Selling Online – Hollow Books by Refined Pallet

There are many…. and I mean many good practices to employ when running your online business that lead to successful sales. I have found there is no one “magic bullet” that a shop owner can implement to realize success. It takes time, dedication and testing to see what works for your particular shop or products to stand out with your target customer. However, as you massage your marketing, shop appearance, product pictures and everything else you can think of to get your stuff noticed, keep these tips in mind to increase your profitability along the way. It’s only natural that as you sell more, your expenses increase and that’s a good thing. Your business is growing so why not turn your expenses into extra income?

Today I wanted to pass along some of the ways that I have made extra income from my expenses. Yes, you can make money from your expenses! It takes a little creativity, sometimes a change in perspective and of course discipline to avoid some potential pitfalls. In the end there are some ways to harness your expenses to generate additional cash.

Rewards Credit or Debit Cards.

Tip #1 – Never ever pay for your shop expenses directly from your bank account. Whenever possible, pay for your expenses using a rewards credit or debit card. Something with a percent cash back or credit to your monthly bill. A prime example that most online sellers may already have is a PayPal Debit Card linked to their PayPal Business Account. With the PayPal Debit Card, you are paying with real cash, not credit, so you can avoid the pitfall of racking up charges on a credit card and paying finance fees. You get 1% of your spending back as a cash deposit back to your PayPal account every month. However, there are many true credit cards with rewards that will earn you 1% and sometimes more in cash equivalent rewards. Some as a rebate check monthly or quarterly, others as a credit on your outstanding balance every month.

Etsy Specific – So all you Etsy sellers out there. Never pay your Etsy bill from your Payment Account!!! Use this method to cover all your Etsy Monthly Expenses: Transaction Fees, Listing Fees, Advertising, Payment Processing, and the biggie…. Postage purchased through the Etsy Shipping Service.
Amazon Specific – This is a toughie since this platform takes its fees from your sales and you miss out of the opportunity to charge to your rewards card. However, use that card as the backing for your account in case you end up owing more than what is on account, like in the case of a period with heavy returns.

Tip #1 Part 2 – Supplier specific rewards cards. Every handmade crafter out there needs to purchase raw materials, parts and other supplies to actually craft your final products. Chances are you have a favorite supplier that you purchase the bulk of your material from. See if they offer a rewards credit card. I’d bet that if they do it will come with an extra incentive to use it for purchases from their store. That 1% cash back on a generic rewards card could turn into 3%, 4% or even 5%. Spend $1000 per year at that store and you are looking at an extra $50 bucks in your pocket in the form of cash, credits or gift cards. Some quick examples**:

Do you sew? Jo-Anne Fabrics offers a Mastercard with a points system. It equals to every $200 you spend in their store, receive a $10 Gift card. That’s a 5% payback! (Also 1% on all other purchases)
Woodworker? Try Woodworker’s Supply Mastercard. 3% back on all purchases made in their store or online.
However controversial, do you shop at Hobby Lobby? They have a Visa that for every $500 spent in store gets you a $25 gift card. That’s 5% back on your supply spending.

Tip #1 Part 3 – All your other business expenses. Chances are whatever rewards card you settle on will offer the bonus % on purchases made from their business and something like 1% on all other purchases. So, you are spending the money anyway. You may as well get cash back or points from your business purchases on:

Mailing & Shipping Supplies
Office Supplies
Postage Purchases
Advertising/Marketing
Web hosting and domain services
IMPORTANT – Major equipment purchases like a new computer or tool for your business
Wireless and/or home internet bills
Utilities
Business Insurance
Just about any business expense that you can charge to a credit card!!

Pitfall to Avoid: Running a balance on you credit card and getting hit with finance charges. PAY IT OFF! The best practice is to pay the balance off every week or whenever your sales income is transferred to your working bank account. (Etsy is Weekly; Amazon is every two weeks)

Reward Credit Card Summary – Individually your expenses may be insignificant, but it’s the long term game you are playing. Over the year your expenses can be collectively substantial and as your business and sales grow the expenses will increase. You can easily spend into the thousands on basic everyday supplies and administrative costs running your business. Even at the 1% rebate level it can make it all worth while. Just make sure you never carry a balance on a credit card.

Shop Waste and Leftovers

Tip #2 – Sell your crafting or manufacturing “waste”. Look, no matter how efficient you are in your process for making products, you have scraps left over. If you sew I’m sure you have a basket of remnants. Are you a wood woodworker with boxes of end cuts? Maker if jewelry with tins of bent headpins, miscellaneous beads and charms? Come on, you know you have a stash of leftovers that you intend to “make something with it someday”. Realistically it’s never going to happen, and it shouldn’t. You should be spending your time making the things that actually sell. Not trying to recycle what won’t. As the (modified) adage goes, “One crafter’s trash is another crafter’s treasure”. Sell that scrap and either reinvest the cash back in the business or take it as profit. You would be surprised what you can sell through various outlets. Someone out there has the desire and talent to do with your scraps what you don’t have the time to do yourself. Resist the urge to hoard what is useless to your business and list it for sale on one of the many available outlets. Just be reasonable as to what you “think” the actual value may be and don’t price it as to recover your investment. You did already by making whatever you make. Selling the scraps is gravy. Places to sell you garbage:

Craigslist
Ebay
LetGo
Local Online Bulletin Boards
Facebook Crafter Pages
Upcycle Clubs (Local or online)

Gift Card Promotions

Tip #3 – Bonus Gift Card Purchases. Not everyone has the opportunity to take advantage of this one but if you can it could become a triple whammy in terms of cash benefit. Let’s say that your favorite supply vendor runs a pre holiday shopping season special on their store gift cards. Buy $100 in gift cards and get a $10 bonus gift card. Look at what you are spending at the store and make the call to purchase as many gift cards as you will realistically spend to purchase your supplies for a given period time. Say three months. You are going to spend the money so you may as well get a little extra for it. Here are the potential Whammys!!

First Whammy – You just got a reward (free money) for spending what you would have spent anyway.
Second Whammy – When you spend those “bonus cards” you can still claim the full purchase on your taxes as expenses.++ (Even though you paid for it with free money) You have a receipt, it’s an expense.
Third BONUS Whammy – If it is allowed to purchase the gift cards with your rewards credit card, well that could be an additional 1% to 5% coming back to you just like a regular purchase. (Most gift cards must be paid for with cash or cash equivalent like a debit transaction. Hint – Some credit cards that can be run as debit cards still have at least some reward attached to the transaction)

Holy Whammys Batman!

The Final Opportunity

Tip #4 – Donations! Alright, so you tried to sell off your scraps or “failed” items. By “failed” I mean either items that don’t meet your quality standards to sell in your shop or quite frankly, items that just don’t sell…. period. This is the last stop and you can either allow these things to pile up in your workspace and hinder your productivity and efficiency to move ahead with your business, or get them out of the way. Donate the piles of stuff to a local charity or goodwill. How does this add to your bottom line if you are just giving it away? That happens at the end of the year at tax time in the form of a deduction or write-off. In effect lowering your profitability on paper so you end up paying taxes on a smaller portion of your realized profits. So if you made $1000 in profit for the year but “write off” $100 in donations you will only be taxed on $900. Just make sure you claim what is realistic in losses or donations and verify with your tax professional as to what is legal according to your local tax laws. (Claim your material costs, not retail price of the products you could have made from them. See Disclaimer ++ at the bottom of this article)

Another note on the rewards you receive and the taxes you claim at the end of the year. Make sure you note my disclaimer on taxes at the end of this article, but…. any rewards, cash back, credits or gift cards that you realize may not have to be claimed on your taxes as income. You can declare the full paid price of any purchases for your expenses. Example: You purchased $100 in supplies but got 5% cash back from your credit card. The receipt says $100 so you can claim the full expense of the purchase on your taxes. The $5 you received back does not need to be declared by either lowering you expenses or increasing your income. It just goes straight to your pocket, tax free.

Closing Notes

While it is best to minimize your expenses to help maximize your profit margins, expenses will happen. It’s a fact of life when running a business. Instead of cringing every time you open your wallet, change your perspective and realize that you could actually be making money when you spend it. With some creativity and cash management skills in place it becomes routine. Every reward that comes back makes running your business a little more rewarding.

Disclaimers

** Sample Reward Card offers at the time of article publication. Terms change so check what’s currently offered.

++ I am NOT a tax professional. Please verify the validity of the statements made in this article for yourself as they apply to your federal, state or local tax laws and regulations. Every region is different and tax laws/practices change.

Author: Jef Spencer, Owner/Craftsman of Refined Pallet. Shops on Etsy, Amazon and Ebay.

I opened my first shop on Etsy in 2007 and after many successful years I switched my product line enough to warrant opening a second shop. Now I’m starting up a third! The “Why” behind managing separate shops is for another story. In this article I want to share with you a practice to employ to protect your business. I owe part of being successful to being prepared to handle the unexpected without interrupting my business cash flow.

Today’s Tip – Everyone knows the age old adage “You have to spend money to make money”. But what if you don’t have the money to spend to take advantage of opportunities or respond to problems as they arise? Well let’s tackle that one first, building your primary reserve.

I’d be the first to admit that the first year was the hardest. You have all those start-up costs and very little cash to work with so when you make that first sale it’s time to celebrate, right? Absolutely! Reward yourself but don’t get too crazy. Now is the time to get into the practice of taking part of that sale and putting it aside to build your “primary reserve”. How much? I suggest 10% of the sale (Not including taxes or freight collected). Depending on the products you sell, this could be pennies or it could be a few bucks per sale. In any case, put it somewhere safe and separate from your regular working account.

In the beginning that primary reserve account will not have much in it, but the point is to build it slowly over time. Feed the account, a little bite of every sale until you hit your target reserve amount. What has worked well for my Etsy business is striving to always have a reserve available that equals 10% of my annual sales. So, if you sell $1000 of stuff a year you should strive to have at least $100 on hand in primary reserve. When you increase your success to $12,500 per year you should strive to have $1250 on hand and so on. Believe me, you won’t miss that small 10% when socking it away. But you will miss having that reserve on hand when you really need it, and you WILL NEED IT.

As your first year of building that reserve progresses you can adjust how much to sock away to hit that end of the year reserve goal. If your goal is to have 10% in reserve, stashing away 10% of each sale will organically get you to your goal. This will be an exercise is self-control to resist the temptation to dip into what you have saved up, but look forward to year two when things get a lot easier. That’s when you can scale waaaay back on what you are skimming off the top to set aside which equals more money in your pocket from profits to spend as you need or want.

Year 2 – Congratulations! You successfully built that reserve, but why? We’ll get into that in a second. For argument’s sake you let’s say you sold $2100 worth of stuff in that first year and you now have $210 in reserve, yeah! You can stop socking away portions of each sale and keep that extra smidge of money to do with whatever you wish. Or, you can continue to squirrel away that 10% and give yourself a reach goal by creating a secondary “Spendable Reserve”. What is a “Spendable Reserve”? These are funds that you give yourself permission to spend on whatever you wish without hurting your business. Preferably spend these funds on something that benefits your business like a new tool, upgraded computer or even a faster internet connection for your home business. Whatever you save up in the “Spendable Reserve” you can shell out without the worry of depleting your primary reserve. But what happens when your sales increase? That’s easy! Evaluate your sales trends and project out what your annual sales will look like at the end of the year. Then plan to sock away smidgens of each sale to meet that new year end primary reserve goal. This can be as easy as continuing to take 10% off the top and putting half to your primary reserve and the other half to your spendable reserve. Your savings habits haven’t changed but you are still accomplishing your reserve goals.

Now on to the “Why?”. When I have given out this tip in the past I get these regular responses: “This is my primary source of income so I need that money to live.” Or, “I worked hard on my business and I should be able to spend the full amount of the profit as I see fit.” Both of these are very valid and real responses. To these I come back with “Don’t you want to protect all your hard work building a business and future income streams that can come from it?” It would be a shame to have to close shop due to missed opportunity or even worse, an unforeseen hurtle.

Having a primary reserve on hand serves two main purposes. First, to cushion the blow when something goes really wrong that can stop your business in its tracks. Things like having to replace a major tool needed to manufacture your products. Or having the computer for running your online business blows up. There can be any number of things that are critical to keep you either making or selling your products. Having the funds on hand to correct a major, business stopping problem and getting back on track and selling as quickly as possible is something you’ll be grateful for when you need it. There is not much worse than being shut down during the holiday shopping season or when trying to fulfill a major order with no resources to get going again.

The second purpose of a primary reserve is being poised and ready to grab onto any major opportunity that may come your way. Here is one of many scenarios: You get a convo message from a customer that loves your work and wants to purchase a large quantity of items. Way more than you have available or even have the supplies to make. It’s going to be nice to know that you have $$ on hand to purchase additional supplies without hurting your cash flow. I can’t tell you how many shop owners I have seen in the forums complaining about losing a substantial sale because they could not meet the needs of the opportunity presented due to lack of available funds. (Getting payment from a customer either before or after a custom order or substantial sale is another topic altogether)

Lastly in regards to building your primary reserve, make sure you maintain it! If you do dip into the reserve to recover from a business stopping disaster, make replenishing it a priority. Even if that means forgoing a larger chunk of your profits from subsequent sales until you recover. In the case of utilizing those reserves to capture an unexpected sales opportunity, take the profits from that captured sale to replenish the reserves. (And maybe sock a little extra away into that Spendable Reserve) You should have made more than enough from the sale to cover what you needed to purchase the materials to make it happen.

Note: Even if you have been selling on Etsy or elsewhere online for a while, but don’t have any reserves, now is the time to start. You will be at an advantage compared to a newbie since, hopefully, you have already covered your startup costs along the way. You should have a larger pool of profit funds to pull from to sock away and build those reserves.

Protect your business people! Worst case scenario, you have built a cushion that can save your business. Best case scenario, you have a nice little bonus to cash out when you decide to call it quits or if you are really successful, sell your business to someone else.

Author: Jef Spencer, Owner and Craftsman of Refined Pallet. Selling online since 2007 with shops on Etsy, Amazon and Ebay.

Tag: Selling Online

Tips for Selling Online – Make Money from Your Expenses

Tips for Selling on Etsy – Building your Reserve