How to start a craft business: turn passion into a living

Starting a craft business is a rewarding venture that combines your creative skills with business savvy. The rise of online marketplaces and social media makes it more accessible than ever to reach customers, but this low barrier to entry also means you'll face plenty of competition.

This guide will take you through the practical steps of validating your business concept, obtaining necessary licenses, acquiring inventory, and building supplier relationships to help you launch a successful craft business in the U.S.

Step 1: Plan your business and validate your idea

Find your niche

Start by exploring platforms like Etsy, Amazon Handmade, and Pinterest. Search for your specific craft to gauge demand and competition. You can also use Google Trends to compare search volume for different product ideas, which helps you spot a rising market before it gets saturated.

For a deeper look at competitors, consider analytics platforms like eRank or Marmalead for Etsy. These show you top-selling items and pricing strategies. A frequent misstep is to price your items too low. Factor in material costs, your time, and platform fees to set a sustainable price.

Estimate your startup costs

Initial costs can vary, but a typical budget falls between $500 and $2,000. It is wise to start small with inventory to avoid tying up cash. Many new owners buy too many supplies before they have a single sale.

• Materials & Supplies: $200 - $1,000
• Business Registration & Licenses: $50 - $500
• Online Store Fees: $0.20 per listing (Etsy) or $30+ per month (Shopify)
• Packaging & Shipping: $100 - $300

Here are 3 immediate steps to take:

• Research 10-15 successful shops in your niche using a platform like eRank.
• Create a simple spreadsheet to project your startup costs for the first three months.
• Use Google Trends to compare search interest for at least three of your product ideas.

Step 2: Register your business and get licensed

Choose your legal structure

For most new craft sellers, a Sole Proprietorship is the simplest start. It requires no formal action to form. However, it offers no liability protection, putting your personal assets at risk if your business faces legal issues.

You might want to consider forming a Limited Liability Company (LLC). An LLC separates your personal and business finances, which protects your home and savings. State filing fees for an LLC range from $50 to $500.

Secure your licenses and permits

First, get a free Employer Identification Number (EIN) from the IRS website. You will need this for an LLC or if you plan to hire help. It acts like a Social Security number for your business.

Next, visit your state's Department of Revenue website to apply for a seller's permit. This permit allows you to collect sales tax and is usually free. Also, check with your city or county clerk for a local business license, which can cost $50 to $150.

A frequent oversight is the Home Occupation Permit. If you work from home, this permit confirms your business complies with local zoning laws. Check your city's website for this; fees are typically under $100.

Here are 4 immediate steps to take:

• Decide if a Sole Proprietorship or an LLC is right for you.
• Apply for a free EIN on the official IRS website.
• Research your state's seller's permit requirements.
• Check your local city government's website for business license and home permit rules.

Step 3: Protect your business with insurance

General Liability Insurance is your baseline protection. It covers claims like bodily injury or property damage. For a small craft business, expect to pay between $300 and $700 annually for about $1 million in coverage.

Product Liability is often included with general liability. This is vital if your products could cause harm, like a skin reaction from soap or a small part from a toy. A frequent mistake is to assume this is automatic, so confirm your policy explicitly includes it.

Next, consider Business Property Insurance to protect your supplies and finished goods from theft or damage. If you hire employees, you will need Workers’ Compensation. A Commercial Auto policy is necessary if you use a vehicle exclusively for business deliveries or market runs.

Many new owners believe their homeowner's policy offers protection, but it usually excludes business activities. You might want to look at providers that specialize in small businesses, such as Hiscox, The Hartford, or ACT Insurance, which is designed for crafters.

Here are 4 immediate steps to take:

• Get quotes for General Liability Insurance from two providers like Hiscox or ACT Insurance.
• Review your General Liability quote to confirm it includes Product Liability coverage.
• Check your homeowner's or renter's policy for specific business-related exclusions.
• Make a list of your inventory and supplies to estimate the value for property insurance.

Step 4: Set up your workspace and get equipment

Choose your workspace

Most craft businesses start in a home office or garage. A dedicated 100-200 square foot area is a good starting point. This is where your Home Occupation Permit becomes important, as it confirms you meet local zoning rules for a home-based business.

If you outgrow your home, you can look for a small studio space. A frequent mistake is signing a long-term lease too early. You might want to negotiate a shorter term, like 6 or 12 months, to maintain flexibility as your business grows.

Acquire your supplies and equipment

Your equipment costs will vary by craft. For example, a reliable sewing machine can cost between $200 and $800, while a potter’s wheel might range from $500 to $1,500. You can often find quality used equipment on Facebook Marketplace to lower initial spending.

For bulk supplies, you can turn to wholesalers. Uline is a go-to for packaging, and Fire Mountain Gems is great for jewelry makers. Pay attention to their Minimum Order Quantities (MOQs). It is better to order less from a retail supplier than to overbuy from a wholesaler.

Here are 4 immediate steps to take:

• Measure a 100-square-foot space in your home to see if it is workable.
• Price out one major piece of equipment you need, comparing new and used options.
• Identify two wholesale suppliers for your main craft material.
• Compare the MOQs and pricing for your top two packaging suppliers.

Step 5: Set up your payment processing

Your online store on a platform like Etsy or Shopify comes with built-in payment processing. For in-person sales at markets or fairs, you need a separate way to take payments. Many new sellers get caught by high transaction fees, which can eat into profits.

For craft businesses that need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone. Just tap and the sale is done.

At just 1.99% per transaction with no hidden costs or extra hardware, it's a great value. Other providers often charge 2.5% to 3.5% plus other fees. This makes it particularly useful for quick sales at craft fairs or local markets.

Getting started is straightforward:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers.

Now, for custom orders, it is standard practice to require a 50% non-refundable deposit upfront. This simple step protects your time and material costs if a client changes their mind.

Here are 3 immediate steps to take:

• Review the payment processing fees on your chosen online platform, like Etsy or Shopify.
• Download the JIM app to see how it works for in-person sales.
• Draft a simple policy for custom orders that includes a 50% upfront deposit.

Step 6: Fund your business and manage your finances

Secure your funding

The SBA Microloan program is a solid option, offering loans from $500 up to $50,000. These are great for buying initial inventory or equipment. Interest rates typically fall between 8% and 13%, and lenders often look for a solid business plan.

You might also consider a 0% interest loan from Kiva, which is crowdfunded up to $15,000. For grants, look into the Amber Grant or, if you are a jewelry artist, the Halstead Grant. Grant applications are competitive, so pay close attention to deadlines.

Set up your financial system

Plan for about three to six months of working capital. A budget of $1,500 to $3,000 is a realistic target. This covers supplies, platform fees, and marketing before your sales build momentum. A frequent misstep is underestimating these early costs.

Once you have funds, open a separate business bank account. Mixing personal and business finances creates a headache at tax time and can appear unprofessional. A dedicated account keeps your bookkeeping clean and simple from day one.

Here are 4 immediate steps to take:

• Research the SBA Microloan program requirements on their official website.
• Explore the application details for a craft-specific grant like the Amber Grant.
• Create a spreadsheet to project your working capital needs for the first six months.
• Open a dedicated business bank account to keep finances separate.

Step 7: Hire your team and set up operations

When to make your first hire

As your business grows, you will likely need help. A good rule of thumb is to consider your first hire when you consistently spend over 15-20 hours per week on packing and shipping, or when your monthly revenue surpasses $3,000.

Define roles and responsibilities

Your first hire is often a part-time Studio Assistant. This role handles tasks like preparing materials, packing orders, and managing inventory. Expect to pay between $15 and $20 per hour. For marketing, a freelance Social Media Manager can be a smart move, costing around $25-$50 per hour.

Many new owners hire friends or family without a clear contract. You might want to outline expectations, pay, and hours in writing to protect your relationship. Also, be sure to correctly classify workers as employees or contractors based on IRS guidelines to avoid tax issues.

Streamline your workflow

To manage production, you can use a free project management app like Trello. Create boards for new orders, items in progress, and ready-to-ship products. This visual system helps you track everything, especially if you bring on help. For scheduling hourly staff, apps like Homebase simplify time tracking.

Here are 4 immediate steps to take:

• Track your fulfillment hours for one week to see if you exceed 15 hours.
• Write a one-page job description for a part-time Studio Assistant.
• Explore the free versions of Trello and Homebase to see how they work.
• Read the IRS guidelines on Independent Contractor vs. Employee status.

Step 8: Market your business and find customers

Build your online presence

Platforms like Instagram and Pinterest are your visual storefront. Post high-quality photos of your products in use. A frequent mistake is to only post finished items. You should also share behind-the-scenes videos of your process to build a community around your brand.

Start an email list from day one. You can offer a 10% discount code to new subscribers on your website or Etsy shop. This gives you a direct line to your most interested customers, which is more reliable than social media algorithms.

Drive traffic and sales

You might want to experiment with Etsy Ads or Instagram ads. Start with a small budget, like $5 per day. Aim for a conversion rate of 1-3%, which is a solid benchmark for a new online craft shop. This helps you measure what works.

Collaborate with other makers or small influencers for a joint giveaway. This can expand your reach quickly. You might also sell at local craft fairs. The table fees, often $50-$200, can be worth it for direct customer feedback and sales.

Here are 4 immediate steps to take:

• Plan one week of content for Instagram, including a behind-the-scenes post.
• Set up an email sign-up form on your online store offering a 10% discount.
• Research the table fees for one local craft fair in your area.
• Identify three influencers or complementary brands for a potential collaboration.

Step 9: Price your products for profit

Choose your pricing formula

A standard formula to start with is: (Materials Cost + Labor Cost) x 2 = Wholesale Price. Then, multiply that by two again for your retail price. This 4x markup from your initial costs is a solid baseline for handmade goods.

To calculate your labor, set a fair hourly wage for yourself, like $20-$25, and track the time it takes to make one item. Many new sellers only charge for materials, which is an unsustainable model that leaves them working for free.

Factor in fees and market position

Your formula provides a starting point. Now, you need to account for platform and payment processing fees, which can take 5-15% of your revenue. You might want to adjust your price slightly to ensure you maintain a healthy profit margin of around 50%.

With this in mind, research what competitors charge on Etsy or at craft fairs. Avoid the temptation to simply undercut everyone. If your products use superior materials or a unique design, your price should confidently reflect that higher value.

Here are 4 immediate steps to take:

• Calculate the total material and labor cost for one of your main products.
• Use the 4x markup formula to determine a starting retail price.
• Research the prices of 5-10 similar items on your primary sales platform.
• Adjust your final price to cover platform fees and packaging costs.

Step 10: Maintain quality and scale your operations

Establish your quality standards

Create a simple quality control checklist for your products. This document should list 3-5 non-negotiable standards for every item you ship, such as stitch consistency for textiles or blemish-free surfaces for pottery.

You can measure quality by tracking your return rate. A rate below 2% is a healthy benchmark for handmade goods. Many new sellers find their quality slips when they get busy, so a checklist ensures every customer gets your best work.

Know when to scale

Once you consistently hit $3,000-$5,000 in monthly revenue, it is time to think about expansion. This could mean investing in better equipment to speed up production or hiring your first part-time assistant to handle packing and shipping.

As your order volume grows, spreadsheets can become difficult to manage. You might want to look at inventory management software built for makers, like Craftybase. It helps track your raw materials, calculate accurate profit margins, and sync with your sales channels.

Here are 4 immediate steps to take:

• Create a 5-point quality checklist for your top-selling product.
• Calculate your product return rate from the last 30 days.
• Set a monthly revenue goal that would trigger your first expansion investment.
• Explore the features of an inventory management app like Craftybase.

The path from craft to business is a journey of small, steady steps. Successful makers balance creative work with a sharp eye on profits and pricing. Trust the process and your unique vision. You have what it takes to build something wonderful.

When you make sales in person, the process should be simple. JIM turns your phone into a card reader for a flat 1.99% fee, with no extra hardware. This keeps things easy so you can focus on your craft. Download JIM to get started.