May 01, 2014

How to Make a Profit? Use a BOM

"The En-Light-ener"
Candle Making Newsletter

How to Make a Profit? Use a BOM.

One of the most intriguing things about any small business is learning how they got their start. It is always particularly interesting to hear how people get started in the candle business. For some, it starts as a hobby and grows into a home based business and then continues to grow the operation until it becomes a self sustaining operation. (See Candlewic History). For others, they start with an investment of some type with the full intention of growing the business into successful operation. Others may have acquired an existing candle company.

No matter how the business started, to succeed the simplest of all statements is that you need to sell your candles for more than it cost to make. The best way to identify your cost is by developing a "Bill of Materials" commonly referred to as a BOM and the more detail you include the easier it will be truly identify your cost. A BOM should be developed for each of the candles you make because fragrance cost will vary, container cost will vary and if making different types of candles the wax will vary.

With the BOM you can clearly see what the candle cost and can easily measure impact on price changes on raw materials. The BOM - when in a spreadsheet - will let you do various calculations if you adjust the fragrance load, plug in a different wax or fragrance. The below Sample Bill of Materials identifies the cost to make a 10 ounce tin candle.

  • The first column on the left hand side identifies all of the needed parts to make the finished candle. If not making tins, you will also need to list other items like additional labels, sachets or other special materials used to make your candle.
  • The second column is your formula. If not using a blend, you will need to include the additives you use.
  • Third column would be the purchase price and that is derived from the chart below this BOM.
  • Fourth column is the selling unit and how much would be needed to use in the finished candle.
  • Fifth column (Selling Unit for single candle) would be what it would cost per candle. When you go to the bottom of this column it will identify what the total cost of the candle and then you can plug in the sale price you would like it to achieve. This box should be formula driven so if someone asks you to sell at a different price you can see what your margin might be.
  • Sixth column is what it would cost for the entire case

Where you make your candles will dictate how much more detail you wish to include in this basic BOM. If you are making candles in your home, the only other line items you may want to include would be your labor and if you have any increased utility cost in making candles at home. You will not really have any extra rent, overhead or taxes.

As you grow and you want to try and "sharpen" the pencil and still make sure you are making money you will want to add other cost to the BOM. These include but not limited to rent, utilities, labor and scrap rate. Some companies, rather than have separate line items for each of these items, may list it as a flat overhead cost percentage that is evaluated each year.

The BOM is an important tool to any candle maker and the more information you can include the better chance you have of maximizing your profits. If you plan on selling your candles you should always have at least a very basic Bill of Materials. A template much like this one can be found on our website at the below link.

While larger and new customer transactions are a part of business everywhere preparing yourself and making sure you have considered all cost is necessary to make sure it is the best decision for your particular situation.

Download the BOM here.

Candlewic Pouring Pot Kit

Since the inception of the Enlighter we have also included a project for readers to enjoy and try their hand at candle making. In this issue we wanted to include the same but instead of the written one we thought it would be great to try a new format of a video of the project. One of our first is using the 90016kit. The kit can be found at the direct link below;

http://www.candlewic.com/store/Product.aspx?q=c66,p1195

This video is also a great introduction to making votives.


CHANDLER'S CORNER

I thought it might be appropriate to cover other ways to make sure you can maximize your profits with little or no cost.

This can be accomplished by employing the three R's – reduce, recycle, and reuse. These simple actions cost the candle maker nothing and actually help the environment at the same time.

Reduce – In order to save money on many different levels, reduce the amount of trash you accumulate by looking at your orders over the year and try to buy larger sizes of commonly used items. For instance, why pay the higher price for a yearly usage of eight 4oz bottles of scent/color when you could save money and produce less waste by purchasing two 16oz bottles. The benefits also include less ordering cost, more efficient shipping charges, lower price per unit, and ensure you have raw materials on hand when it is needed.

Recycle – To protect your supplies during shipping, we must use packing materials to be sure your products arrive to you in perfect condition. Candlewic's "air pillows" used in packing as well as the plastic scent bottles are suitable for most recycle programs that accept plastic. Since reusing is also recycling, we highly encourage the candle maker to reuse the packing materials and boxes to reship finished goods, or even cut the cartons apart to lie on the floor in order to absorb spilled wax.

Reuse – Once again, reusing an item is recycling, so please reuse any packing material you can. The boxes and packing materials are sturdy enough to get repeated uses, which reduce the cost of shipping your final product. Most candle makers will reship finished jar candles in the original cartons the jars were received in.