Professional Practice III – Costing & Pricing

Richard Morris  talked to us about what to reflect and taking action on when considering working for yourself. Since I chose to do a Business Plan as my dissertation I was very interested in the session. But I also believe that it could be very enlightening even for those who don’t seriously consider in starting their own business. I already had the pleasure in having Richard as tutor during ‘Are you sitting Comfortable’ (the chair project) and ‘Mind Your Own Business’ (setting up a small business) so I was expecting that for half of the time I would listen to numbers and organisational skills and he did not disappoint my expectations.

First of all he wanted to give us a global, in numbers of the businesses around Uk, dispelling some common myths that running a business is necessarily a full time job of big companies. In fact:

  • Only 50% of business in the UK are run full-time (Start-Up Britain)
  • 72% of businesses have zero employees (Office for national Statistics)
  • 46% of Welsh businesses have a turnover of less than £100k (FSB Wales)

At this point we all received a piece of paper listing important skills needed to run a business. Richard asked us to be totally honest in ticking the relative boxes and answer whether we had them or not. He made sure we understood that not having some of the skills didn’t mean we were not made to have our own business but that we had to work to improve them or outsource them in time of need. Working for oneself is a tough job that requires commitment and persistence. You have to deal with many aspects of the job such as Branding, Marketing, Profit & Loss, Pricing, Competitors, to mention a few.

Richard Morris quote ‘Do what counts till the year ends, every moment spend not doing is money and opportunity wasted’

After that we were asked to write down our expectations in running our own business. What did we hope to get out from working for ourselves? He then listed the majority of answers he would always get when asking this question:

  1. job satisfaction
  2. being in control of what you design/make
  3. being your own boss
  4. flexibility
  5. staying true to your values
  6. difficult business decision to take alone
  7. staying current, fresh and original.. with your own style

Talking about costs he mentioned two important  considerations to make, the first one regarding the costs of running the business such as eventual rent for the space, electricity, consumables, internet etc. and the second one regarding our ideal salary, to be developed separately, such as living costs, car, food, entertainment etc that realistically represents our expenses. This last one also called ‘Personal Survival Plan’.c

Eventual added expenses to consider:

  • if you start a business at home the costs of products are lower
  • if your business goes well and you move to a new studio to expand, the overheads will be higher and this will lead to increase your product costs that will probably displease your loyal and growing customer base
  • So the advise is to think long term and not undersell yourself in the beginning

An always problematic matter for those who decide to run their own business is how to cost and price a product or service. A piece of advice we received:

  • during the third year keep a record of the time spend developing your product range
  • keep a record of the cost of all materials used such as tools etc.
  • you can use this info to work out batch of products (no more than 6)p

expendable tools is something that breaks and needs to be replaced

what will the customer pay for the product? after analysing the product costs, if the products it’s not worth the amount we need to charge, there are some considerations to make such as:

  • Find cheaper suppliers of the raw materials
  • Increase the perceived value by making it look more expensive and so that sells to other markets
  • Lower your time costs in the making process, consider employing someone on a lower wage to undertake certain parts of the making
  • Make more than one at a time, increase the volume
  • Speed up the making process
  • Buy-in ready made parts to incorporate into the product

How many hours a week will i be able to dedicate for making my products?

  • running a self employed business, most of time available will take for admin work leaving just half of the time for the actual designing and making. Phone suppliers, chase them and others
  • Realistically speaking, considering various holidays we work 48 weeks per year, 40 (or even 50 h close to deadlines) h per week, of which only half, around 25 will be spend for making. This leads to a total of  48×24=1152 h per year
  • If we consider our hypothetical 31.280 overheads divided by the total designing and making hours of 1152, our hourly rate should be £27,15. The question to ask is if this is a realistic one for a textile designer graduate. Would anyone pay this amount?

Start your own business in the Uk:

  • Is similar to starting to practice as a freelancer
  • inform the tax office, you will be self employed
  • Start work and keep all receipts, and get an accountant (which I would add that it is not mandatory since I know people whom in this stage of business are capable to keep their own balance)
  • if you do this from home it’s called freelancing
  • if from a rented office, you’ve started your own studio
  • The simplest form of self employment is as a sole trader in your own name. This doesn’t require a company registration or business premises, but does require you fill in a tax return every year, and submit accounts detailing expenditure and income.

Also to keep in mind:

  • If you consider renting a studio space and employing others and subcontracting, then you need to consider opening a limited company where you might assume company director status.
  • Excellent advice from http://www.hmrc.gov.uk/startingup
  • You’ll need to choose a company name and check the name availability. Check with Companies House that this name is not used elsewhere
  • Do a business plan. It will be your main document to gain funding, gain interest from others, and keep you from deviating from your main purpose/mission.A Typical Business plan includes: Executive Summary, Vision/Mission Statement, Objectives/Milestones, The Management Team, The Products or Service (IP see next slide), Market Research, The Marketing Strategy, Operations, Risks – SWOT analysis (IP see next slide), The Financial forecasts, Intellectual property rights.

Intellectual Property Rights – It is important to consider patents, designs rights, trademark and copyright. For the last one, a good and inexpensive way for artists and designers to protect their rights is to place their art, drawing etc in an envelop and send it to themselves and keep it sealed.

TIPS:

  • Welsh Ice gives info and support
  • Stay in touch with the Centre of Entrepreneurship even after graduating
  • Keep an eye out on CSAD social media, cardiffmet webpages and others for Start-ups opportunities
  • Speak with specialist organisations such as the UK Crafts Council and Arts Council, they offer a range of great start-up materials
  • Inc Space

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