Friday, June 20, 2008

Economics of Craft, Part 3 - When Selling is Consuming

In Part One of this craftonomics series, I quoted the story of one Austin Craft Mafia member's run-in with sellers who are willing to sell items below cost.

One sentence has stuck in my brain:

At the price she was selling the necklace, not only was she not making a profit - she was coming in at a loss. That is not running a business, that is just having fun.

Etsy and eBay et al are home to (at least) two types of sellers:

1. The Entrepreneurs. These folks are business people who want to sell an item at or above the cost of materials and their labor. Optimal price = materials cost + fair labor cost (say, $10/hour or more).

2. The Hobbyists. This group includes craft lovers who want to sell an item to offset the cost of their hobby or to increase their satisfaction with their hobby. Optimal price = materials cost.

Many sellers seem to begin as hobbyists and move onto becoming entrepreneurs. The vast majority of sellers, though, appear to run their business as a de-facto nonprofit.

What is difficult for the entrepreneurs is that many if not most sellers of handmade items are willing to sell below cost. Why? Because, from a hobbyist perspective, there are several satisfactions to selling that are not financial:

* Finding a happy home for something you slaved over. Also known as the My Boyfriend Doesn't Wear the Scarves I Make Him phenomenon.

* Feeling validated in the quality of your crafty skills that someone will buy something you slaved over.

* Clearing out your overflowing craft closet. This is why Autumn Wiggins' idea
to promote materials "upcycling" on Etsy is so genius. Upcycling involves people listing raw craft materials, possibly as free items, for others to use. Like Craigslist's free stuff for fabric and so forth. Heck, I'd pay someone to put my yarn stash to good use! It just sits there making me feel extravagant. Which leads me to:

* The ability to create without waste. No one in your life needs an adorable crocheted dog, but you might die if you don't make one. The answer: sell it on Etsy!

What does this mean for entrepreneurial sellers? It's crucial to create well-made and truly awesome products that people can't get anywhere else, if you want to get paid for your time. This is discussed further in Part One, "Why You Can't Make Money as a Middleman on Etsy".

The most interesting implication of this transformation in hobbyists' choices is what it means for mainstream, bricks-and-mortar craft stores, from Jo-Ann to the friendly local fabric store. So what does it mean?

* More sales. The rise of Etsy is unambiguously good news for craft supply sellers. Hobbyists buy more supplies, the rising class of entrepreneurs buys more supplies, and craft is cool so the ranks of the hobbyists are increasing. Unambiguously good.

* Especially, more sales for online suppliers and wholesalers. As the selling hobbyists buy in greater quantity, and perhaps with more lead time, than before, they will be more tempted to buy online and/or comparison shop.

* More young buyers. This is crucial and I still don't think big box craft chains understand, at all, the new demographic. You can tell they try, but the cover of industry mag Craftrends' January/February issue kind of says it all:

Selling as a form of consuming, instead of profit-making, is the dominant form of "business" on sites like Etsy. Many sellers dream of making craft their full time business. But most appear content with using sales to support their enjoyment of their leisure time. The very low cost of listing online allows these folks to jump into the game - hence "the Etsy effect" on pricing.

What else can entrepreneurs do to stand out in a field of hobbyists? Offer superior service. I'll dig into this in the next Economics of Craft post.

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