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Old 09-17-2008, 08:06 PM   #1
Northboy
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Default Elements of Starting a Cottage Industry

Elements of Starting a Cottage Industry:

-Establishing a marketing strategy

Retail or Wholesale- How the market you serve affect pricing

-Establishing Pricing for the Products.

Examples of products:

Craft making ( eg wood crafts, leather making )

Other Processing ( eg. wild berry preserves, soap and candle making )


Case Study:

Home-based manufacturing of etched glass products for home and office applications.

Where To Start:

-Do you have the skill to produce articles of professional quality in sufficient volume at a competitive price to establish a going concern?

-Do you have the ability to manage the financial aspects of the business?

-Do you have the skills to market the product to your customer?


Some Pros and Cons of Different Market Strategies.


The main obstacle in establishing this type of business is in developing stable markets where a disproportionate amount of time and resources are not used up in the selling process.

For the purpose of this case study, there are 3 different approaches to the market place for this form of glass etching:

Direct to the consumer:

-Selling piece by piece or project by project, presenting your work through trade shows, village markets, mall displays, etc.



Pro

A higher sale price and lower entry cost in terms of capital to establish the business.

Less finished inventory required

Direct customer contact will make the business more responsive to changes in the marketplace and their customer’s needs.


Con

A substantial time commitment required for marketing.

Market awareness of your products is limited to your marketing efforts.

Through Dealers ( Wholesale)

Developing a line of products to be displayed and sold through some form of dealer network. ( This would include consignment sales)

Pro

-Generally higher sales volumes leading to greater production efficiencies.

-The business would possibly have a greater value if you wished to sell it in the future
( Goodwill)

Con

-A lower per unit price than goods produced and sold direct.

-Less control over the price range for your products as dealers could not be made to follow the manufacturer’s guidelines regarding price.

Combination Dealers / Direct:

Pro

-More control over the outcome of marketing efforts and pricing

-On average a higher margin than selling only through dealers.




Con

-More effort is required for marketing than with dealers alone

-Some retailers will not handle your product if they think they will be competing with the manufacturer

-You may have to develop exclusive lines which the dealers handle and different products to be direct marketed.

Establishing Pricing:


The basis of pricing for the majority of small manufacturers is a function of “Shop Rate”, a calculation of core operating costs and expected income expressed hourly, plus the cost of materials.

Shop Rate will vary for each business based upon market serviced, number and role of employees, as well as variables such as location, equipment condition and automation.

Examples of Shop Rate Calculations:

Direct to the Customer:


Assumptions:

Rent $ 500.00
Heat, Light $ 100.00
Telephone $ 100.00
Misc. Shop Supplies $ 200.00
Misc. Office Supplies $ 100.00
Advertising $ 1000.00
Automobile $ 1000.00


Core Overhead: $ 3000.00


Expected Wages $ 3000.00








Total: $ 6000.00

Total no. of working hours / mo. 160

Non productive hours 80

Productive hours 80


Shop Rate Calculation: $ 6000.00 / 80 productive hours = $ 75.00 / hr.


Example;

2 panels 14” X 30” 5mm glass $ 32.00

Masking supplies $ 3.00

Total Material: $ 35.00

6 hours @ $ 75.00 $ 450.00

Consumer price: $ 485.00



Through Dealers:


Core Overhead $ 3000.00

Expected Wages $ 3000.00

Total $ 6000.00

Total no. of working hours / mo. 160

Non productive hours 40

Productive hours 120

Shop Rate Calculation: $6000.00 / 120 productive hours = $ 50 / hr.






Example:

2 panels 14” X 30” 5mm glass $ 32.00

Masking supplies $ 3.00

Total Material: $ 35.00


6 hours @ $ 50.00 $ 300.00

Sub Total: $ 335.00

Dealer Markup (30 %) $ 100.50

Consumer Price: $ 435.00



Selling Direct and Adding 1 production worker:

Core Overhead $ 3000.00

Expected wages $ 3000.00

Expected wages-worker $ 3000.00

Total: $ 9000.00

Shop Rate Calculation:

Total no. working hours / mo. 320

Non-productive hours 80

Productive hours 240


Shop Rate Calculation: $ 9000.00 / 240 productive hours = $ 37.50 / hr.




Conclusions:
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Old 09-18-2008, 04:36 PM   #2
whitecrow
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Location: California
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Default Re: Elements of Starting a Cottage Industry

This is good information, and well presented. One of my hobbies is making organic herbal soaps, and I've also made furniture polishes and finishes based on historic recipes. For the last couple of years I've been on the brink of turning the soap thing into a real business. People love the product and I sell all I can make. In fact, just in the last few days I was sitting around with a couple friends and we made an agreement to pool a few bucks and see what would happen. We're going to make a hundred pounds of soap and see how long it takes to turn our money over and make a profit. We agreed to keep our hands out of the pot until it reaches $10,000. I'm going to print out your information and hand it around.

Thank you.
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Old 09-18-2008, 10:47 PM   #3
Northboy
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Default Re: Elements of Starting a Cottage Industry

sounds like a good project.

If you need some help, let me know.

If you're going to do soap, check out candles as well. From a production point of view, they fit together nicely.

I started Fort Langley Waxworks some years ago to provide moulded candles (mostly little green totem poles) as souveniers.
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Old 09-19-2008, 03:24 AM   #4
whitecrow
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Default Re: Elements of Starting a Cottage Industry

Quote:
Originally Posted by Northboy View Post
If you're going to do soap, check out candles as well. From a production point of view, they fit together nicely.
You're right, they do. Back in the days when both soap and candles were made of tallow, the makers were called chandlers and they nearly always did both.

I don't use tallow or lard at all, and I don't especially like working with beeswax although I use a little of it in some of my soaps. Certain oils like neem tend to make the soap soft, and a tiny bit of beeswax makes it harder. Unlike paraffin, beeswax is high in saponifiables, which means it actually becomes part of the soap itself, and is not just added to it. I do make a beeswax furniture polish, and I also use it in lip balms and tattoo balms.

I'm afraid I don't find candlemaking very interesting. Soapmaking is a fairly challenging blend of art and science. Good money in candles though, and I should look into it from a business standpoint. If the power goes out, folks won't be able to get enough of 'em!

Last edited by whitecrow; 09-19-2008 at 03:30 AM.
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Old 09-19-2008, 10:36 PM   #5
Northboy
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Default Re: Elements of Starting a Cottage Industry

I ran a souvenier candle operation up to 20,000 units per annum.

It helps keep the lights on.
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