How to transition from Etsy into wholesale pt.1

Posted by Kathleen Fasanella on Feb 26, 2009 at 5:27 pm / Newbies, Operations, Production / Trackback

First a bit of chagrin. I’d intended to post a sewing tutorial today but I must have left the camera cord at home . Therefore, today’s entry is what I can come up with at the last minute. Heh. Seriously, we’ve been having a very interesting but perplexing discussion in our forum about migrating to wholesale I’d intended to mention anyway. There is a lot in this thread covering the gamut of issues so I must necessarily limit the discussion to this:

I sell on Etsy exclusively at the moment. I have a few styles in several colorways and I make each order as it comes in. I have been open for about 6 months and am turning a (small) profit, and am looking into transitioning into the wholesale market. The thing I have been most concerned about is I will need to raise my prices to do wholesale, but I have a pretty consistent customer base at my current price point on Etsy, and in this economy I am leery of raising my Etsy prices too much until I have some wholesale customers already lined up.

[Etsy is] a way to get started, to get your foot in the door, to actually start dealing with customers, and a way to generate revenue to get you started… You try to do both- hold onto what you are doing now, and try to do the wholesale thing too. And that’s where people are coming in saying “that won’t work”. But what else can you do? It would be nice to start out with this great, perfect plan, but most of us didn’t, heck, we didn’t even start out with Kathleen’s book, so we’re stuck with what we’ve already done as we try to move forward.

This was my response (edited):

I want to help people move forward but I don’t have all the answers. When in this position, it’s difficult to find the time to do what one presumes is twice the work (running the existing business and starting a wholesale business) but I think this is a false polemic in many respects because it’s perceived as matter of carving out more time to do it. Working on a wholesale line vs consumer direct on a site like Etsy is perceived to be a trade off but I don’t think it necessarily must be.

I think the first step is, while still doing onsies and custom, to professionalize your existing processes (better, not bigger) which will give you more time. You’ll also save some money which should be reinvested (your first industrial machine?, better tools? materials like pattern paper?). During this process, your products will improve meaning your value proposition increases and at less cost to you. As you evolve with marked improvements from professionalizing (better, not bigger), you must raise your prices to reflect increased value since many Etsy producers are underselling the retail market. Your first step is to get better margins.

Now, once you’ve increased value and your prices while simultaneously saving yourself money over what it once cost you, even on a tiny scale, there’s more wiggle room in your proceeds to attempt the transition into wholesale. I have no illusions, at the outset it is likely that with little economies of scale, you won’t be as competitive at wholesale. You may have to eke into your pricing structure to permit keystoning of your product to be attractive to buyers. Getting a toehold, you’ll gain greater economies of scale and thus cover the deficit.

There’s also some points I made in this previous entry that are appropriate in this discussion. Specifically the fallacy that increased quality requires an increase in costs.

In our (”western”) culture, there’s always the presumption that increased quality requires increased cost. In an absolute sense, increased quality can mean increased costs but not in a comparative sense. For example, if you look at the example provided by Toyota, it’s been definitively proven that increased quality does not mean a required increase of expenditure. Toyota produced the Lexus to compete with BMW and Mercedes. The Lexus was comparable in quality (if not better) but Lexus were half the price of the BMW/Mercedes. This is what I mean by quality not costing more in a comparative sense. You have to compare apples to apples. Quality costs less, not more. It’s been proven time and time again that producing quality consistently means doing things the right way the first time.

Again, lean does not mean doing with less. I am most frustrated by the vast majority of entrepreneurs who think they are lean because they’re running their operations on a shoe string. Lean does mean less in terms of resources needed and inventory but they think they’re naturally lean with operations pared to the bone but they still -tragically- find myriad ways to waste what few resources they can marshal.

Continuing with the fallacies of lean, value and quality:

The other problem with this fallacy that I see a lot with DEs is the presumption that the more labor is involved, the higher the quality. Again, you have to look at this in a comparative rather than absolute sense. For example, consider the results of the nameless tutorial series, or even the zipper tutorials. The way I illustrated was a lot less labor and the results were superior. Less is more! Less work doing the same operation means you’re smarter and more streamlined, it does not mean lower quality.

There’s a lot of pitfalls here. Some won’t make these distinctions and prioritize accordingly just trying to create an increase in perceived value by spending money on inappropriate items. The big problem with value creation in a product line is the disconnect between how you and your customers or buyers perceive value. I wrote about this ad nauseum in my book but suffice to say, entrepreneurs are often too new to be able to disengage themselves from the idea of something like a custom logo’ed button to mark their products with their “brand” but this is putting the cart before the horse. If you have the money to spend, then great (and some do), but it’s far more common to find boxes of logo’ed buttons of now defunct lines at auction. This isn’t lean. Buyers are known to resent misappropriated expenditures because these artificially inflate the cost of goods requiring stores to subsidize the establishment of your image in the market.

Anyway, questions would be helpful in guiding this discussion further.

Related:
How do you grow before you grow?
Lowering wholesale prices

15 Responses to “How to transition from Etsy into wholesale pt.1”

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susan
February 27th, 2009
10:13 AM

thank you! can’t say it enough but thank you for the great post and insight! and i do agree with you, many etsy sellers lower their prices (so much!). sometimes (in my opinion), it creates a pitfall for everyone else because in order for them to remain competitive they will have to lower their prices too.

Kathleen
February 27th, 2009
10:41 AM

Susan, I see a lot of disparaging debates on forums over pricing on etsy and I truly understand the disgruntlement but in some ways it’s hard to compete with someone price wise who loves what they do so much they’d do it for nothing.

In that thread I linked to in the forum, one person put up photos of truly amazing craftsmanship at such low prices they seemed criminal. On one hand it makes me sad, it’s worth so much more. On the other hand, it seems Etsy is one of the few outlets where people have a shot at showcasing their work so what do you do in an environment of decreasing hand work? Then again, some stuff you see on Etsy is horrible -eek!- but then one has a better shot at creating a value proposition comparatively.

Seneca Hart
February 27th, 2009
11:00 AM

Excellent post, Kathleen. I think you summed it up nicely- presenting a clear way that is it possible to move from selling directly to the customer and undercharging, to being able increase your value proposition, margins, and price and enter the wholesale market.
You made an excellent point about adjusting your cost structure to permit keystoning. I think this is a misconception that many of us had starting out, because we read it in a book- it costs you $50 to make, you wholesale it for $100, retail it for $200. And we’re always nervous to talk about numbers or ask someone else something too specific. We need to really own our costs- maybe it costs $50 to make and we were selling it on Etsy for $120, so we think we are screwed, because some wholesale account comes knocking and wants to buy it for $60. But if we can professionalize our processes and get our costs down to $35, suddenly we’re a lot closer to where we need to be.
You’ve given a lot of people some good things to ponder.

I still have my own transitioning issues, but, alas, another post for another day…

susan
February 27th, 2009
11:09 AM

great thought kathleen. i do understand your point and sometimes it is difficult for a lot of people to see it that way. when i see sellers selling so lower.. i’m thinking man, like you,.. it’s worth so much more! i mean, just think about the time and creative that they spent doing so. i just wish handmade products are valued more.

Julie
February 27th, 2009
12:26 PM

I also sell on Etsy. I’m glad to see some discussion happening about this (I haven’t had a chance to follow the threads in the the forum yet). I’m starting to get some requests for wholesale and need to bring my cost of production down. I’ve been looking around at used industrial machines, but I’m not sure what’s best to start with. Perhaps this is another topic …. I’m sure if I look around I’ll find info on that here somewhere :)
I have been getting requests to sell consignment in some stores. Do you have any suggestions on how to approach that, and if I should even be selling via consignment?

Thanks Kathleen! I have your book, and have had a chance to read bits and pieces (and loved it), though, I have to admit, it’s been shelved for awhile (life has been busy). Time to dust it off!

andrea
February 27th, 2009
2:33 PM

Great post, Kathleen! I think Etsy was really the missing link for me, who started backwards. It was a great way to practice and work out some kinks in my pricing, presentation and process. The pricing issue on Etsy can be infuriating, but I look at it like an online craft fair. Sometimes you end up next to someone who doesn’t price appropriately. Thankfully, I think Etsy shoppers really know the difference.

Amy
February 27th, 2009
4:04 PM

Great post Kathleen. I have been considering Etsy as a way to “test” some pieces and it’s encouraging to hear other DE’s are doing well enough to feel they are ready to transition.

I have heard from a fairly reputable source that HUGE retailers like Anthroplogie and Urban Outfitters troll Etsy to rip off stuff that sells well….what a compliment…?! Good thing we all have plenty of new ideas on a regular basis!

Liron
February 27th, 2009
4:23 PM

I have also been selling on Etsy for 4 months now . I recommend it to anyone who needs to learn their line and get that immediate feedback from the buyer . It has been very useful for a beginner like myself.

Michael Martinez
February 27th, 2009
11:12 PM

Is “wholesale” going to be a viable business model in the future?

Vesta
February 28th, 2009
11:22 AM

I want to mention to those thinking about this transition that it’s not necessarily a step that everyone should/should want to take. Don’t get sucked into thinking that you must, just because people ask you to. There are fabulous businesses built on the direct-to-consumer model. The margins are fantastic, the feedback from consumers is immediate, your designs can turn on a dime, and you can grow at an organic (read: debt free) pace. Really think hard about your strategy. Do you enjoy working with consumers? Can you handle the hugely increased costs of trade shows and large wholesale orders/production runs? Don’t go into it blind, like so many of us.

Julie
February 28th, 2009
1:08 PM

Vesta, thank you. I’ve been questioning if I really want the stress and lifestyle that would come with jumping in with both feet. As it is, I am a stay at homeschooling mom of three. Direct-to-customer is preferable for right now, and is a completely respectable position in the fashion industry, in my opinion. However, I would like to increase my sales figures, which means I need to form some kind of strategy that will increase my sales, but not pull me into an “in over my head” situation. This exists, right?

Lenna Green
March 1st, 2009
4:18 PM

Thanks for your insight, this is very valuable information for anyone thinking about taking their craft talents to the next level.

Vesta
March 2nd, 2009
11:22 AM

Julie, absolutely there are ways to increase your top line sales, without moving into wholesale. And it will help you to think straight if you make a firm decision that your strategies will all revolve around direct-to-consumer sales. I am not a marketing whiz, so I wouldn’t be the one to ask, but off the top of my head, advertising, contests, sponsorships, things like that. Form a deeper connection with your existing customers and your target market, go where they go, support the things they care about.

Good luck!

Marianne
March 2nd, 2009
1:06 PM

Great article/discussion as always.

I am helping an artist get on Etsy and when I asked her about her “pricing structure” I got a look of “deer in headlights” She said that she has always taken her materials times 3 and that’s what she sold it to her customers for. I explained that she needs to understand her “value” in the piece. We are working on monitoring her time involved in a piece to give her a clear picture of materials, time, wholesale, retail, etc.

When I started in this business I went to the book store and found books from big fashion icons about how they started their business. I was lucky enough to have found those books and read what their equation was. Once you figure out your equation then you never doubt your end price whether it is wholesale or retail.

I think Etsy has something on this I will have to go look and come back with the information.

Marianne
March 2nd, 2009
1:11 PM

http://www.etsy.com/storque/search/tags/art-of-pricing/

The above is the link on Etsy for pricing – I knew they had something—-but wow this is a lot of info.

Enjoy

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