Little Thing I Learned Today

In trying to set up my payment gateway tonight so I can begin accepting credit card orders on my web site, I learned that while you are required to collect every customer’s CVV2 number (the three-digit one on the back of the card), it is illegal to store it in any way for any length of time.  I verified this right here on page 12 of Visa’s Merchant Rules document.

And what have we learned?

In case you haven’t been paying attention to the news this week, the economy has been on some kind of bizarre roller coaster ride. The stock market has made huge gains and losses from day to day, the Fed cut their short-term interest rate by a staggering 0.75%, one of Europe’s largest banks was defrauded out of billions of dollars, and the President and the House have settled on a bipartisan “economic stimulus package.” All this comes on the heels of rising unemployment and the sub-prime mortgage crisis, not to mention during the World Economic Forum in Switzerland.

So what does all this economic craziness translate to? In short, making things hard for the small wholesaler like me. I’ll go into the details of my recent sales experiences in a minute, but let me just put some general advice out there first. If you are thinking of releasing a line of design goods for wholesale:

  • Make sure you have a back-up source of income.
  • Take a bookkeeping class and price exactly how much your line will cost to produce, ship, store and market, so that you know exactly how much money you will need to raise, save or borrow to pay for your entire first shipment.
  • Start with something small. Smaller, less expensive items are easier and cheaper to ship, to store, and to find buyers for, because it means less investment in cost of goods and store space for owners.
  • Start early in the year. The whole process, from pricing manufacturers to receiving your first shipment can easily take six months and stores begin buying for the holidays in July and August. You will definitely want to ride that wave your first time around.
  • Set up a website where you can sell your goods retail, in addition to wholesaling them. You may sell fewer items at a time this way, but you’ll make a much higher profit off of each one.

These pieces of advice are ones I wish I had received before starting out on my Sweet Meats venture. It turns out that releasing a line of plush toys is a royal pain in the ass. Not that I regret doing it, or that I will give up anytime soon, but it is an expensive way to learn through trial and error.

Last week I exhibited at the California Gift Show in Los Angeles. The show ran from the 18th-21st, and while many people expressed interest in my products, none were really buying. I got the same response from everyone when asked if they would like to place an order: “Let me talk to my sister/wife/partner/boss about it and we’ll let you know.” This is exactly what buyers say here, too, when I visit their stores. I find this especially frustrating with buyers who already know my products. A few have mentioned seeing them sell out at craft fairs and one even owns a Sweet Meat already. What gives?

I have a few theories about the lack of sales to store buyers — all of them, I think, equally likely and valid:

  1. It’s after the holidays. Business is slow, and the last thing store owners want to do is buy more items that will just end up sitting around.
  2. The economy is not great and people are much more cautious in their spending in general, but specifically don’t want to invest in anything new and untested.
  3. I’m not a good salesperson yet.
  4. My price points are wrong.
  5. I’m waiting until March (when I can sell these retail, as well) to send out press releases.

I’m going to give door-to-door visits a couple of more weeks to work out. At least this way, if people don’t order from me, I can ask them why, face-to-face. Then hopefully I can fix whatever I’m doing wrong and get back on track. Either way it works out, I’ll keep you posted.

Trade Show Report: Portland Gift and Accessories Show

This weekend I flew up to Portland, OR to check out the Portland Gift and Accessories Show, run by Western Exhibitors. I’m exhibiting at GLM’s California Gift Show in Los Angeles next week, so I thought it would be prudent to check out another gift show ahead of time. I wanted to see which other companies participate in these things, how their booths look, what their sales pitches are like, and so on.

I gave myself a full day and a half to go through the show. I don’t think I was even there an hour. All in all, the show was not at all what I expected and I left feeling very worried.

To begin with, the entire gift show fit into a single L-shaped exhibition hall. I knew from the outset that the Portland show is one of the smallest, so I wasn’t expecting MacWorld, but there weren’t many more booths than at a really large craft fair. Somehow it just looked bigger on the Oregon Convention Center map. I also expected there to be more visitors. Granted, I visited on the the first day of the show, and the Portland Gift and Accessories Show is the first show of the year. Also, there was an insane series of storms that hit the west coast this weekend, so that may have seriously affected people’s travel plans. Nevertheless, the number of buyers sporting blue id badges was seriously disheartening.

As surprised as I was by the buyers, I was even more surprised by the sellers. Most sections of the show were a pretty motley mix of decorative items, clothing and souvenirs. It looked like a cross between Chinatown, U.S.A. and a gift shop run by a retired couple in an old seaside town during the height of tourist season. There were evergreen wreaths and garlands, batik shawls, tiny bags of candy with punny labels, plastic wind-up toys, soaps made out of things like bamboo, goat’s milk and charcoal, salt lamps and geode coasters. There were also keychains with your name on them, strands of mineral beads, seat-belt purses and those wooden 3-D puzzles you build into models of dinosaur skeletons and famous buildings. The only new and moderately hip products were located in “Artisan’s Alley,” a single aisle all the way in the back of the hall, where the little old gift ladies had forcibly sequestered all the exhibitors under 40.

So now I’m worried. I’m not worried that my butcher-shop booth will go unnoticed; I’m worried it will stand out too much — that the precious few attendees will bypass it completely as just too weird. Souvenir shops are not my market. Will my “L.A. Contemporary” division just end up being a tiny, marginalized “Artisan’s Alley?”

I’m trying to remain optimistic, however. I can’t prepare properly for the CGS if I already believe it will be a failure. Here’s what I’m telling myself to get psyched up:

  • The California Gift Show is run by GLM, which also runs the holy grail of gift shows, the New York International Gift Fair. The product divisions are mostly the same between the two shows.
  • L.A. is a bigger, trendier city than Portland (though Portland is pretty hip) so there will be more buyers looking for weird stuff. It’s also got pretty big art and designer toy scenes.
  • Many more of the exhibitors will be from California, rather than Oregon and Washington, which should mean more booths similar in spirit to mine.
  • The CGS is a bigger show, and is easier and cheaper to get to than the PGAS for most people.
  • More people want to take a business trip to L.A. than to Portland, because it’s warmer and there’s more sightseeing to do in your off-hours.
  • L.A. has way more stores and businesses in it than Portland. Heck it’s the biggest city in America!

I set a goal to place one minimum order every hour to pay for my inventory and the cost of the show. I’ve heard that’s ambitious but I believe enough in my products, my booth and my salesmanship that I think I can do it. Only time will tell.

What are Merchant Services?

This, it turns out, is a very complicated question. Merchant services, generally speaking, are ways for your business to process credit cards. But there are many different kinds of merchant services, and each business only needs one to three out of the myriad available. Figuring out which merchant services I need, making sure they are all compatible with each other and finding them affordabley is proving to be a more challenging task than I had anticipated. I still haven’t quite settled on the providers for my credit card processing needs but at least now I know what I’m looking for. It took me days to figure this out.

I started with my bank, since most banks offer merchant accounts and you can often get a competitive rate if you are already a customer. I have a free business checking account with Washington Mutual so I went into my local branch before the holidays and they put me on the phone with Ethan, their TransFirst merchant services guy. That was when the questions began that I couldn’t answer:

Ethan: “Are you looking for POS, online or MOTO processing?”
Me: “What’s the difference? Er…sign me up for one of each?”
Ethan: “Well, how much do you generate in monthly credit card sales, on average?”
Me: “I don’t. I don’t have a credit card processor yet.”
Ethan: “Okay, then, what would you estimate?”
Me: “I don’t know. I don’t know how many customers will choose to use credit cards.”
Ethan: “Well how about the types of payments you will be accepting. Will you need a virtual terminal, a gateway, a wireless device?”

Sensing I might be in a little over my head (though I clearly covered well), I mumbled something about “running my numbers” and told him I’d get back to him. Then began several days of trying to figure out what the hell he was talking about.

First I visited craftster.org (Lord, how I love this web site) and read the 8 page thread about processing credit cards. Since crafty Biz Misses always comparison shop, I thought this would be a great place to begin to find details and good deals. Many of the posters recommended Propay, Thompson (a reseller for Chase Paymentech) and Amex PuchaseExpress (for Amex processing, specifically). Then I looked up Quickbooks, since I have their accounting software. If their rates were reasonable it would be a bonus to have something that would seamlessly integrate with my bookkeeping. Some more searching brought up TermNet, Paynet, Heartland, MSI (Merchant Services, Inc.) and Chase Paymentech themselves. Some companies post their rates and charges up front, but visiting these sites was most helpful for coming up with a fairly comprehensive list of questions to ask their sales representatives. I wrote all of the companies’ names and my questions into a grid for easy comparison and started calling.

I’ll save what happened next for the next post, since, as I said, I haven’t yet settled on my merchant provider(s), but here’s what I learned after three straight hours of excruciating phone calls:

  1. You need a completely different set of services depending on whether you swipe credit cards in person (at your brick-and-mortar store, for example), take phone or mail orders, or want people to be able to buy things on your web site using their credit card.
  2. A business like mine, which needs to be able to take phone, mail and Internet orders, needs both a merchant account and a payment gateway, in addition to SSL encryption on my web site.
  3. Some companies can provide one, two or all three of those services.
  4. Every company charges a different mix of one-time, monthly, and per-transaction fees that make it nearly impossible to compare prices accurately.
  5. If you can speak to an authorized sales agent, rather than a “customer service representative” you can often negotiate lower or waived fees for yourself.

What I’m currently shopping for is a merchant account with a “virtual terminal” and a payment gateway. The virtual terminal component will let me take “card-not-present” orders. I can have customers give me their information by phone, mail, or in person (like at a trade show) and then process the transaction later through the virtual terminal (a website). This works fine for all of my non-Internet sales, since if the transaction doesn’t go through for some reason, I just don’t ship the products until it is resolved. A virtual terminal is definitely not the way to go for accepting cards at events like craft fairs unless you’re imprinting the card, collecting a billing address and looking at ID for every sale. I could collect Internet orders using a virtual terminal, too, but no customer wants to enter in all their information only to be told their order will actually be processed within the next 24-48 hours. That’s where the payment gateway comes in. A payment gateway, like Authorize or LinkPoint, is what you need to instantly process a credit card through your web site. I know this sounds confusing, but here’s a great article from OurShop.com that explains (and diagrams) everything.

Tomorrow I should finally have everything squared away, at which point I will actually post the gargantuan chart comparing about a dozen merchant services. I may even make a few recommendations. Stay tuned!

Sales and What Tax?

I had never even heard of use tax until the State of California told me to pay it.

I had recently registered for a seller’s permit, which is a requirement of doing business in California, and which affords you the privilege of collecting sales tax for the state. It’s an awesome racket. I get to work as a tax collector for the state! Without getting paid!! And all I had to do was pay $50 to sign up!!!

Unfortunately, if you want to be able to purchase things for resale, you’ve got to have one of these seller’s permits. It’s the only way to prove you’re a business and not just paying half price for items for personal use. But it also means that at the end of your first year in business, you will receive a deceptively simple-looking form from the state, asking you to hand over your sales and use tax.

The form is only one page long, front and back, but I couldn’t answer even the first question on it. I called my friends Oliver and Eleanor at The Present Group for help. Eleanor tried to walk me through the definition of use tax, but I asked so many follow-up questions that she finally gave up and said, “You really just need to take the class.”

“The class,” it turns out, is the Basic Sales and Use Tax Seminar offered by the California Board of Equalization. If you sell anything for profit within the state of California, you MUST take this class. Nothing I explain in this post will be as helpful as that free seminar and they will walk you through filling out your entire return step by step. However, for the sake of personal edification and to help you understand why you need to take the free BOE seminar, I will try to provide a brief overview of sales and use tax here:

Contrary to popular belief, sales tax is a tax that companies pay for the privilege of being able to conduct business in their state (8.5% in most of California). It is not actually a tax on consumers for the privilege of being able to buy things. Most businesses, however, can’t afford to pay nearly a tenth of all their sales to the state (in addition to regular income and payroll taxes), so they pass the cost on to their customers by simply adding it to the total sale.  Sales tax only applies to taxable goods (most things other than groceries), not services, and does not apply to non-profit organizations. It also only applies to sales that end up within your state of business, so if you sell things online, you only need to pay sales tax for things you ship to addresses within your state.

Filing sales tax forms is complicated because you need to pay sales tax not only to your state, but also to each individual county in which you did business, and every county has its own sales tax rate.  You can also deduct the cost of any sales tax you paid on materials you bought for your business from the amount you owe the government (more on the definition of materials later), since this is technically a resale transaction.

So what the hell is use tax?  Use tax is a tax businesses pay for anything they buy for resale (i.e. without paying sales tax), but don’t, in fact, re-sell to the public.  It is always the exact same rate as sales tax (e.g. 8.5%).

Let’s say, for example, that I buy fleece, buttons, scissors and a marking pencil for making plush meats.  I don’t pay any sales tax when I buy these items because I am buying them wholesale for my business.  The fleece and the buttons eventually end up as plush meats and go to a customer’s house; they have been re-sold.  I therefore collect and pay sales tax for them. The scissors and marking pen, however, stay with me at my studio.  I don’t resell those items, I use them, so I need to pay use tax on them.  This also applies to plush meats I “use” as gifts or promotional items but don’t sell.  (I don’t need to pay income tax on any of this stuff, since it is still a business expense, but more on income tax in another post.)

In the end, you see, anything you buy for your business requires giving the government sales or use tax.  They both cost the same amount, but need to be neatly divided when filing — I have no idea why.  I have only given a brief overview of the rules above. I would never attempt to file a BOE-401 form based on this information, but hopefully it will act as a good primer before taking “the class.”

Craft Fair Report: Bazaar Bizarre San Francisco

Yesterday I participated in the San Francisco Bazaar Bizarre, a large holiday craft fair (~100 vendors), that was held this year in the County Fair Building in Golden Gate Park. The Bazaar Bizarre is organized mainly by Jamie Chan of Mary Jane’s Attic, along with help from her family and friends. I honestly don’t know how she does it all — heading up the Bazaar Bizarre, teaching Science, running her own fiber arts business, organizing events for the San Francisco Craft Mafia, and writing for blogs like CraftGossip’s Indie Craft Blog — but this woman is my hero. Jamie is one of the nicest people you will ever meet and never seems to break a sweat. She even has time to shop at her own events! Jamie is now the owner of some Sweet Meats, and I have added her needle felting kit to my Christmas list.

The first Bazaar Bizarre in which I participated was part of the Maker Faire earlier this year. It went extremely well from both a sales and marketing perspective but I think yesterday’s Baz Biz went even better. The publicity for the fair was excellent and the place was packed from opening to closing. Jamie made sure everything ran smoothly, from parking spots for load-in, to wheeling around the dolly when we all broke our tables down. There were food and drinks for vendors, Craft Fair Survival Kits from the folks at The Sampler, and stickers courtesy of Mrs. Grossman’s, one of the fair’s sponsors. Everyone seemed to do a brisk business and the building was warm and well-lighted.

As usual, I was not totally prepared for this event. I had all of my display stuff together, most of which was still packed up from the Baz Biz in May, but I was sadly lacking in inventory. In the rush of online holiday orders, I’ve been having trouble keeping up. I was still sending out packages on Thursday. I had about a dozen meats and a few t-shirts left over, and I made another dozen or so meats on Friday. I rationalized that since it was exactly the amount of goods I sold in one day at the last fair, I would be fine. But holiday fairs are a separate beast from spring fairs. People are shopping especially for gift items and they spend their cash much less critically. Yesterday’s Bazaar Bizarre ran from 11-6 but by 3:30 I was sold out of everything other than a few pairs of earrings. I received a lot of congratulations from shops and other vendors who saw my “Sorry, Sold Out” sign, but the truth is, I just wasn’t adequately organized.

You see, I’ve always been somewhat of a slave to the “tyranny of the urgent.” I tend to put the retail sales of plush meats above everything else. Especially in December, this is my primary source of income, so even though it keeps my business from moving forward in a timely fashion, it becomes my top priority. Orders also realistically need to get out within a week of their receipt, so despite not being the most important item on my business plan, it’s the item that usually needs to happen the fastest. In the end, this just pushes back the even more important stuff until it, too, becomes time critical. But you don’t want to have to rush things like new product development, publication design and trade show presentations.

Now that the fair is over and I have the slimmest of financial cushions, I’m trying to get back to what’s important rather than what’s urgent. Luckily, I can rest easy knowing that I will never again have to sew a dozen plush meats the day before a holiday craft fair, because by the time the next one rolls around, I will have boxes of them already made. It makes me really look forward to the next Bazaar Bizarre. Who knows how much I might be able to sell when I don’t sell out?

Bazaar Bizarre SF 2007

Inexpensive Marketing and Promotion (Part 4)

And finally….

Swag bags: (Cost: ~25 cents per bag) Swag (a.k.a. schwag, freebies, giveaways, promos) are small promotional items you donate to attendees of an event. They range from the cheesy pens given away at auto sales to the luxury swag bags containing diamond watches and designer perfume given to presenters at the Oscars. Most trade or craft shows will solicit swag from their exhibitors to give to the earliest or biggest buyers, but there are other places to give away swag, too. Some businesses include a piece of swag with every order. Some set up giveaway or raffle tables at block parties or other neighborhood events, and some others just pass them out on well-trafficked street corners. There are even swag subscription companies like The Sampler, who will send your stuff out to folks who love free stuff so much, they’ll pay for it!

I’m personally a fan of swag that is cheap and does double-duty as advertisements, like stickers and buttons. You can produce a gagillion of either for relatively little money, and if your sticker or button has an awesome image on it (in addition to your company’s name or web site), you can get lots of people to do your marketing for you, giving you real bang for your buck. You can certainly go with less conventional media, like barrettes or zipper pulls, but the key is to get the most number of people to notice your brand for the least money possible.

When it comes to freebies, I like to stick to giving them away to friends and paying customers. These are the people who are the most likely to put your swag to good use, because they either already love you, or love your stuff. Also, in my experience, I have found that the best way to get people to not buy any of your merchandise is to put free stuff out on the table.

Coupons and Discounts: (Cost: possible printing costs, discounts people actually use) Coupons and discounts are tricky things. On the one hand, they can often be that extra little push between considering an item and actually buying it. On the other hand, you don’t want to overuse them or people will think you are having a hard time getting people to buy your stuff.

I sell very specific and unusual gift items, so the rules that apply to my business may not apply to yours, but here’s what works for me: I find that coupons work best for limited times, such as a semi-annual sale when you are discontinuing old merchandise and releasing new designs, or to get people from your mailing list to come to a show or event. Other good coupons are the ones you give to customers with their completed order, which encourages them to become repeat buyers.

As far as discounts go, I find that quantity discounts are the best kind there are. I used to sell (and will probably sell again soon) a “meat medley,” which was a collection of my three most popular plush designs, discounted to $80 from $84. It was a savings of less than 5% but I sold more of those collections than of any individual toy.

And that’s all she wrote.  Of course, there are other inexpensive ways to promote yourself, like having a web site, leaving postcards in neighborhood haunts, and going to networking events but this list is already four posts long, so perhaps I’ll save those for another time. If you have any other ideas that you’d like me to add or expand upon, please let me know in an e-mail or comment.  Happy hawking!