A rug tufting business plan is a plan for selling hours. A tufted rug is yarn, cloth and glue, but most of what it costs is the time to trace, tuft, glue, back and carve it: seven hours for a 2 × 3 ft custom rug, twelve for a logo rug. So the price has to be set from the hours, and the plan needs something that earns more for each hour than a rug does. For most tufting studios, that's workshops. In the example below, a studio in Montana sells mug rugs, custom rugs, logo rugs for businesses and workshop seats, and ends its first year about $16,900 ahead on $60,200 of sales, with every hour of tufting paid at $20. Below is a description example, each part of the plan, the rug rules, the first year month by month, the startup budget, and a free template.
The short version
- Describe the studio in a paragraph: what you tuft, for whom, the goals.
- Cost each rug by its yarn in pounds and its hours; the hours are most of it.
- Price custom and logo rugs from the hours, not from what a store rug costs.
- Workshops earn the most for each hour, because the students do the tufting.
- A rug for the floor up to 6 ft and 24 sq ft falls under the small rug flammability standard.
- Keep the yarn counted by weight, so a custom order doesn't stop for a color.
- TaroStack keeps yarn by the pound and cloth by the yard, and takes each rug's materials off stock as it's made. More below.
Part 1: the business description
Rattlesnake Creek Rug Co., a made-up rug tufting studio in Missoula, Montana, I use in these examples, writes:
Rattlesnake Creek Rug Co. tufts custom rugs, logo rugs for businesses and mug rugs in a studio in Missoula, sells them online and at markets, and teaches four tufting workshops a month. In its first year it aims to fill every workshop seat and keep a two-week wait for custom rugs.
Part 2: the rug rules
A rug made to go on the floor, with no side longer than 6 feet and an area of no more than 24 square feet, is a small carpet or rug under the federal flammability standard FF 2-70, which tests it with a burning tablet (16 CFR 1631.1). A small rug that doesn't meet the standard has to carry a permanent label, next to its fiber content label, reading "FLAMMABLE (FAILS U.S. DEPARTMENT OF COMMERCE STANDARD FF 2-70): SHOULD NOT BE USED NEAR SOURCES OF IGNITION", and the warning has to appear in its advertising too (16 CFR 1631.34). The same section points to the fiber content label the Textile Fiber Products Identification Act asks for. Bigger rugs fall under a separate standard. A mug rug on a desk isn't a floor covering; a 2 × 3 ft rug by the bed is. Ask a testing lab what a test of your yarn and backing costs before you choose between testing and labeling. This is general information, not legal advice.
Part 3: what a rug costs
| Per unit | Mug rug, 8 inch | Custom rug, 2 × 3 ft | Logo rug, 3 × 4 ft | Workshop seat |
|---|---|---|---|---|
| Yarn at $14 a pound | $2.10 (0.15 lb) | $67.20 (4.8 lb) | $134.40 (9.6 lb) | $7.00 (0.5 lb) |
| Primary cloth, backing and glue | $1.20 | $18.00 | $32.00 | $4.00 |
| Tufting, gluing, backing and carving at $20 an hour | $13.33 (40 min) | $140.00 (7 h) | $240.00 (12 h) | $10.00 (a helper's share) |
| Tufting gun wear | $3.00 | |||
| Packing and shipping supplies | $1.50 | $8.00 | $15.00 | |
| Selling fees: 6% direct, 3% invoiced or booked | $2.28 | $25.20 | $22.50 | $4.05 |
| Variable cost | $20.41 | $258.40 | $443.90 | $28.05 |
A cut-pile rug takes about 0.8 pound of yarn a square foot in this example; a loop pile or a shorter pile takes less. The hours are more than half the cost of every rug, which is why a rug priced like a store rug loses money. How to build a price from materials and time is in how to price handmade items.
Part 4: customers and prices
| Product | Price | Variable cost | Contribution | Margin | A month at full speed |
|---|---|---|---|---|---|
| Mug rug, 8 inch, online and at markets | $38.00 | $20.41 | $17.59 | 46.3% | 40 |
| Custom rug, 2 × 3 ft | $420.00 | $258.40 | $161.60 | 38.5% | 6 |
| Logo rug for a business, 3 × 4 ft | $750.00 | $443.90 | $306.10 | 40.8% | 2 |
| Tufting workshop, one seat | $135.00 | $28.05 | $106.95 | 79.2% | 24 |
In a month at full speed the workshop seats bring $2,567 of the $4,852 of contribution, more than half, from twelve hours of teaching. The custom rugs bring $970 from 42 hours of tufting, the logo rugs $612 from 24, and the mug rugs $704 from about 27. The rugs fill the studio's days and its photos; the workshops pay the rent. Pricing for shops that want to stock mug rugs is in how to price handmade items for wholesale.
Part 5: the first year, month by month
Fixed costs are $1,365 every month: studio rent ($900), respirator filters and dust bags ($40), insurance ($70), the website ($40), ads ($250), tufting gun servicing averaged ($30), and software and card fees ($35). Sales start at 15% of full speed:
| Month | Mug rugs | Custom rugs | Logo rugs | Workshop seats | Sales | Profit | Cash, year to date |
|---|---|---|---|---|---|---|---|
| 1 | 6 | 1 | 0 | 4 | $1,188 | −$670 | −$670 |
| 2 | 8 | 1 | 0 | 5 | $1,399 | −$528 | −$1,198 |
| 3 | 10 | 2 | 1 | 6 | $2,780 | $82 | −$1,116 |
| 4 | 12 | 2 | 1 | 7 | $2,991 | $224 | −$892 |
| 5 | 16 | 2 | 1 | 10 | $3,548 | $615 | −$277 |
| 6 | 20 | 3 | 1 | 12 | $4,390 | $1,061 | $784 |
| 7 | 24 | 4 | 1 | 14 | $5,232 | $1,507 | $2,291 |
| 8 | 28 | 4 | 1 | 17 | $5,789 | $1,898 | $4,189 |
| 9 | 32 | 5 | 2 | 19 | $7,381 | $2,650 | $6,840 |
| 10 | 36 | 5 | 2 | 22 | $7,938 | $3,041 | $9,881 |
| 11 | 40 | 6 | 2 | 24 | $8,780 | $3,487 | $13,368 |
| 12 | 40 | 6 | 2 | 24 | $8,780 | $3,487 | $16,855 |
The year's sales are $60,196 and the profit $16,855, with every hour of tufting paid at $20. The first two months lose a little, $1,198 at the lowest, while the workshops fill, which the working cash covers. A full month is about 105 hours of tufting and teaching, one person's month.
Part 6: the startup budget
| Item | Example |
|---|---|
| Tufting guns, cut pile and loop pile | $500 |
| Frames, one for the studio and six for workshops | $900 |
| Carving and shearing tools | $250 |
| Yarn, a starting stock | $1,200 |
| Primary cloth and backing, rolls | $600 |
| Projector for tracing | $150 |
| Dust extraction and respirators | $400 |
| Workshop tables and stools | $600 |
| Website and photos | $1,000 |
| Working cash | $4,000 |
| Total to start | $9,600 |
The $5,600 spent before working cash is earned back in month 9, when the cash reaches $6,840.
Get the template
Download the rug tufting business plan workbook. Four sheets: your rugs and workshop seats with price, variable cost and a month at full speed; the first year, month by month, with sales, profit and cash; your fixed costs; and your startup budget with working cash. It's an ordinary Excel file with no macros, and it works in Google Sheets, LibreOffice and Numbers.
Where this stops working
Forty colors of yarn bought by the cone and used by the ounce, cloth by the yard, six custom rugs in progress, each with its own colors, and four workshops that each use a few pounds of whatever's on the shelf. A notebook can't say whether there's enough of the forest green for the logo rug due Friday, or what the last custom rug used. Keeping materials like these counted is in raw materials inventory example.
How TaroStack does it
TaroStack keeps yarn by the pound and cloth by the yard, and takes each rug's materials off stock as it's made.
Yarn in the unit you use. Yarn can be bought by the cone and counted by the pound, and cloth bought by the roll and used by the yard, so the stock is in the units the rugs are made in.
Rugs as recipes. A mug rug or a standard size is a recipe of yarn, cloth, backing and glue, and making a batch of them takes the materials off stock, with the labor minutes recorded. "What could I make right now" says whether there's yarn for ten more.
Reordering colors. Each yarn comes up on a reorder list in days of cover, worked out from how fast it's used, with the supplier's lead time and minimum, so the forest green is ordered before the logo rug needs it.
| The job | Notebook | In TaroStack |
|---|---|---|
| Yarn on the shelf, by color | Weigh the cones | Stock by the pound |
| What a rug used | A guess | Taken off stock as it's made |
| Enough for ten mug rugs? | Check every color | What could I make right now |
| When to order the green | When it's gone | Reorder list in days of cover |
Recipes, units and reorder lists are on every plan, from $49 a month. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.