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Old 09-17-2008, 08:06 PM   #1
Avalon Senior Member
Join Date: Sep 2008
Location: Vanderhoof, BC
Posts: 73
Default Elements of Starting a Cottage Industry

Elements of Starting a Cottage Industry:

-Establishing a marketing strategy

Retail or Wholesale- How the market you serve affect pricing

-Establishing Pricing for the Products.

Examples of products:

Craft making ( eg wood crafts, leather making )

Other Processing ( eg. wild berry preserves, soap and candle making )

Case Study:

Home-based manufacturing of etched glass products for home and office applications.

Where To Start:

-Do you have the skill to produce articles of professional quality in sufficient volume at a competitive price to establish a going concern?

-Do you have the ability to manage the financial aspects of the business?

-Do you have the skills to market the product to your customer?

Some Pros and Cons of Different Market Strategies.

The main obstacle in establishing this type of business is in developing stable markets where a disproportionate amount of time and resources are not used up in the selling process.

For the purpose of this case study, there are 3 different approaches to the market place for this form of glass etching:

Direct to the consumer:

-Selling piece by piece or project by project, presenting your work through trade shows, village markets, mall displays, etc.


A higher sale price and lower entry cost in terms of capital to establish the business.

Less finished inventory required

Direct customer contact will make the business more responsive to changes in the marketplace and their customer’s needs.


A substantial time commitment required for marketing.

Market awareness of your products is limited to your marketing efforts.

Through Dealers ( Wholesale)

Developing a line of products to be displayed and sold through some form of dealer network. ( This would include consignment sales)


-Generally higher sales volumes leading to greater production efficiencies.

-The business would possibly have a greater value if you wished to sell it in the future
( Goodwill)


-A lower per unit price than goods produced and sold direct.

-Less control over the price range for your products as dealers could not be made to follow the manufacturer’s guidelines regarding price.

Combination Dealers / Direct:


-More control over the outcome of marketing efforts and pricing

-On average a higher margin than selling only through dealers.


-More effort is required for marketing than with dealers alone

-Some retailers will not handle your product if they think they will be competing with the manufacturer

-You may have to develop exclusive lines which the dealers handle and different products to be direct marketed.

Establishing Pricing:

The basis of pricing for the majority of small manufacturers is a function of “Shop Rate”, a calculation of core operating costs and expected income expressed hourly, plus the cost of materials.

Shop Rate will vary for each business based upon market serviced, number and role of employees, as well as variables such as location, equipment condition and automation.

Examples of Shop Rate Calculations:

Direct to the Customer:


Rent $ 500.00
Heat, Light $ 100.00
Telephone $ 100.00
Misc. Shop Supplies $ 200.00
Misc. Office Supplies $ 100.00
Advertising $ 1000.00
Automobile $ 1000.00

Core Overhead: $ 3000.00

Expected Wages $ 3000.00

Total: $ 6000.00

Total no. of working hours / mo. 160

Non productive hours 80

Productive hours 80

Shop Rate Calculation: $ 6000.00 / 80 productive hours = $ 75.00 / hr.


2 panels 14” X 30” 5mm glass $ 32.00

Masking supplies $ 3.00

Total Material: $ 35.00

6 hours @ $ 75.00 $ 450.00

Consumer price: $ 485.00

Through Dealers:

Core Overhead $ 3000.00

Expected Wages $ 3000.00

Total $ 6000.00

Total no. of working hours / mo. 160

Non productive hours 40

Productive hours 120

Shop Rate Calculation: $6000.00 / 120 productive hours = $ 50 / hr.


2 panels 14” X 30” 5mm glass $ 32.00

Masking supplies $ 3.00

Total Material: $ 35.00

6 hours @ $ 50.00 $ 300.00

Sub Total: $ 335.00

Dealer Markup (30 %) $ 100.50

Consumer Price: $ 435.00

Selling Direct and Adding 1 production worker:

Core Overhead $ 3000.00

Expected wages $ 3000.00

Expected wages-worker $ 3000.00

Total: $ 9000.00

Shop Rate Calculation:

Total no. working hours / mo. 320

Non-productive hours 80

Productive hours 240

Shop Rate Calculation: $ 9000.00 / 240 productive hours = $ 37.50 / hr.

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