Saturday, June 4, 2011

You're Breaking my Heartsy - Why Discounters Ruin sales for Everyone

First I'd like to point out some figures for you. Here is how to calculate your percentage of Profit. Take your bottom line earnings (gross) from last year, that is your sales minus expenses.  Now divide that by your total sales before expenses . Take that number and multiply by 100. That is you percentage of profit.

Looks like this Gross/Sales x 100 = ?

My profit percentage is 54.96%. If I give a discount of roughly 50 percent, I am giving my work away for free. If I were to give a discount of 60% or more, I am paying my buyer to take my work. I love my buyers, but I don't love them that much.

Now lets take a really good look at what Groupon sites like Heartsy do for us all. I am not selling on Etsy right now, but Heartsy is affecting my sales too, the same way discounters like WalMart affect higher priced Department Stores. Lets take a closer look.

The economy is bad, budgets don't allow the average person the free cash to purchase little pleasures. So when the average buyer sees a discount that is what they will use. You want something pretty? why pay full price? you want soap? why pay full price? Is your merchandise that different from another seller's that if given the choice, they will buy yours over one at a 60% discount? I don't really think so.

So what does this mean to me? (royal me, meaning you). It means that by contributing to Heartsy, by offering your merchandise at a lower, discounted price, you are getting lots of traffic from people who want handmade  at below profit prices, and who are not really supporting Handmade. Because if anyone really supports it they will pay a fair price.

You are also devaluing your fellow artisans Handmade Work (just like when your neighbor sells their house for $20,000 less than the rest of the houses in the neighborhood), because if buyers can get it cheaper, why can't your site-mates sell it cheaper too?

There is absolutely NOTHING right with Heartsy. Calculate your profit. If you sold on Heartsy, were you giving away your product for free? So you complain about China product underselling yours? because you just did that to yourself and others at your site and all handmade sites.

I know it's tempting to use Heartsy, but I BEG you to avoid the temptation. There is ABSOLUTELY NO BENEFIT TO ANYONE but Heartsy, who makes money off of their VIP program or $1 off each of your items if you don't agree to the VIP discount.


Pesky Cat Designs said...

I'm at about the same place as you as far as profit so I can not sell my work for 50% less. Unfortunately I have shops inquiring about wholesale work but I have to say no since wholesale in most cases means 50% off.

My handbags take quite some time to create and they are my sole income. I can not undersell myself because if I did I would not be able to live. I am happy that there are people out there that value handmade and well crafted work.

Keep up the great work akaCINDERS!

Poppys Wicked Garden said...

it is so sad, because those people can't be making any profit and they think that they are getting good publicity. In reality they are just making their items seem like they are worth less than it really is:(

Lara said...

Well said!!

vintage eye said...

You always say just what I am thinking, Crusty...only you make it sound so much smarter! :)

Anonymous said...

Well said...if we don't value can we expect others to do the same. And as far as the concept of bringing new customers to youR shop....get real, they are people looking for bargains...won't be back until you have another sale

Anonymous said...

If you are pricing your products right - true retail, a 50% discount would be wholesale. You should still be making a profit even with wholesale prices - just sayin.

akaCINDERS said...

I agree, but we are artists and craftspeople, and as independent artists, with limited resources, our overhead is high. We are not wholesalers and we should not ever consider being wholesalers.

Anonymous said...

People need to include the cost of their time in determining prices and sadly, they don't, because they think they can't.

Instead, just to get their product seen they've been led to believe they need to play a game that includes "investing" to move their item to the front of the pack and conforming their creations and themselves, just to be able to earn the privilege to stand amidst a the crowd of hopefuls.

It's the desperate atmosphere created at Etsy that has caused sellers to undervalue their work and throw their time, talent and money away. Heartsy has just made it worse.

Until craftspeople take a step back, learn to respect themselves and what they do, things won't change.

Pesky Cat Designs said...

"We are not wholesalers"....Well said akaCINDERS

Sewplicity said...

Thank you, thank you, thank you for posting this! I cringe whenever I see a crafter discounting their items. I spent many years teaching small business owners how to run their businesses more effectively and this was one of the big "a-ha" lessons.

Most small businesses try to keep up with the big boys by offering these large discounts without even thinking about how it affects their bottom line. Most cannot afford to offer the discounts they do. This is especially true for us crafters who typically undersell our work to begin with!

Another thing to be aware of is discounting devalues your product long term. Why would anyone ever pay "full price", when they know a sale will happen? Your products are no longer worth what you *need* to make a profit!

Instead of discounting, when I run promotions I either offer free shipping or offer a gift with purchase. (Giveaway something that costs little money, time and effort) These type of promotions make customers very happy without harming your product value proposition. A promotion like that may even boost your sales....Think Estee Lauder....why do you think they run that Gift with Purchase promo every year? Did you know their sales SKY ROCKET during those times? People LOVE free more than discounts!

Save the discounts for irregular items or re-sales.

Let's respect ourselves and our craft!

Jenny p said...

I love this and the discussion after. Thanks for starting and participating in the conversation. It gives me the confidence to price and value my craft appropriately!!

Crooked Smile Creations said...

Totally agree!

Rough Magic Creations said...

Thank you for this, Cinders! I agree completely and am so glad you said it. If we undervalue our skill, effort and time, we're simply telling the world that we undervalue ourselves and our work.

"Promoting" our brands to bargain hunters is not a wise investment. It simply cheapens our work as well as that of our fellow hardcrafters and artists.

Forget Me Not Soap Shop said...

Well said, I agree.

earthegy said...

Good article. I don't discount, except for a small sale if I'm away and can't ship immediately and customers have to wait a few extra days or their items. I'd rather have my work perceived as worthy of the money spent, and my customers aren't bargain bin shoppers.

The Soap Magician said...

This is a very good article and should be a "must read". We should not give the perception that our craft produces cheap products.

And it is a PERCEPTION! If you do not perceive your products as worthy, then neither will anyone else. However, if you do perceive your products as valuable, so will others.

It is the difference between shopping at Wal-Mart and shopping at an exclusive boutique.

Kenna said...

Some of us ARE wholesalers who also retail. Just because a product is handmade does not make it wrong for someone to choose to offer their product for less.

You shouldn't be concerned about what business decisions anyone else is making, either. If you want to be successful, you need to focus on you.

I 100% agree that people need to be wary and understand their bottom line before they give away product. However, assuming that everyone who does Heartsy is not making any money is kind of silly because it's simply not true. :)

akaCINDERS said...

Kenna, of course there are some who wholesale, and with profit. But I think you are missing the point of the conversation. By offering a 50% to 70% discount to the general public, sellers are devaluing their own product and that of others. You should offer wholesale to retailers, not end consumers. If you lower the value by doing that, then retailers will expect to get it for even less than your wholesale. See what I mean?

Kenna said...

No, I totally understand the point but some things work for some people and some things do not. Heartsy is one of those things.

I'm not a roaring fan of Heartsy, but it has it's place. Some people are trying handmade products that they would not otherwise buy, and get hooked. Good for them, a new brand loyalist. Other voucher buyers are already loyal to a handmade brand and a voucher is like a great sale. (Are you saying offering a great sale every once in awhile also devalues the entire handmade industry?) That last chunk of Heartsy buyers wouldn't pay full retail on any of our stuff anyways, so you would still not being making that sale. Therefore, it can't be devaluing your product. If people aren't going to pay $80 for a necklace, they aren't going to regardless.

I don't see it as devaluing product by any means, as long as the seller is doing their research and is still making their money in the end. I would imagine a nice percentage of Heartsy sellers are not doing their math, but I know I did.

Kenna said...

I also meant to add, I think consumables versus non-consumables are completely different when it comes to Heartsy.

For instance, soap. Most people who use handmade soap are women. Most women are picky about their toiletries and will become brand loyal if they like a product. Or let's say food items. If someone LOVES their jalapeno cheddar popcorn they got through Heartsy, they're probably going to come back.

However, let's say vintage items. I love vintage. But if I buy something on Heartsy that's vintage, chances are I'm not going to become loyal to that Etsy seller. It's a one-off purchase.

I've only bought a few things on Heartsy. However, I have gone back to a shop I saw on Heartsy and made a full price purchase. So that's an example of Heartsy working as an advertising vehicle.

Just my loud obnoxious two cents, as usual. :) I can respect anyone else's business decisions just as I hope that others do the same. Some things work for certain businesses that will never work for someone else.

akaCINDERS said...

Thanks Kenna, But I still think selling your handmade to end consumer at wholesale devalues product for all of us. Retailers mark their product up 300% and have room to discount at50%. Artists do not have that much room to discount. The way you are defending it, if I didn't know better, I would think you work for Heartsy.

Sarah said...

I was thinking about heartsy and one of the most over-featured etsians the other day - it's a jewelry seller, and casually by stumbling upon her blog and twitter I came to discover a few things:

- she pays someone to photograph her product
- I know her cost of materials, even at wholesale
- she does heartsy
- I know what I charge as a professional photographer

So, if she's charging $50.00 for a piece; materials were $5.00, photography averages out to at least $2.00/product assuming the photographer did like pics of 100 products in a sitting. Etsy still charges 3.5% - so $1.75 etsy fee, paypal fees of about $1.50 (probably more). Even if the heartsy deal is only for half - then 25.00 - 10.25 = 14.75

Now I guess you can consider all of that 14.75 profit or all of it labor, and yeah, it depends on how much product you can crank out in an hour, but that was 25.00 + 14.75 of loss on a 50.00 item; in other words, for a 50.00 item:

heartsy = final take of about 14.75
regular price = final take of about 39.25

Maybe someone can justify that with an argument of if you sell more because there's exposure, but really it's also just halving your profit margin, which is idiotic from a business sense.

I'm a bargain shopper. I buy stuff when it's on sale. Dinner plans are made while I'm at the grocery store shopping. And really, unless there's a damned good reason - or a holiday - if it ain't on sale: I don't buy it.

I also shop at multiple stores because some stores carry products that others don't; while others have better prices on average need kind of stuff.

If I know you'll sell me something for half off or 60% off (which really, is almost clearance) then I'm not paying full price for it.

Heartsy is a bad deal unless you're foolish and the only thing you actually care about is the number of sales that appears when people look at your shop page... because, really, in the long run that's what you're cutting your profit margin in half over.

akaCINDERS said...

Just found this calculator on Handmadeology
If you're still considering Heartsy, it will help you see if it's worth the effort. I still think it devalues your work overall though.

Pesky Cat Designs said...

Love reading all the feedback concerning this post. Thanks again for sharing your thoughts on this subject!

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