2012.02.21

It takes lots of cash to stay in stock

Rule #2: It takes lots of cash to stay in stock.

After I built the button, I got an email from a guy asking if I could build one for him, and I did. At the time I didn’t follow the pricing rule of 2.3x and didn’t account for shipping (but I also didn’t do the programming, as he wanted to do that.) In the end, after I charged too little, and didn’t account for shipping, I ended up making so little money that I was getting paid minimum wage (or less) for the work I did. As a one-off thing, this isn’t too bad, as it was an interesting experience, but as a business it would be a complete failure.

So I’ve already established a price, and now I need to actually have items to sell. I’m starting with just 10 units. I’ve ordered the parts (from 4 different companies) and when everything gets here, I’ll do the soldering, programming, painting, and assembly, and then have 10 units to sell. (And yes, I did factor in the shipping costs I paid into the price I need to charge.) If I can sell 4 units, that will cover the costs of the materials, though not the cost of my time. I’m assuming right now that if I sell all 10 units, I will have covered my costs, and actually be able to cover my time at a reasonable rate. (That’s the theory anyway.)

I really don’t anticipate needing a huge amount of stock. I mean, demand isn’t overwhelming (yet) for what I am selling, and if I run out, well, I can choose to make more (or not) and it shouldn’t affect my overall business too much. It might annoy people if I’m out of stock, but hey, that’s all a part of selling physical goods, right?

(See all the posts in this series: Begin, Stock, Buy Smart, Basic Rules, No Leeway, Be Open, Community, Manufacturability, Marketing, Shipping, Lessons Learned, The Real Costs.)

One Response to “Maker Business – Stock”

  1. DustinNo Gravatar says:

    Pete, with your talent and ability to finish what you start, I can’t help but think you’d be the perfect fit for what these guys describe in the first 5 episodes of “Automate My Small Business”

    http://automatemysmallbusiness.com/podcast-subscribe/

    Also, as long as you don’t take payment when you know you’re out of stock, it’s perfectly fine to say things like “Due to overwhelming interest, we are temporarily out of stock”. –A common technique used even back in mail order catalog days.

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