Saturday, August 25, 2007

The Rise And Fall Of A Small Business

My mother is rather creative, coming up with ideas for products and businesses that she jumps in and tries. I think it’s where I got that trait from as well- though her track record for actually launching them is better than mine.

She called up recently and asked if I could help her launch an eBay store for a little doohickey thing she made several versions of and sold to a little gift shop near her home. She wanted to take a shot at retailing them herself online.

The Travel Jewelry Pouch is a nice idea- compact with little pockets for rings and necklaces, and a large area in the middle to hold oversized jewelry. She made them in tons of different colors and designs.

She came over the house on a Friday night and I helped her lay them out with jewelry for some product photos, edited and cropped them, and then set her up with an eBay and PayPal merchant account. I had her ready to load new products in no time at all.

Then the hard part came. What do you want to charge for these? She wasn’t sure, but thought $19.99 was reasonable. I did some quick competitive research and found some similar products online for as little as $5, but many at the $10 range. I asked her what her cost of goods were (knowing that she would not really know what I was talking about and I would get to tease her a bit) and she didn’t know. We walked through her cost of materials (fabric, rope cord, thread) and her time (took her about ½ hour to make one).

We came up with a cost of about $4 per item in materials, and another $5 in labor (assuming that she wanted to make $10 hour for her time). So, our rough COGS was $9, and assuming a cornerstone mark-up, that did put us in the $18 range. Problem. While her pouches were hand made with the finest materials and lovingly stitched together with top-notch designs, she still had to compete with Chinese made versions with crappy fake silk for $3.99.

We launched the store at $19.99. No bites. Tried a lower price. No bites. Oh well. At least she tried.