I wanted to talk to you about the basic financial elements of starting your own fly company and what that entails, and how to navigate it. It took me way too long to learn this, and it cost me a lot of time and money because I simply didn't know what I didn't know. There is a romanticism that comes with being self employed and tying flies for a living- if you love fly tying- that is almost enough to keep you going, that is until you don't have money to pay your rent. Buy groceries. Fill your gas tank.
Want to know if your flies are good enough to sell? Check my previous post HERE
This topic comes up quite a bit on Instagram and in the Facebook groups so I figured I would share my thoughts on it. It's not a definitive guide by any means, there are far smarter, more successful people out there with something to say worth listening to, but I was evaluating my business so while it was fresh, thought I would share it.
I've been in business since 2015, and full time since 2017. 3 Full years. I've made decent amount of gross sales, and tied over 10,000 flies per year between 2016-2018. 2019 I went a different direction and 2020 I took a step back fearing what I'm about to outline for you now.
First, if you are thinking of quitting your job to tie full time- I wouldn't. Find a different job, or figure something out but keeping your job is important for a few reasons. The stress of not knowing where the money will come from is certainly at the top of that list. It isn't easy having to find your own revenue, yet alone make that fall to the bottom line. There were long stretches where I had no money to pay my bills personally, or the vendors for my business. Things tend to go south at the worst times. Also, you probably won't want to start a fly company by the end of this so take that time that would have been wasted bashing your head against a wall and enjoy some time fly fishing. That's the first thing that goes when you start tying flies as a business.
Business Financial Terms 101
Gross Revenue- The total $ amount of sales from your business.
COGs- Cost of goods sold. Direct expenses in materials and labor to produce your finished product.
Indirect Costs- Website fees, payment processing fees, marketing fees, etc
Gross Profit- Revenue – COGS = Gross Profit
Gross Profit- What's left before taxes, other business expenses,
Net Profit- Gross Profit – all other expenses
Excise Tax- a 10% federal tax separate from other taxes (Federal Income, State Income, Self Employment)
Gross Income- The amount you get after subtracting business costs, fees, and excise tax.
Net Income- what you actually keep after paying every other cost, fee, and tax on the business and personal side.
This is where people (like myself) usually start tuning out, but its critically important to understand how these are all interconnected and ultimately how you get paid from your business. I'll illustrate how these are connected through the following example.
I tie and sell Walts Worms for $2.50 each. . Let's say I get an order for 10,000 Walts Worms.
How do we find out how much we take home on this order?
First, you need to know your material costs and labor. This is your Cost of Goods Sold, or COGS. On this fly, the material costs are $0.65 per fly, and for labor for arguments sake lets say it costs $8 per hour. Since I can tie 20, that comes to $.40 per fly, or a total of $1.05
$1.05 x 10,000 flies = $10,500 (COGS)
You also need to factor in your 720 Form Excise Tax for manufacturing sport fishing equipment (artificial flies are included). It's 10% That total equals $2500
$25,000 (Gross Revenue)
$12,000 is your Gross Profit.
Just remember, Gross Profit does not mean Gross Income.
It's advised that you take between 20% and up to 50% to reinvest in your business. Lets say I take $5,000 and reinvest it into my business account to fund future orders, expenses, etc.
I'm left with $7,000.
This amount is your GROSS INCOME. Remember, just because this money is yours, you still have to pay your fair share of taxes to the government. Where you live will determine how much.
First, you have to pay Self Employment Tax. This goes to fund Social Security and Medicare. Just like if you got a paycheck from your employer. This tax is 15.3%
$7,000 - $1071 (Self Employment Tax) = $5929
You also must pay Federal Income Tax. This will vary by your overall bracket, but lets say you plan to make $40,000 per year. That means you would pay 12% on your $7k
$5929 - $840 = $5089
In New Jersey, I also need to pay State Income Tax of 10.75%
$5089 – 752.50 = $4336 NET INCOME. This is yours. You earned it.
Saying I could tie 20 per hour, it would take me 500 hours to tie the 10,000 flies.
If I tied 8 hours per day, I could tie the order in 62.5 days and I would make $69.37 per day, or $8.67 per hour.
It sounds good, but unless you want to make $4336 per year, you would need to scale the business drastically to make any money. Lets say you could tie 50,000 flies per year. Cool- you get $21,680.
But how easy do you think selling 50,000 flies is going to be? You aren't Umpqua Feather Merchants with decades of experience and a retail distribution network of every fly shop in the world.....you're a dude on Instagram with 1600 followers.
That is the hard truth. You can't scale. If you wanted to earn more, you would need to do one of 4 things. You could reduce your material costs. Of course you may not want to if it decreases your perceived value. This would limit how many you could possibly sell at the current price point. You could reduce labor. Unless you're going overseas I don't see how to get lower than $8/hour. You could also increase your price per fly, but how many people would buy a $10 Walts Worm? And anytime you raise your price, you lose customers. It's a delicate balance, if you get it right you could possibly earn more by selling less...but it's hard in this industry when 90% of people are used to paying under $2 per trout fly. The only other option is to outsource your production. Starting a fly house could work, but now you have a whole other set of problems and considerations.
So what can you do? You can be a hobbyist and earn some extra stress free income because you like tying flies. Keep costs super low- no website, easy to tie shit, direct via Etsy, Ebay, Instagram.
I think the best option is submitting your original fly patterns to the catalogs. Sure, you only get a small royalty, but it's far less riskier. Keep your day job, and instead of spending 8 hours every day producing flies, spend 2 hours a day designing flies. Of course you still have to pay taxes....Who knows, maybe you'll create the next Copper John or Game Changer?
I also wanted to mention, that there are other avenues to grow your business. Writing a book or magazine submissions, a Patreon account, Youtube ad revenue, speaking fees, fly catalog royalties, other 3rd party products, branded merchandise and apparel, etc etc. All of those have their own variables and complications.
If you wanted to add 3rd party vendor items to your website, here is what that would look like.
Let's say I wanted to sell Regal Revolution vises.
They cost $292.85 via distribution.
Your labor might be $10 to create ad content, upload product to website, research ideal customer, etc. This could be reused, and reduced over time although it may need to be redone multiple times, it depends if its working.
The MSRP is $425.
Excise tax 10%= $42.50
That leaves $79.65 Gross Profit after accounting for your This does not include the indirect costs also associated with selling this item. Things like payment processing fees, website fees, shipping labels, possibly shipping if offering Free Shipping, or the actual marketing fees (Adwords, Facebook, Instagram, Youtube) to find your buyer.
Let's say you spend $10 on Facebook ads to sell your item.
Free shipping at $7
Monthly web fee (divided by all sales that month)- of $3.50
That leaves $59.15
If you reinvest 50% of your Net Profit back into the business to fund future products, other indirect costs, that leaves you with $29.58.
You still need to pay Self Employment Tax, Federal Income tax, and possibly state income tax. I would have to pay a total of 38.5% combined.
That would leave you with $18.19 at the end of the day.