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One question a lot of first time Etsy shop owners have is how much of an initial investment should they make in their shop. As their shop begins to take off, I also see a lot of Etsy owners wondering when they will be able to leave their day job. Will they ever be able to make six figures? Let’s talk about financial planning for Etsy sellers, and I’ll begin with this advice- invest carefully in your Etsy shop.
How much money should I invest at the start of my business?
One of the great things about Etsy is that it literally only costs 20 cents to get started selling, as well as the cost of your materials. Unlike having a storefront, you don’t need to pay rent or employees or fill an entire shop with things to sell and hope people walk in the door and buy those things. You’re able to start small. You don’t have to pay anyone to run the shop when you go on vacation, you can just put the shop on vacation mode. Etsy is a great side hustle. You do not need to invest much time or money to get started and YOU SHOULDN’T.
I’ve seen a lot of ecommerce sites for handmade businesses lately beginning to offer loans for small businesses. A lot of handmade sellers are excited about the prospect of being able to get this “free” money to invest in their business. Other sellers put an initial investment on a credit card or take a loan from a family member to get started. I would NEVER recommend doing ANY of this. Of course it would be awesome to have someone invest financially in your business from the start. Wouldn’t it be great to just buy all of the craft supplies and tools you needed to make really awesome things? But until you’ve been successfully selling on Etsy for a while, you honestly don’t even know if the things you’re going to make are even going to sell. And even if you have been successfully selling, I would never recommend taking on any debt for your Etsy shop. Definitely reinvest a percentage of the money you make selling back into the business, but don’t take on Etsy debt. Etsy is such a finicky marketplace. Etsy will occasionally release a new algorithm or some other change they think will be great for the marketplace and your shop might suddenly slow to a halt. Trends change and maybe the item you sell just isn’t something people are purchasing anymore. You might get accused of a trademark or copyright violation and have your listings pulled or even your shop closed completely. Shop income varies widely. I’ve had some months where I’ve sold $50 and others where I’ve sold over $2000 of product. But if you get to the point where you reach that $2000 or even $10,000 if you’re extremely lucky, your income may plummet the next month unexpectedly. If you’re relying on that income yourself, or have to pay back loans or credit card bills, you’re going to be in a big mess.
I would recommend starting with no more money than a couple hundred dollars. This is a small enough amount that most people could afford to lose it if things don’t work out. Unfortunately starting an Etsy shop is a bit more like a gamble than an investment, at least at first. There are a lot of Etsy shops that just don’t make it off the ground. Luckily Etsy has started offering new sellers 40 free listings to get started. Take advantage of this offer! Instead of excessive amounts of money into your shop at the beginning, invest your time into learning all about Etsy. What works, what doesn’t, what products are popular, who the typical Etsy buyer is, where there might be a niche for you, how to do SEO. These are investments you’ll be able to use even if you have to change platforms or you decide to sell something completely different. Education is always a worthwhile investment.
How should I price my items?
The biggest mistake that sellers make when starting to price their items (one I definitely made myself) is determining a price based on what you yourself would pay for the item. Chances are you are not your target market.
There are some different schools of thought on how to price your items. The first place to go to get an idea of how you should be pricing your items is Etsy itself. How much are similar items going for? Figure out the price range. Look at sellers who have made lots of sales of comparable items and see what price point they are using. This should give you a ballpark figure, and I would advise trying to price your items somewhere in the middle.
There are formulas out there for this sort of thing. The one I am most familiar with is to take the cost of making the item, add in your labor cost, and multiply that amount by two for wholesale or four for retail. So suppose that you wanted to sell a scarf you knit. You spend $8 on yarn (you should also take into account the cost of needles, etc. as well, but we’ll put that aside for now). It takes you 4 hours to knit and you would pay yourself $12 an hour. So you add this amount together and get $56, which means your item should wholesale for $112 and retail for $224. Now I don’t know that there are buyers out there for a $224 scarf, and if there are, I’m not sure they’re buying it from someone selling it on Etsy. A quick search of Etsy will show you that most knit scarves are being sold between $35-65. So what should you do if this is the market you want to get into? You could look at reducing the price of your goods and the time that it takes to make your items. A cost of $5 plus two hours of work at $10/hour would put you at $50 wholesale or $100 retail which is still significantly higher than what similar items are selling for on Etsy. So I don’t know that you can always use the formula method for pricing your goods either. Some combination of these methods may be your best bet.
Should I quit my day job to sell on Etsy?
This is the dream of a lot of people who open Etsy shops. They want to be able to leave their 9 to 5 and make money pursuing their passion. While this is a great dream, and some people do accomplish this to an extent, I think you should have a realistic view of what this might entail. Let’s look at a case study. Debbie has sold a few crocheted hats and is trying to convince her spouse that if she just had the time she’d be able to make just as much money selling on Etsy as she does at her office job.
Debbie is making about $31,000 plus medical benefits. Assuming that she’d need about $600 a month for private health insurance, we can estimate she’d have to have about $38,000 a year in income after her Etsy expenses. So let’s say she is a careful shop owner and keeps her expenses down, and she only reinvests about 30% of what she makes into her business. She’d need to sell around $54,000 worth of items a year. Let’s say she works just Monday- Friday and takes the weekends and a few holidays off, that means she’s working about 250 days a year. That means every day she works she needs to make and sell $216 worth of hats. If she prices her hats at $20 each, she needs to make – and SELL – 11 hats every day she works. I don’t care how good you are at crocheting, that’s too many hats to make and sell in a day.
So realistically how much could she make? Even if she was able to make and sell two hats every day and only reinvest 30%, she’d only be taking home about $7000 a year, and she’d be still be working a LOT. Forget about the fact that this is a very saturated market. Realistically I’d say she could probably make a couple thousand dollars of income a year IF she was VERY lucky and did some amazing marketing.
There are some people who are very successful selling on Etsy. One of Etsy’s success stories featured in its seller handbook here is a company called Big Stuffed that opened in 2014. Her shop here shows 3896 sales at the time I am writing this. Most of her items are over $100, so let’s just take an average price point of $150 each. That would give her an income of almost $600,000 over 3 years! That’s definitely a success! But if you read her about page, the items are not being made by seamstresses- multiple- which means that she is really running a small business. Could she be making a 6 figure income? Possibly. But she has also taken on a very different role as a small business owner and designer. She’s not actually making her products anymore. And that may be fine with her, I’m not knocking that, but that’s a different dream than the one many Etsy sellers have. If this is more along the lines of what you’d like to be doing, Etsy does allow both supply shops and outside manufacturing now. These may be a more lucrative way for you to go.
There are some members of the groups I belong to that bring in over 6 figures in gross income yearly. But that doesn’t mean they’re making 6 figures, just selling that amount of product. They may be taking home about $60,000 a year after all of their business expenses, but many of them are working 80 hours a week. If that’s the case, they’re only making $15 an hour. If they’re only taking home $50,000 a year, they’re only paying themselves $12.50 an hour. After removing taxes and benefits, even this isn’t a lot of money.
Now I’m not trying to belittle the hard work these people have put into making their businesses a success. It’s incredibly admirable! But this level of success is not the level most Etsy sellers reach, and it’s important to remember that and set realistic goals.
So is Etsy best as just a side hustle?
I believe so. If you’re looking for some supplemental income doing something that you love and you’re open to learning things like SEO and marketing and good photography, I say go for it! If you’re only looking to pay a couple of bills with extra income while staying home with young children, try it! Invest a nominal amount of money and do your best. I’ve really enjoyed the journey and the learning experience. But I would never advise someone to leave their job to try to make it on Etsy, to take out a small business loan or accumulate credit card debt to make their shop successful, or to rely solely on Etsy as a main source of income for a family. I’m afraid most of us will remain “starving artists” of a sort on this marketplace just because it is the nature of handmade items.
I hope you’ve found this information on careful Etsy investing helpful. For more Etsy tips, check out my other blog posts: