How did you find your CPA?

[The Efficacious Gentleman]

And don't forget the biggest cost - your time. A great way to reduce costs per bar is to increase batch size, as the time needed to make a 1000g batch does not increase directly double from making a 500g batch, but the amount of soap for sale does increase. If increasing batch size isn't viable, reducing the time taken in general might also work - if someone is spending a lot of time doing things which THEY like but aren't actually important to the customer then that is a place to reduce costs by reducing time

 

[Ephemerella]

@The Efficacious Gentleman Amen to that. And thank you!

 

[Nicolesica]

You don't need to be "a business" to start selling. You have a ready-made customer base and even potential "testers" willing to buy your soap AND give feedback. You don't even need to "sell" as such... your enthusiasm and knowledge of your product plus awesome fragrance is what sells soap!

I made my first soap at age 60 in 2003. I needed a hobby, not a "business" -- been there; done that -- too much stress! I was determined that my hobby would support itself. And it did. For the first 4 years, I sold soap and other bath & body products at my annual garage sales, making $350-$500 on average. Imagine my surprise when a young man purchased a few bars at my first garage sale. Imagine my surprise when, the next morning, a Sunday, I answered a knock at my door and there stood that same young man, along with his mother, his wife and two sisters... wondering if they could buy some more soap!!! Gladly, I opened the garage door, they went to the soap table and bought me out!


Starting out, a check book is all you need to keep track of income and expenses.

With $500 "seed money" from our joint account, I opened dedicated savings and checking accounts for selling soap. I also had a dedicated Visa card. I used my Visa to buy everything I needed so I only had one check to write each month for supplies. Payments were deposited into the checking account. At the end of the year, income (deposits) - expenses (checks) = profit. Easy peasy. That went into savings for the next year. I made enough the first year to pay back the $500 loan plus more than enough $$ to buy supplies for the next year.

In 2007, I was approached by a few members on the Southern Soapers Yahoo Group (now defunct) to make soap for them to sell. Before taking it on, I asked our CPA. "How much can I make without having to file income tax?" His answer: "Up to $3,000 is considered 'Casual Sales' (i.e., similar to selling your car to a private party). Anything over that is taxable." Hopefully, when you meet with your CPA he will be able to answer that question and you're good to go.

NOTE: $3,000 profit a year was enough to build a healthy savings account, pay for my continuing experimentation, and enough soap making to keep me happy without getting stressed out.

While doing "due diligence", I'd advise you to first determine your target $$$ per annum to make it worth your while to turn your now hobby into a thriving business. Reverse engineer that dollar amount to discover how many bars of soap you need to make to achieve that number.

HTH and Best of Luck!

How in the WORLD did I miss this? Fantastic advice @Zany_in_CO !!

 

[TheGecko]

I like the way you think! If I were just starting out instead of winding down at this stage of my life, I would hire you as a consultant for stratgizing the basics of my B & B business.

That brings us to the subject of pricing. There should be enough "wiggle room" in the profit margin to do exactly that. I use a method for pricing I learned in retail:

RETAIL PRICE: 3.5 X $2.73 = $9.56/$10 (Round up) --- $7.27 PROFIT
WHOLESALE PRICE: 2.5 X $2.73 = $6.82/$7 (Round up) --- $4.27 PROFIT

Of course, the retail price depends on your customer base. As I would tell my wholesale customers, people who are willing to pay $7 for a bar of handmade soap are likely to pay $10. Reluctantly they would give it a go with fear and trepidation. But guess what? $10 was no big deal for the buyers.

One of the things to consider when setting your price. Is it better to sell one item at $100 or ten items at $10? Now logic might say selling one item is great because you don't have to work as hard to make money, but look what happens when you add a second item...say $5. You've gone from $105 is sales to $150.

And you have to consider...realistically...how much would YOU pay for a bar of soap? Or a Lotion Bar or some Bath Salts or a tube of Lip Butter?

For me, my goal is for my products to become a 'standard household item'...like Heinz Ketchup or Lea & Perrin's Worcestershire Sauce or Campbell's Cream of Mushroom Soup or any number of other products I buy for which there are cheaper versions. I buy them because they are good quality products, but aren't priced so high that I feel that they are a 'luxury' item to only be used sparingly. When I get around to making Lip Butter, I want people to buy it the same way I currently buy my Chapstick, six tubes at a time (I have that stuff EVERYWHERE...car, work, purse, soaping cart, desk, sofa, knitting bag).

 

[TheGecko]

And don't forget the biggest cost - your time. A great way to reduce costs per bar is to increase batch size, as the time needed to make a 1000g batch does not increase directly double from making a 500g batch, but the amount of soap for sale does increase. If increasing batch size isn't viable, reducing the time taken in general might also work - if someone is spending a lot of time doing things which THEY like but aren't actually important to the customer then that is a place to reduce costs by reducing time

Labor is any company's biggest expense.

Whether I am making 20oz test batch, or a 10" Loaf Mold or a 5lb Mold...it still takes me 30 minutes from when I first get out my mold to when I dry the last dish. Now it used to take me an hour to do the same, but I started Master Batching my Oils/Butters and Lye Solution. And yes, there is still labor to do the Master Batching...it takes me about an hour to MB 40lbs Oils/Butters and 2-gallons of Lye Solution, but it would take me a lot longer if I had to do it for each batch of soap.

 

[Zany_in_CO]

And don't forget the biggest cost - your time.

That's why the formula I wrote worked so well for the 10+ years selling to wholesale customers. It covers time and overhead in the retail position I worked in. The trick is, you have to be OCD about "cost to make" -- don't leave anything out, i.e., the cost of ingredients plus shipping, for example.

Whenever I received a shipment, I figured the cost of each item plus its share of the shipping cost right on the invoice. I divided that by the number of ounces or grams to get the cost per oz or gram which I then noted on the container.

For soap, I would do a printout of the recipe. Gather all my ingredients. And figure the cost to make based on the oz/grams X cost written on the container. See PDF attached.

 

[Zany_in_CO]

Looking at that PDF reminds me of how shocked I was when I realized how much using essential oils to fragrance a soap batch added to the bottom line. YIKES!!!

 

[TheGecko]

That's why the formula I wrote worked so well for the 10+ years selling to wholesale customers. It covers time and overhead in the retail position I worked in. The trick is, you have to be OCD about "cost to make" -- don't leave anything out, i.e., the cost of ingredients plus shipping, for example.

There are a LOT of costs that folks just don't realize that go into making something.

It starts with the cost of your ingredients. And not just the actual cost, but you have to at a minimum include the cost of shipping. Example...10lbs of Shea Butter at BB is $65.49 which is $0.41oz. But when you add in the cost of shipping ($11.18), the cost is now $0.48oz.

I am fortunate that I don't have to pay 'shipping' for a lot of my ingredients...Costco is about a mile from my house (and work) and I have a local soap supplier 20 minutes from work for the bulk of soap ingredients. But I still have costs...my time and mileage. And even though I am not making a special trip to Costco since I shop there for home and work, I still my costs for acquiring my ingredients.

Then there is your costs for packaging and labeling your soap. Like with your soap ingredients, you need to include shipping and/or the cost for obtaining these items. And if you are printing your labels, you need to include the cost of the ink used to print them.

Then comes 'labor'. It takes me approximately 30 minutes from start (pulling my ingredients from inventory) to finish (cleaning up) to make a single batch of soap. It actually only takes me about 20 minutes, but I Master Batch and so I include that time. And even though it takes me less time per batch when doing multiple batch, I still base my costs on a single batch.

Now that is just the labor for making the soap. There are additional labor costs for cutting, planning, trimming, stamping the soap. Then there are additional labor costs for packaging and labeling. And don't forget your labor costs for printing your labels.

Now all of the above costs are what are called "direct" costs. Now you have to add in your "indirect" costs aka "overhead". It takes electricity/gas, it takes water, it takes space. If you have a store, these are easily to figure out as you are paying the bills, but a lot of us make soap out of our homes either in a dedicated or shared space. And there is a fairly simple way to figure it out (see IRS Form 8829) and then divide by the number of bars you make per year.

And let's not forget costs like having a website, advertising, licenses, insurance, etc. Oh...and equipment; your scale, stick blender, bowls and spatulas, measuring spoons and cups, and molds. And don't forget software.

Oh...and Merchant Fees. This can be a direct/indirect cost depending on what your agreement is.

 

[Ephemerella]

I am amazed at your efficiency @Zany_in_CO @TheGecko to whip out a batch in 30 min is mind-blowing. It takes me 30m just to gather the ingredients from the soap larder (yes, I officially have a soap larder!) and perform my mise en place . One day I'll attempt MB'ing and I'm sure that will be a game-changer.

I LOVE running through these number gymnastics and I'm so grateful to you both for being so over-the-top generous with your time and knowledge.

 

[TheGecko]

I am amazed at your efficiency @Zany_in_CO @TheGecko to whip out a batch in 30 min is mind-blowing. It takes me 30m just to gather the ingredients from the soap larder (yes, I officially have a soap larder!) and perform my mise en place . One day I'll attempt MB'ing and I'm sure that will be a game-changer.

I had to find a better way or call it a day.

I work full-time and when I started soap making I had a 90 minute commute (each way). By the time I got home, had supper and wound down a little...it's 8pm and spending an hour to make 10 bars of soap was just too much. And I'm not a spring chicken...I'll be 62 this year. Even when I got a soap cart (rolling kitchen island) that had all my ingredients at hand so no more step n fetch to the garage and back, and my daughter bought me a special matt to stand on...it was still tiring, so I was forced to make soap only on the weekends. Which was also challenging as I do the bulk of the housework as my husband is disabled and I take him/pick him to a friend's house in the next town twice a month which cuts into my Saturday, and I also need time to relax. Some weekends I might get a half dozen batches made, some weekends I didn't make any soap.

Learning to Master Batch was a game changer for me. Yes it takes about an hour to melt my hard oils/butters. Sure I could do it in less time...if I was 20 years younger because then I could use my big soup pot and melt them all at once, but I'm not 20 years younger and I'd rather be safe than take a chance of spilling any amount of oils on the floor. And I could make my Lye Solution is less time if I used frozen Distilled Water, but it's not a race and it cools fast enough in the sink with cold water.

Master Batching allowed me to make more soap on the weekends. Of course, you need to be organized...I have a spreadsheet that lists every mold I own and I have it broken down how much MB'd Oil/Butter, MB'd Lye Solution and FO I need. I then use a commercial paint stirrer on a hand-held drill to mix up my slurry, tare out my scale, ladle my slurry, toss it in the microwave. While it is melting, I weigh out my Lye Solution, add my Sodium Lactate. I then weigh out my FO and add my Kaolin Clay. And pre-disperse my colorants. Then it is just a matter of mixing and pouring into molds. I also clean as I go so when I'm done soaping for the day, there isn't a lot of cleanup.

Happily, I no longer have a 90 minute commute and if I have had a good day at work, I'll make a batch or two after supper and still have time to sit back and knit for a couple of hours. Or I'll spend an hour cutting, planning and trimming soap. Or I'll spend an hour boxing and labeling.