I have been meaning to cover this important topic for many years, and now is a good time for it. With the economic headwinds, many business are facing challenges in the fashion industry. Small startups and crafter-owned businesses are no exception.
Embarking on the journey of launching a small leathergoods business is an exhilarating venture, blending creativity with entrepreneurship. However, the path to profitability is not without its challenges, particularly in the crucial first year. In this comprehensive guide, we will delve into the intricacies of the leathercraft industry, offering insights and strategies to navigate common pitfalls and build a thriving business.
Is it a Hobby or a Business?
Most beginners in any craft struggle with this question. Am I in this to enjoy and grow my craft while making some money to cover my costs? Or am I running it like a business? Both decisions require their own strategy success. To run a business, you need to acquire special skills. You could hire help for parts of it, or take a risk, DIY and learn as you go. There are many tools, but the choice has to be well thought through for success. If you are a business, our recommendation would be to seek qualified guidance from your local Small Business Administration coach, local chapter of Retired Professionals, a Mentor or hire a private Business Coach. They can be the difference between success and failure.
The Struggle for Profitability in the First Year
High Initial Costs:
Launching a small leathergoods “business” involves substantial upfront costs. If you are just beginning as a hobbyist, some of this won’t apply. But when it gets serious, realize that you are now in the “Manufacturing” field if you plan to scale it for full-time employment and income. From quality materials and cutting tools to sewing machines, rent, and workspace setup, the expenses can quickly add up. So think through how you will fund the business. Owner-funding can only take the business so far. A more realistic strategy is to prepare a solid business plan and explore proper small business funding. And those could be Banks, Private Investors, Crowd Funding, etc. Crafting a realistic budget and meticulously managing expenditures is essential to weather the financial challenges of the initial phase.
Pricing Challenges:
Determining the right pricing strategy is a stumbling block for many small crafters. Underpricing products driven by passion for the craft can lead to financial setbacks. Understanding the true value of craftsmanship, factoring in all expenses, and implementing a well-thought-out pricing strategy are crucial for sustainable profitability.
Choosing the Right Product:
Market Research:
Thorough market research is the cornerstone of a successful leathergoods business. Identifying trends, understanding customer preferences, and pinpointing potential niches within the market will inform your product offerings and set the stage for a competitive edge. If you started as a hobby, the Country Fairs where you sold your creations, your friends, your customers, etc., can provide great product and pricing input.
Passion and Skills Alignment:
Choosing leathergoods that align with your passion and skills is not just a creative decision but a strategic one. Balancing personal interest with market demand ensures a unique and marketable product lineup that resonates with your target audience. For example, if you love pets, leather products for pets and pet owners would make sense to you. Sometimes what resonates with you may not tempt your audience. Beware of this common trap. It is the same as picking that attractive leather, crafting with it, and then finding out that you aren’t able to sell the goods. So be smart about what customers like and what will sell.
Profitability Calculations:
This is perhaps the most important of them all. Many crafters ignore accurate pricing only to find out later that they are not making any returns. So do pay attention to your calculations and assumptions.
Cost of Goods Sold (COGS):
Understanding and calculating the direct costs associated with each leathergood—materials, labor, and overhead—is foundational for setting a pricing structure that covers expenses and generates profits. This is where many crafters underprice the labor, or struggle to put an accurate price on it. As your skill level goes up, don’t hesitate to pay yourself more.
Pricing Strategies:
Exploring various pricing strategies, such as cost-plus pricing, competitive pricing, or value-based pricing, allows you to find the right balance between covering costs, achieving target profit margins, and offering value that resonates with customers.
Regularly Review and Adjust:
Profitability is a dynamic process. Regularly reviewing and adjusting your pricing strategy based on changes in costs, market trends, and customer feedback is vital for sustained success. Be rigorous about it and schedule a frequent review.
Rethinking Your Product Mix for Maximum Revenue:
Analyze Sales Data:
Tracking the performance of each leathergood provides valuable insights into customer preferences. Identifying best-sellers, high-margin products, and slow movers helps optimize your product lineup for maximum revenue. Don’t be afraid to cut the laggards out of the mix. Keep and expand the best sellers. Again, do this regularly.
Introduce Complementary Products:
Expanding your product mix with complementary items or limited editions enhances the value of your offerings, encouraging repeat purchases and increasing the average transaction value.
Stay Agile:
Market dynamics change, and so should your product mix. Staying agile and responsive to emerging trends, customer feedback, and shifts in demand ensures continued relevance and success.
Strategic Product Selection and Design Optimization for Profitable Leathercraft Businesses:
Limiting Products for Maximum Margin:
Focusing on high-margin items, leveraging economies of scale, and regularly reviewing costs help maximize profitability while streamlining operations. When you make more, it costs less since your fixed costs are distributed over many pieces. So schedule your production runs to make them in batches, if you can.
Design and Color Variations for Customer Appeal:
Strategic use of color, seasonal variations, and limited customization options keep your product lineup interesting while catering to diverse customer preferences. Look at how the big brands introduce small variations of the same bag and keep attracting its faithful to spend more.
Balancing Consistency and Innovation:
Developing a signature style, integrating customer feedback, and implementing tiered pricing strategies for variations maintain brand consistency and customer engagement. Notice how big brands do this successfully and you can tell what brand it is by pointing to some signature features.
Outsourcing Manufacturing: A Strategic Move for growing Small Leathergoods Businesses:
Assessing Capacity and Expertise:
Outsourcing manufacturing becomes strategic when evaluating your own capacity and expertise reveals limitations that hinder production scale or compromise quality. And don’t forget to outsource small non-value added tasks or those outside of your expertise. The point is, those tasks may be important and are better done by someone with expertise that can help you.
Financial Considerations:
Considering cost efficiency and reduced overhead, outsourcing can lead to significant financial benefits, especially when dealing with large-scale manufacturers. This is for when your business has really taken off.
Quality and Consistency:
Accessing expertise and ensuring consistent production are key advantages of outsourcing, providing high-quality products that meet market demands.
When to Consider Outsourcing:
Considering outsourcing is advisable when facing overwhelming demand, dealing with complex manufacturing processes, or planning for strategic growth.
Challenges and Mitigation:
Maintaining clear communication, protecting intellectual property, and addressing potential challenges are crucial when outsourcing manufacturing. So a Non-Disclosure Agreement with legal guidance is a necessary step, if your design is unique and you are going abroad to manufacture them. Exploring outsourcing tasks within the maker community (say, if you have a large clicker, clicking patterns for other crafters for a fee) can also work, if it is structured right and there are agreements in place.
If you have stuck around with us to read this far down, let’s quickly summarize everything here. Launching and growing a small leathergoods business requires a combination of passion, strategic thinking, and adaptability. By addressing pricing challenges, choosing the right products, optimizing profitability calculations, and strategically reassessing your product mix, you can build a resilient foundation for success. Whether crafting unique pieces or considering outsourcing, the key is to align your business decisions with market dynamics, customer preferences, and your long-term vision. Success in the leathergoods industry is not just about crafting quality products but also about making informed business decisions that lead to financial viability and long-term growth.