{pre-made or made-to-order? The Handmade Seller’s “How to Decide” Production Guide}

Summer always hits in the most fast + furious way. Here in Minneapolis the weather warmed up rather nicely in April, so much that I had my summer tan a bit early. But the calender pages flipped over rather quickly and suddenly June was upon us, and now the end of July. And so is the humidity. Finding enough energy to run a handmade shop can be hard to maintain as shopping patterns + the weather forecasts change throughout the year, and of course when a beautiful day is gifted to you and all you want to do is enjoy some time away from work…

And guess what? If you’ve set things up correctly you CAN enjoy some time away from your shop once-in-a-while and yep, your business will run itself just fine. That’s the beauty of running your business in a way that truly makes the most sense for you + your family. And good news, I’m here to share my experience on how you too can get there with my “pre-made or made-to-order? The Handmade Sellers “How to Decide” Production Guide”.

A FEW TIPS TO SETTING UP YOUR HANDMADE BUSINESS SO IT CAN PRACTICALLY RUN ITSELF…

Before we dig into the “this way” or “that way” — which way is best?, production guide, one of the first things you’ll need to decide is whether it makes more sense for your business to have pre-made or made-to-order items, and in order to do that you’ll need some definitions.

Pre-made means they are already made, making them immediately ready-to-ship. When an order is placed the only task is packaging.

Made-to-order means once an order is placed it needs to be made from start to finish. Once that is complete the item can be packaged.

Over the last three years I’ve learned a lot about how to run our handmade business. We’ve tried a variety of options + techniques here at Gussy Sews, whether it be with hiring, prepping/production, or shipping processes, and I’m happy to report the way we do things now is the best way for our business to be run. And, I report to you this with confidence. Today I’m going to share my experience with prepping/production in terms of a pre-made or made-to-order workflow.

First things first: Gussy Sews is entirely debt-free. This means all transactions are run through our business checking account(s). We do not own a credit card {and never have, yeow!} and because of this it’s easier for us to make logical based decisions, not emotional based decisions. I looooove shopping for fabric, but knowing there’s a cash flow limit, like with how much fabric I’m able to buy at one time, helps me to buy only what we need ~ not what I think we need or want us to need. I realize not every business is able to work off cash/debit cards, some necessary expenses can be quite large, and so a credit card may be necessary depending on your situation.

But if there’s any teensy way for you to work with cash/debit cards I really encourage you to make it happen. It will do wonders for your business in terms of financial planning + future success. And yeah, I get it. There was a time when spending $500+ on fabric at one time seemed Absolutely Impossible. Capitalization intentional. But we’ve been able to do this quite a few times now and yes, it’s still scary. But we’re able to do it nonetheless and that is soooo exciting! Operating under a “pre-made” production workflow has helped us gain enough capital to make larger purchases, which in return lets us focus on our future successes.

Some more important background info: A few years ago Zack + I decided we’d put a small bit of our family’s income into the business to start gaining capital. Gussy Sews was just starting out and the funds needed to come from somewhere. (Since we create a product we needed money to purchase supplies, etc.) It was less risky to invest some of our savings than to take out a line of credit on a brand new business. Over time we’ve been able to shift the funds so all purchases are entirely funded by the business, as well as a savings account for the business. This was definitely a huge milestone for us. I also transfer funds every couple of weeks from our business account to our family account, which is a casual way to state I have a salary, which is super exciting!

A couple of years ago we didn’t have a lot of answers to the questions we had, or the experience to know where to get the answers. So we did the best we could and spent time researching, along with trial + error, and found contentment in doing so. We played it safe with many things. This meant it was at times a bit harder to predict sales {and rely on them} so at the time we made the decision for all items in the shop be made-to-order. It was like we were running a real life sweat shop as we were working in our small apartment in downtown Minneapolis. Sales would be slow + steady, then all of a sudden WHOOSH! the orders would come in and we had lots of work to do. The small room I sewed out of was hot {hence the name above, giggle giggle}. It was a bit chaotic at times. Things were a more often unpredictable than predictable but it was safer to run our business this way, because there was less risk.

With made-to-order you have a less going out in materials each month. You only need to buy the bare basics to keep things running smoothly. When you have a large increase in orders you then buy only what you need. Our experience meant we were are able to have a longer turn-around + shipping estimate because we were waiting until we have a handful of orders before getting started on them.

Made-to-order is acceptable in a few situations: when you are offering a custom order (but even then, you are charging more for the custom piece so the higher costs are offset) or you are testing something out and the knowledge you will gain outweighs the financial risk you are taking. With made-to-order you don’t need to have a lot of capital built up, something that is hard to do when you are a new business owner with limited sources of revenue.

But with made-to-order comes higher expenses. They may be safer purchases, less-frequent purchases, but they cost more. You aren’t able to buy in the exact quantity you need so you pay more to buy less. It’s like Target verses Costco. Retail verses Wholesale. Made-to-order verses pre-made. You get the idea :)

Once your handmade shop has passed the vague test of “time”, you start to become more comfortable with your business as your savings account and capital builds up. You are confident with the different variables handmade shop ownership brings {sheer emotional buying, seasonal influxes, vacation influxes, going viral, becoming a solid brand} and your knowledge is starting to outweigh any potential financial risks. You decide you are ready to move from made-to-order to pre-made.

But how exactly do you do that, you ask.

Your solid, clear vision for your handmade business, in the form of a business plan, mission statement, consistent sales patterns, and the like, has you in high-energy for a pre-made production process. This is an exciting time!

One key feature of pre-made is it allows you to buy more materials at a greater discount. Think of it like a wholesale purchase: the more you are able to buy the less it costs. Pre-made allows you to introduce a limited run of product quantities. It helps you to organize your time in the best way possible. Want another perk of pre-made? You are able to focus your time on other things, like taking time off from work one afternoon each week, working on another project, or scheduling creative time. Really, the list of positives with pre-made goes on and on…

When Gussy Sews was still in it’s first year we did a lot of made-to-order production work. This helped us get our feet off the ground {because we weren’t spending a lot on materials at once}, but it also helped me to learn quickly what fabric combinations customers were interested in owning. I was able to only buy what we truly needed {instead of risking a larger purchase without having sold the items those materials would make}, but like I mentioned earlier, made-to-order cost us a lot of money.

We learned quickly that our products had to be priced higher because our costs of goods were higher. We weren’t able to make the items in the most-efficient way possible because we were constantly going back + forth between types of products during production. When you sew, changing the thread, getting up to press a seam, constantly cutting different patterns and working with new fabrics — these things take a lot of time to start + stop. And my educated guess is that that’s pretty much across the board for any handmade product. If your customers aren’t willing to pay more for a product that could be made for less — and yes I’m still talking about handmade here — then you won’t be able to sell enough product anyway to justify the higher costs, let alone put some money in your personal accounts for bills + living expenses. Handmade, at times, is like walking a tight rope, you need to learn how to walk on it.

Unless you can accurately charge what made-to-order really costs you as a business owner, this isn’t always the best long-term plan for your business. And yeow!, handmade sure knows how to dance around that line. Accurately pricing your handmade items is fine line but it’s so important to figure it out.

Cost of goods + cost of time + cost of overhead + desired profit = product price.

Shipping costs can be calculated by adding the cost of shipping goods to the cost of time. Don’t cut corners here, you’ll seriously only hurt your business down the road. Trust me, I see it happen all the time and have experienced it myself. Once we realized our pricing + production ways were off kilter we got very serious about finding a better, long-term solution. We spent weeks reviewing our pricing, the shop’s overall design, shipping costs and the like and re-launched the shop in January 2012 with an updated workflow.

Let’s get back to learning about a pre-made production workflow. Pre-made has so many benefits, but it does require initial startup capital and cash flow management.. With pre-made you estimate the total number of products to launch, then you break down all necessary costs including materials + labor needed to get all of these items pre-made. Remember that once the items are made your main focus is to sell them. You have higher costs to start but with your knowledge of handmade/marketing + your online community working with you you have confidence they will sell, and quickly.

*Note: don’t get too giddy once things start selling. Make sure you’re setting aside enough money from this huge flood of sales to reinvest into your business (capital), save for future products/purchases, any employees you may have, and remember you need to be paid a salary, too.

One scary part of a made-to-order workflow for us was the fear that fabric may suddenly become unavailable. What do I do if we sell ten pouches but suddenly I can’t re-order more fabric? That was a risk we had to weigh with every product/fabric combination we created. For you this may look a little differently but it’s definitely something to consider. What is your back-up plan if this happens to you?

What other scary situations could you find yourself in with made-to-order? And the same goes for pre-made. What if you make too much of something, what is your solution then?

I’d love to hear your thoughts. What successes have you found from either type of workflow? What struggles are you currently facing, what do you fear? Leave a comment below so we can connect!