Wednesday, June 11, 2008

Economics of Craft, Part 2 - The Quiet Doldrums of Miniscule Sales?

Let's have a Word of the Day! Today's word: premise (n). A proposition upon which an argument is based or from which a conclusion is drawn.

A premise is usually a statement of "what everyone knows." If there is any flaw in an argument, it can usually be found in the assumptions about "what everyone knows," not in the lovely argument that unfolds from that starting point.

Case in point: Kevin Kelly's thoughtful 1,000 True Fans post - hat tip, Chris Guillebeau - begins with a startling premise:

The long tail is famously good news for two classes of people; a few lucky aggregators, such as Amazon and Netflix, and 6 billion consumers. Of those two, I think consumers earn the greater reward from the wealth hidden in infinite niches.

But the long tail is a decidedly mixed blessing for creators. Individual artists, producers, inventors and makers are overlooked in the equation. The long tail does not raise the sales of creators much, but it does add massive competition and endless downward pressure on prices. Unless artists become a large aggregator of other artist's works, the long tail offers no path out of the quiet doldrums of minuscule sales.

I'm gonna lay it all out on the line and say that this makes no sense to me. The vast online marketplace we have today creates both more sales opportunity and higher profit margins for creative entrepreneurs, if you are thoughtful about what you sell.

As I argued in the first part of this Economics of Craft series, market competition on Etsy - or any other market aggregator - will crush pricing power for people selling "commodity" goods. But profit margins and income can actually be higher for craftistas who sell online than would've been the case pre-Etsy or pre-Internet. Why?

1. The "Who'd Want That Piece of Crap?" phenomenon. One woman's trash is another woman's treasure. I can't walk into a Betsey Johnson store without seeing anything I'd wear in a million years. Meanwhile, I think Candystore in San Francisco is a palace of transcendent clothing. My own personal hot-or-not: HAWT, the black label san francisco two-toned silk dress at right, and NAWT, the pink concoction from Betsey Johnson at left.

The Interweb allows sellers to better connect with people who think their stuff is awesome. People who think your stuff is awesome will pay more for it. Therefore, the more you can access people who love your work, the more likely you are to receive a higher price for it. I would never in a million years pay $400 for that pink eyelet-ridden ruffled thing, but many people would -- and Betsey, lucky and talented lady that she is, has found enough people who love her clothing to open stores across the country! As you work your way up to becoming the next Betsey, the Internet can connect you to people who think your work is invaluable.

Note: We hear a lot about "buying local," but "selling local" is not the best path for crafty small businesses. Two of my favorite Etsy clothing designers are based in Montreal and Guam. This doesn't seem environmentally tragic -how much pollution is generated shipping a T-shirt? - but of course correct me if I'm wrong.

2. Capturing the entire purchase price. In a wholesale environment, the producer sells a garment to a retailer for roughly half of the final price. On sites like Etsy or an independent website, producers can and do often sell at prices on par with standard retail prices.

Selling direct to consumers without a retail middleman is a classic profit enhancer for people who make stuff. It's not so much that retailers are evil as that store owners need to pay rent, utilities, staff, etc.

Selling online means you avoid all those costs. Even if you invest in setting up your own site, you get extra buck-olas every time somebody pays all of the retail price straight to you. That means higher profit margin, sista!!

Note: You can still make good money selling at the fatter part of the tail - in the mass market. Ashley G, who actually sold me my first Etsy purchase!, recently talked on the Storque about a project she did for Urban Outfitters. It's not a choice between niche and mass - if you're great at what you do and build a strong niche business, the mass opportunities appear. The economics of mass sales - low profit margin, high number of sales - will then apply.

3. Is it worse to sell a little of something than nothing at all? The whole point of the Long Tail is that little guys can make a few sales, instead of being totally shut out by mass market items. "The quiet doldrums of miniscule sales?" Isn't that better than the narcoleptic torpor of no sales? You can always build miniscule sales into a sustainable income with a surprisingly low number of people who love your work - which is, in fact, the entire point of the 1,000 True Fans post.

Miniscule sales can become modest sales which can pay your rent. Long live the long tail!

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