Yarn lovers in a yarn shop are like kids in a candy store. The colors! The textures! We won’t even get started on the delicious smells of merino wool, pure alpaca, angora and raw silk.

If you’re a knitter or crocheter, you know the joy of working with yarn. Some of the best little businesses got their start from the owners’ hobbies and passions. So, if needlework is your thing and you’ve used a wide variety of yarns long enough to know and understand them, starting a yarn business may be your dream come true.

Starting a Yarn Shop

Some steps of starting a yarn shop are the same as starting any small business. A checklist includes:

  1. Do your market research.

  2. Prepare a business plan.

  3. Get federal and state tax identification numbers.

  4. Decide on how your business will be structured. Organizing as an LLC is probably the way to go.

  5. Secure your startup money and open a business bank account.

  6. Choose your location carefully

  7. Choose your business name and decide how you’ll brand your shop.

  8. Register your business and obtain any necessary licenses or permits.

  9. Design and build your displays and shop decor.

  10. Order yarn and get those doors open.

Startup Costs and Profit

Depending on the location you choose and the yarns you carry, you may be able to start your yarn business with as little as $65,000. However, if you can do so, budget for $80,000 or more (consider supply, rent, payroll, utilities, website setup, etc.). This will give you some cushion and enable you to take advantage of volume discounts from suppliers right from the start. If you want to start a shoestring budget, you could take that route as proof-of-concept and then scale up.

Most yarn suppliers will want full payment before they ship. After you’ve established relationships with them, they may be willing to bill you. You should be able to make consignment arrangements with smaller suppliers, like the people who own an alpaca farm and spin their own wool.

Markups on yarn range from 50% to 200%. It depends on the fiber, the quality of the yarn and its availability at other stores and online.

Your Yarn Shop’s Website

People interested in unusual, specialty yarns want to feel them and talk about them before they buy. So, a strictly online yarn business can be a tough sell. That said, you still must have a website for your shop.

People who know what they’re looking for can see if you carry it before schlepping to your shop. A customer who didn’t purchase enough for her project when she was there can buy more online. Potential customers can get an idea of what you carry and a feel for your shop from your website.

Your website should reflect your brand and the atmosphere of your shop and should have great-quality photos of all the yarns you typically carry. You can have a separate gallery of yarns that you carry seasonally after sheep and alpaca are shorn. (Sheep are shorn from late spring to early summer. Alpaca are typically shorn in midsummer.)

Displaying Your Yarn

Yarn doesn’t weigh a lot, so you don’t need to have industrial-strength displays. The most common type of display is made of wood and attached to a wall. You can cover one entire wall with criss-cross shelving, which produces diamond-shaped and triangle-shaped cubbies. The materials needed are inexpensive, and it comes together very quickly.

Diamond/triangle shelving also has an extremely handy feature. Stacked-up yarn in each cubbie stays put. If you go for box-shaped or rectangular shelving, it's guaranteed that you’ll be constantly picking up runaway skeins. You can get more creative for displays of your finest yarns.

Repurpose an old china cabinet or put those gorgeous hand-dyed colors in old, wrought-iron planters mounted on the walls. Be sure to allow room for hanging high-quality photos near the hand-spun yarn that show customers the animals from which the wool came and the washing, spinning and dyeing processes. Skip shearing photos, as the manhandling of animals that’s necessary to do a proper shearing might upset some people.

Location and Setup

If you’re setting up your yarn business in a small town that has a quaint downtown, that’s where you’ll want to be. If you’re setting up shop in a big city, pick a neighborhood that has some charm and a lot of foot traffic. Consider craft fairs and farmers’ markets as supplements to your brick-and-mortar store. This will, of course, require staff because you can’t be in both places at once.

Yarn has an inherent cozy quality to it that should be carried over into the design of your store, but don’t overdo it. It’s been a long time since knitting was just for grandmas. Knitting has become popular with a wide range of people, including upper-middle-class women, teens and men.

Make your shop inviting to all, and don’t be surprised if it develops its own little community of regulars and drop-ins. That’s exactly what you want.

Understand Your Competition

For starters, know that you’re not going to compete with the big retailers' yarn departments. They carry tons of inexpensive acrylic and nylon yarns that are perfect for crafting, beginning knitters and casual knitters who make simple scarves and afghans.

While you’ll want to carry some bargain yarns for beginners and for practicing new stitches, your target market will be the more discerning knitters and crocheters who are interested in high-quality, unusual yarn. Your main competition will be other yarn stores. Be sure to check out any that are in the area in which you want to be located. Determine what you’re going to do differently and better to get your share of the local market.

Knitting Classes Are Not Negotiable

Every good yarn shop has knitting classes. The especially classy ones have a comfy corner set up with an overstuffed sofa, good lighting and a couple of cushy armchairs for anyone who wants to just hang out and knit or crochet. Don’t forget the coffee, tea and water. An occasional plate of homemade cookies is a nice touch too.

Your structured knitting classes calendar should be posted on the door. If at all possible, conduct your classes or have your comfy corner set up near a window where passersby can see the activity. This will help generate interest, a network and organic marketing for your products.

A Few More Tips

  • Be sure to carry every product a knitter or crocheter might need, from all needle types and sizes to stitch counters and gauges. You don’t want your customers to have to go anywhere else for everything they need to complete their project. Have a library of how-to books and plenty of patterns. Consider carrying knitting machines.
  • Use sachets of cedar shavings to keep moths away from natural-fiber yarn that isn’t selling quickly. Also, never store natural fibers in plastic for more than a week or two at most. Natural fibers need to breathe.
  • If you’re a dog lover, consider getting a puli or a komondor for your store mascot. They’re Hungarian herding and livestock guardian dogs with (high-maintenance) coats that look like masses of twisted yarn. This, of course, is a big commitment and not just a gimmick. Having one of these affectionate and sociable dogs hanging out at your store can attract passersby and contribute to the warm, friendly atmosphere.

  • Don’t forget to have fun. This is, after all, your dream come true. It will be a lot of work, but if you truly love yarn, it will feel like going to work in a candy shop every day (but without the calories).