I mention this because there are many crocheters out there who start making a project here and there to make a little cash on the side. Where is the line between hobby and business? The answer depends on each individual crocheter, but we hope to provide some information to help you make the distinction, and to give some tips on starting a crochet business.
Important Note: The information below is what we have discovered from our own bumbling business ventures and is not meant to be taken for legal or accounting advice. Please don't ask us questions specific to your situation as we are not qualified to give that sort of information. We recommend consulting a lawyer or accountant for serious questions about business ventures.
The most important consideration in determining if you are participating in a hobby or a business are whether or not you intend to make a reasonable profit. Ask yourself, "Am I trying to make a profit, or am I crocheting anyway and maybe someone will buy it?" If you are actively trying to make a profit and are making your presence known online and at farmer's markets, then you may have a business. If you are crocheting anyway and every once in a while sell a scarf to a neighbor, then you may just have a hobby.
The reason this is so important to decide is because any money made from a business needs to be reported to the IRS and taxes paid on it. The flip side to this is that any business expenses incurred (such as the cost of yarn used to make your goods) may also be reported and deducted from your income. If you are crocheting as a hobby, however, your crochet expenses are not deductible. For more information on this, please read "Business or Hobby?" at IRS.gov.
Selling on Etsy (or anywhere)
Oh, Etsy, you make it so easy for anyone anywhere to open up a shop, but darn it if it doesn't make things a gray legal area. The thing is, if you open an Etsy shop, that could be viewed as "trying" to make a profit, in which case you are a business and should be reporting to the IRS. But that doesn't necessarily mean you are a business. There are plenty of Etsy shop owners who just list things they happen to make, which may not be very many things, and so they can still be considered hobbyists. It's sort of akin to selling crochet afghans at your yard sale. There's nothing wrong with selling your own things if you don't need them, but you do start to toe the business line when you start making things for the sole purpose of selling them.
I Want to Be a Crochet Business. Now What?
Congratulations! There aren't many of us who are brave enough to try to make a profit off our art. But before you get too excited, there are some legal formalities you'll need to go through (and a I promise they are less painful than they sound).
- Home Occupancy Permit - The term "home occupancy" means that you work from home. Did you know some cities and counties require you to have a permit to work from your own home? I know that sounds ludicrous, but this is so that you don't end up with nice neighborhoods with that one house that has business signs plastered all over the yard and multiple work vehicles in the driveway. You will need to check with your City Hall (and possibly HOA) to see if a Home Occupancy Permit is required. If working from home is not allowed, you may need to rent office or store space before starting your business.
- Trade Name Registration - It is also illegal to do business under any name that isn't your own legal name unless you register your trade name. For example, Jane Doe could sell her goods at "Jane Doe's Etsy Shop," but if she wants to sell her goods as "The Mediumest Crocheter in the World," then she will need to register her business name with her county clerk's office. More information on this can be found at the U.S. Small Business Administration.
- Sole Proprietorship or Limited Liability Company? - What type of business do you want to be? Most crochet businesses are Sole Proprietorships, which means that there is only one owner, and for tax purposes the owner is essentially the same person as the business. But some people elect to do business as a Limited Liability Company instead. What this means is the company is a separate "person" from the business owner, and if the company gets sued for some reason, the owner's personal assets aren't at risk. Each individual business owner needs to weigh the pros and cons of sole proprietorships and limited liability companies before making this decision, and Nolo has a handy article that does just that.
- Business License - This is the most important document of all, as you cannot legally run a business without obtaining a business license. To find out licensing requirements in your state, please visit this page at the U.S. Small Business Adminstration.
How Do I Price My Crochet?
And this is the million dollar question! There are so many different "rules of thumb," such as charging 2-3 times the cost of materials, but the bottom line is, how much is it worth to you to make it? That's what you should charge. Here are some other points to help you figure pricing:
- In the corporate retail world, wholesale prices are typically twice the manufacturing cost, and retail prices are twice wholesale. If you would like to follow this rule, then your retail prices would be 4 times what you spent on materials. This is a good starting point.
- Divide your retail price by the number of hours spent making the item. Is this an acceptable hourly wage to you? Take into consideration that you are probably usually crocheting while watching a movie or attending your child's baseball game.
- Look up similar items on Etsy. Are they selling for a similar price? If not, why? Is your product made from better quality materials? Have you been crocheting for an exceptional number of years? If so, you'll want to point this out to your potential customers.
Which brings us to...
Things to Mention in Your Etsy Listing
Okay! You've done all your homework, have decided your prices, and now you're ready to put your items on Etsy. What should you say about them?
- What is the item's story? What inspired you to make it? Mentioning these things makes the buyer feel more connected to you and therefore more connected to the item. It also helps to photograph the item on a model and in natural lighting (I can't tell you how much I hate built-in camera flashes).
- What materials did you use to make the product? Don't just say "yarn." What kind of yarn? Wool? Cotton? Silk? Some buyers may have allergies to certain fibers and will appreciate knowing exactly what they are getting.
- If there is something about your product that makes it extra-special, say so! If you use organic or fair-trade materials, say so! If you are raising money for a cause, say so! These are all things that may lead a buyer to choosing your product over a similar product made by someone else.
Good customer service is the cornerstone of any successful small business. It's the one thing that will keep them coming back to you instead of going to Cheap-O Big Box Store. Make a point of responding to emails in a timely fashion. Answer questions to the best of your knowledge. And don't be afraid to be personable. They're coming to you in the first place because they wanted to buy from a person, not a corporation. Making personal connections with your customers is the best way to keep them shopping with you.