and correct and that they will make you money.

Material Cost – Finding, Ordering, Getting it Shipped and Unpacking is Worth Something…. You Should Make a Margin

We can now figure out what the Material Cost, or Cost of Goods Sold  (COGS), are for the particular job that you are working up a sales price for.

Most folks will just look at their invoice when the material comes in and just use the unit price for the material used.  This is leaving out a few expenses. 

When you procure materials for a job, there are certain costs associated with finding that material and having it shipped to your shop.  If you do not account for these costs, you are actually losing a bit of money here.

One of the first things to consider in your unit costs for material is shipping.  Many times the material in one shipment is for multiple jobs within your business so it can be difficult to determine what portion of the shipping charge on that shipment would need to be added to the material for that job.  This is where I use a percentage markup on the unit cost of material used to cover this expense.

The percentage markup that you decide to use is completely up to you,  I use 20%.  This seems to be a common markup on material across many trades… woodworkers, plumbers, mechanics, etc.

This 20% markup seems to be appropriate to not only cover the shipping charges, but also covers the time spent finding the material to order, time on the phone ordering the material, time spent unpacking the material when it arrives as well as the cost of waste you will have to deal with after the job is completed.  Although you can use the scrap from the job for other jobs, you will still have to deal with the scrap at some point in the form of disposal and/or storage.  This percentage markup will help to absorb the cost of the these expenses.

Special Order Items – Margin Can be Different on These Depending on What it is

I consider special order items anything that you are not accustomed to having to order on a normal basis.

Most of the time you can use the same markup from your normal material markup, but there are times when less or more would be more appropriate.  These items could include custom hardware such as saddle conchos, saddle rigging dees, custom belt buckles, or specialty excotic leathers and skins.  Depending on the item, you may have room to charge a higher markup just based on the nature of the item and the demand in the marketplace.

Silversmiths and jewelers do this quite often.  Precious metals such as silver and gold allow for a much higher markup just on the material itself.  This allows them to increase profits simply by using these metals versus nickel or steal.

There are times where we too as leather craftsmen have this opportunity as well.  Say a customer wants American alligator versus Caiman crocodile… though we will spend much more for the same size skin in American Alligator, we can also mark the material cost up more than we would the Caiman if we choose to simply because of the demand and perceived value of the skin.  The same would go for other highly excotic skins that are more difficult to find and purchase.

This obviously is your choice as the craftsman.  You may choose to not mark up your special order items any higher than normal material and that is absolutely fine.  I sometimes will not mark stuff up as high as I probably could and I still make a profit.  The point here is to be aware of the extra costs associated with having to procure special order items versus normal everyday materials.

One note here has to do with custom hardware from another craftsman.  In my mind, if the customer can contact the hardware craftsman on their own and order the hardware needed for the job and he/she would be quoted the same as I would be for the items then I only mark up the items ordered enough to cover any shipping charges incurred.  To me I don’t feel right about charging the customer more than they would have to pay for the item had they just called and ordered it themselves and had it shipped to me.  This just seems fair in my mind.

Total Job Cost – This is Your Cost of the Job NOT the Sale Price

So now we have our hourly rate (or day rate), our material cost plus markup, as well as any special order items plus any markup.  With all these variables in place, we now just have to total up our labor in hours and multiply by our hourly shop rate.

Now we have all the costs of the job… Material cost, labor cost, and any special order materials.  All of this totaled together will give us our Total Job Cost.

Notice this does not say Total Sale Price.  This number is not the price at which you would sell the item to the customer.  Unfortunately, this is the number that most people will use as their sale price for the item.  This leaves out two very important numbers that are important for the health of your business… Overhead and Profit

The total job cost is only the actual hard cost of the job.  This number takes into account every part of the job that consumed resources of your business.  There is a small amount of profit worked into this figure which will help to cover any miscalculations of time spent on labor but not enough to grow your business.

The way to look at this number is this:  This is what you would have spent out of pocket if you didn’t work in the business and were only a silent owner of the business.

So at the end of this particular job, as the owner you would have paid for the material, any costs associated with them, paid your rent and utilities, and paid your employee who actually made the item… but there is nothing left for you to take out of the business as an owner.

Added Business Costs – Sales Call Costs, Overhead… This Gives a Total Gross Cost for the Entire Job Start to Finish

Added Business Costs are any costs incurred on the business that are not directly associated and expensed out on a particular job. 

These costs may include time spent on the phone with a client who is ordering a product, time spent fitting their horse to get a saddle sale, time spent doing your taxes, time spent writing out checks to pay bills, time spent unclogging the toilet in your shop or just sweeping the floor.  The point is that not every single hour of shop time is used and expensed out on an actual job… but the costs are still there and very real.

To help make sure that these costs are covered, I use a percentage factor per job to help compensate for these costs.  I use 15% of the total labor cost per job.  If the the labor cost of the job was $600, then I would multiply that by 15% and add $90 to the bid.  This would be that job’s contribution to any indirect charges the business incurred during the time the job was being worked on in the shop.

Another cost that I add here is the Sales Cost of the job.

It is really hard to keep track of time spent to close every sale.  But there is real time spent on marketing, phone calls, facebook ads, social media, etc just trying to get orders in the shop.  We can not disregard that time spent in our calculation. 

I use a percentage of 10% of the labor charges here.  I use the 10% number here because if you were to hire a full time sales person who worked on commision to sell your products, then you would most likely pay them 10% of the sale.  Now, I use the 10% of “labor cost” not the sales price of the job so theoretically this wouldn’t be enough, but it is a good start.  If you ever do higher a full time sales person, then at least you are covering some of the commission costs.

Profit – This is Where the Business Makes Money… As Well As You

Here we are at the main number that most people leave out of their equation.  This is the all important “Profit” number.

Your business can not grow and prosper without this number.  If you leave this number out of your pricing, then you are simply breaking even on each and every job and you do not own a business… you own your job.  Not to mention you are doing all this and dealing with all the added stress for a wage.  We aren’t doing this to just earn a wage, we are doing this to create a business that we love that will provide for us and our family for years to come.  A healthy business is a profitable business.

Now we have a Total Gross Cost of this job in both direct expenses as well as indirect resources consumed by the job.  Now with this number we can add our profit margin to get to the final sale price of the product.

This is a good place to visit about the difference between Markup and Margin.  The “markup” of an item is what percentage the item is marked up in order to get the profit “margin” that you want.  These numbers are not the same.  Many folks will decide that they want to make a 40% margin on their money per job so they just mark up their cost by 40%… this is incorrect.

If you buy a piece of hardware, say a buckle, and it costs you $3 and you want to sell that buckle and make 40% on your money in the form of profit margin, then you have to come up with the proper markup on it.

If you just do a markup of 40% then you would sell that buckle at $4.20 or a markup of $1.20.  So if we take the $1.20 markup and divide it by the sale price of the buckle to see our profit margin then you will notice that this ends up being 28%… that is a substantial distance from the 40% we set out to make.  This is the difference between markup and margin.

If we take the same buckle, and instead, do a markup of 65% then we would add $1.95 to the cost of the buckle giving us a sales price of $4.95.  Now if we divide our markup of $1.95 by the sales price of $4.95 we get a margin of 39%… that’s better.

The amount of profit margin that you want to make on your money… and it is all your money… is completely up to you.  Different industries and products allow for different profit margins so you just have to decide what the market will allow for your work.

I have found that with my custom products and saddles, the 40% margin works well for me… sometimes I don’t get all the way there on each and every job, but by year end I can usually average a 32% – 36% net margin across the entire business of total revenue.

The main point here is that the “bottom line” on your Profit and Loss statement when you do your taxes is all that matters to the health of your business.  If you ever wanted to sell your business or want to know the value of your business, it will be some factor multiplier of that bottom profit margin (usually 5 or 10).  So do not leave this number out of your pricing equation.

Now that we know what markup and margin are, what do we do. 

We simply take our total gross cost of the job and multiply it by the markup that we decided to use so that we can create a profit margin that we are happy with.

I use the 65% markup that I referenced above and this nets me a margin of 39% … or close enough to 40%.

We can check our work… $665.22/1688.65 = 39% margin.  The job and all costs and profits are accounted for and this is the final sales price that we should sell the item for or do the job for.

Sales Price – This is the Full Retail, MSRP, Sticker Price…. Will the Market Bare This Price?

After all these mathematical gymnastics, we have come to a final sales price for the item or service.  When I get to this point, I take a minute to look at this number and ask myself one question:

Would a customer pay this for it?

This is the point in the process when you can feel confident that you have accounted for all costs associated with the job, have paid all wages (including your own labor), and have a healthy profit in the figure for the business.  Well done… you have done a good job!

But now we have to take a good hard look at this number and think about the reality of whether or not the item or service offers enough value to demand the price we have come up with.  This can be a hard question to answer.

The reality is that sometimes the number may seem a little low and sometimes it may seem a little high… or even super high!

This is your moment to make a decision as the business owner.  Since all the money in the job is accounted for, you have the option to lower or raise the price from this point to get the number where you think it would need to be.  The good thing here is that you can make an educated decision here instead of just guessing and spit balling.

Many times I will go through this process and come up with a sales price that is way to high in my opinion for the item or service.  At this point, I make a decision based on my gut.  If the item is something that I really want to make then I may lower the price to a more appealing amount.  I do this knowing in my mind that I will not maximize my profits on that particular job… if I am okay with that then I move forward and feel good about it.

There are times when I look at a particular item and feel that the market would never pay that amount for the item and I am not really excited about the item anyway.  Should this happen, I make the decision that I will not make that particular item since it doesn’t interest me and I will not make much money on it.

I would rather not make any money in the my business than lose money in my business.

The main takeaway here is that no matter what the number comes out like, you will have all the data accounted for accurately.  From here you can make whatever decision you would like on the pricing from here… but at least now you have a better understanding of money you may be leaving on the table or jobs you are hitting a home run on.

Conclusion

I know this article may have seemed super boring and may remind you of sitting in math class, but this subject is where most of us fall short within our businesses and we can’t ignore the math if we want to succeed.

There are definitely different ways to price your product and services within your business but this is the best way that I have found to at least have a benchmark for pricing.  It can be really easy to just look at what others are charging for their items and services and go with that.  And usually this will get you close.  But for me, I have learned that this isn’t always accurate and if “everyone” isn’t charging enough on something and losing money, then why would I want to follow down that path.

Pricing is as much of an art as what we do in our workshops, but it doesn’t have to be a mystery.  

The quickest way to turn a passion that you love into a nightmare is to drop the ball on pricing and have the business struggle financially.  This will lead to resentment in your work as you work tons of overtime at low wages and zero profits trying to save it.  This will turn your once loved hobby into a grinding J.O.B.

I hope you found this article insightful and can implement some or all of this into your pricing strategy.  No matter what process you use, take some time to assess your prices now to see if you are doing a good job of working to increase the health of your beloved business.  What we do is fun, fulfilling, and empowering… work as hard on your business as you do in your business.

Leather Sewing Machine Best Practices

Sewing leather is by far the most common task that we have in our leather shops.  Whether you are hand sewing everything, or using a leather sewing machine, you will have to sew leather on just about every project.  In this post, I share the first of a three part video series on leather sewing machine best practices with the hopes of helping you become more efficient and safe while using an electric sewing machine.

When I started doing leather work, I didn’t have a leather sewing machine and spent many hours hand sewing my projects.  Though this is not the most efficient way to complete projects, I do believe that it is very important to become proficient at this skill.  So if you are still in the hand stitching stage of your leatherworking journey, don’t fret!  You are at a very important stage and learning this skill will serve you well for the rest of your leather career.  But when the time comes when you can upgrade to an electric sewing machine, I would highly recommend adding this piece of equipment to your shop.

When it comes to investing into a leather sewing machine, or any leather machine, I recommend doing your research and taking your time to get the best machine available and that your budget will allow.  I researched for the last year or so because I was wanting to upgrade my big harness stitcher (Ferdco Pro 2000) after 15 years of service in my shop.  The machine still stitches very well, but I didn’t want to just wait until it broke before having a backup.  As for me, I am a full time craftsman and I have to be prepared and can not chance not having a machine to sew on if my machine quit on me.

leather sewing machineSo after my research and talking to many people about the machines that they recommend (since my machine is no longer available), the machine that kept coming up in conversation was the Cobra Class 4 leather sewing machine from Leather Machine Co.  I spent some time on their website as well as visiting with Aaron Heizer at Maker’s Leather Supply (he is a dealer) and found many things about the machine that I really liked.  Soon this was the machine that I decided on and the machine that I was recommending to anyone that asked.

All of my fellow craftsmen that had this machine had nothing but good things to say about the machine and I even had one good friend that told me if I bought the machine and didn’t like it, he would buy it from me at full price and then he would have two… and this friend isn’t one that “falls in love” easily!  That confirmed it for me.

In January of 2018 I received my Cobra Class 4 and after setting it up in my shop I was in very pleased.  The machine performs better than I could of imagined and so far we are getting along great!

So in this video, not only will I be showing you some basic sewing machine processes that I use on a daily basis, but I also do a full review of this machine.  I also point out some safety tips as well.  The machine is now the new work horse in my shop and I show you why.

If you aren’t already, be sure to subscribe to our YouTube channel so that you will be notified when the next video in this series is posted and if you like the video hit that thumbs up!

If you are looking into getting your first leather sewing machine, or are wanting to upgrade your current machine, check out Leather Machine Co. or give Aaron a call at Maker’s Leather Supply and they can answer any questions that you might have and the different machines they have to offer.

How To Make a Wristlet Purse

Our newest video on our YouTube channel shows you How To Make a Wristlet Purse.  I have had many questions about some good projects for using up the piles of scrap leather that we all generate in our shops.  Whether you are a hobbyist or a professional saddle maker, you probably have leather pieces in a box under a workbench that you saved for that special project.

Well, here is that special project!  I am the farthest thing from a professional bag/purse maker, but in this video I show you a simple wristlet purse that I designed that I believe is fairly simple to assemble and has a lot of potential.  I have found that when it comes to making purses, options and coordinating different colors, leathers, exotics, fringe, conchos, etc is key for them to sell well.

The patterns for this purse can be adjusted extremely easy to suit any taste and you can add different features to it to create a unique design for that special person or customer in your life.

There is a Companion Pack for this video that includes all the cut patterns as well as 12 different tooling patterns.  If you would like to have a copy of the patterns that I designed as well as the tooling patterns, then you can purchase those by CLICKING HERE.

I hope that you enjoy the video and if you haven’t already be sure and subscribe to the channel while you’re there… lots of great content coming this year so don’t miss out!

How to Slick Edges on Leather

I have already written an article here on how to slick edges on leather, but in this blog post I want to share a video that I did that goes a little more in depth on slicking edges on leather.

If you have done any amount of leather work at all, then you have experienced the chore of finishing your edges on your various projects.  If you find this task time consuming and boring, then you are not alone.  This is probably the one task in all my projects that I do not love (actually dislike) the most when it comes to making anything out of leather.  But, at the end of the day, if you are going to do leatherwork and want to have a professional look about your work then you must properly slick and finish your edges.

If you want to go back and read the first article that I wrote on this topic then you are welcome to do that before watching this video, as it provides you with a great list of tools and supplies that you will need for my slicking process.  You can find that article HERE.

There are certainly many ways to accomplish the professional edges that you are looking for in your work and this is certainly not the only way to do this.  This is simply the best way that I have found to finish my edges.  This process was taught to me through years of studying best practices of some of the finest craftsman that I have ever had the oppurtunity to work with and learn from.  And to them I say thank you for passing down this bit of knowledge that I am going to pass down to you here.

I hope you enjoy this video and if you find it helpful, I would love to have you become a part of our Leatherhead community by subscribing to our Youtube channel as well as signing up for our Leathercraft Newsletter that goes out once a month!  You can subscribe to the newsletter at the end of this article by simply plugging in your email address.

 

How to Make a Doctoring Saddle Bag

If you have been dabbling in leatherwork for a short period of time, or have been cutting your teeth in the leather industry for decades, then you have had someone ask you to make a doctoring saddle bag before.

These bags are fun at times and other times they can be a very challenging project to complete.  This is mainly due to the particular requests from the dayhand cowboy that is ordering it.  Every cowboy is unique and particular of how his gear is arranged in the tack room, how his horses handle, and how his doctoring bag is designed.  No two cowboys are alike and that can pose a challenge when designing one of these bags.

In this Quick Tutorial Video on our Youtube channel I show you how I approached this particular request we had this week in the shop.  This is by no means the only way to make this type of doctoring bag, but it is how I took a sketch and turned it into a useful tool for my customer.

Check out this video and see if this is something you would like to try and make.  If you like the design that I created here, then you can purchase the pattern pack that goes with this video by clicking HERE. Continue reading