Price for Profit
Written October 17, 2019
When Joyce Jagger first opened her own embroidery business, she did what many startup decorators do: She called all her local embroiderers and collected their price lists. After studying the information carefully and then averaging the prices, she created her own price list. That was a huge mistake. “What I didn’t know is that many of these other embroiderers had a lot of embroidery machine heads so they could embroider for a lower price that my shop could,” Jagger says. “I almost lost my business all as a result of pricing that way.”
Fortunately, she didn’t lose her company – she learned from her mistake and went on to become a very successful embroidery business owner, and now an industry consultant. Today, Jagger, known as The Embroidery Coach and owner of TheEmbroideryTrainingResourceCenter.com, coaches many new and veteran shop owners on how to avoid pricing mistakes that could cost them their businesses. So, what’s the right way to price? Of course, there’s more than one approach – and not all will work for every shop. Jagger recommends a holistic tactic based on an understanding of what your business needs to succeed.
“I always advise embroiderers to find out what their break-even point is, and then how much or what percentage they want to add on for a profit,” she says. “This could be a 25% to a 150% markup. No two businesses are the same.” Deciding on the right markup begins with intimate knowledge about your business. To learn what your break-even point is and profit margin must be, you need to carefully analyze all your expenses. “What are your overhead costs?” Jagger says. These include business expenses such as rent, equipment, phone/Internet service, office supplies and much more.
Then figure the cost of your materials, such as thread, backings, blank apparel, and even how much it costs on average to have those materials shipped to you. Lastly, Jagger says to factor in your time: “How long does it take to do each process of the job? Approximately how long do you spend with the customer in order to get the order? How long is the finishing time, such as trimming, steaming and packing of the order for shipping?”
The bottom line, Jagger stresses, “is that you must know what your true costs are for running your own embroidery business. Then, create your price list accordingly, so you can cover your costs and make a profit.”
Flat Rate PricingJagger’s approach provides a solid base for pricing. With the knowledge of your average costs and a clear idea of the profit you must achieve to be successful, you’re positioned to implement pricing that’s fair and profitable.
Jeff Taxdahl spent years as a marketer and buyer for large and small companies before opening his Jordan, MN-based embroidery business Thread Logic in 2001.
He knew how frustrating and unclear pricing could be from the buyer’s perspective. Hoping to create a more customer-friendly atmosphere, he embraced flat-rate pricing from the day he opened his business. “The price you see is the price you get on our website,” he says. “Flat-rate pricing is more of a marketing mindset. My client can go online and see what the garment with a standard left-chest decoration will cost. Their decision is, ‘Do I want the $20 or $25 shirt?’ Decoration is included in that price,” so stitch count doesn’t matter.
The approach saves both Taxdahl and his client time while developing a stronger, long-term relationship between the decorator and buyer, he says. Providing a quote is quick and easy for him. Other pricing methods, such as per stitch, require more back and forth to determine stitch count, cost of materials, time spent setting up the art and so on – time in which an order could be lost, from Taxdahl’s perspective.
So how is flat-rate pricing profitable when logos vary in size and complexity? Shouldn’t a job that requires more materials and time be charged accordingly? For Taxdahl, who has used flat-rate pricing for nearly 15 years, says it all evens out. “My target gross margin (that’s total sales minus the cost of goods such as a blank, backing or thread) is 50%. I want all of my other expenses, such as rent, salaries and utilities, to be 30% of that total so that my profit at the end of the day is 15% to 20%,” he says. “I think this is a more realistic way for business owners to think.”
He contrasts his approach to pricing against stitch counts and add-ons, such as hooping charges. “Why would I want to nickel and dime my customers?” he says. “My approach is the lifetime value of my customers to be profitable, and I know not every order that goes out my door will be profitable.”
Other decorators would argue that pricing built around stitch count is more equitable for the decorator and the customer. It’s a cost-plus approach. You begin, again, by calculating your overhead expenses. Then, you analyze each design to be digitized and embroidered, and determine a cost per number of stitches.Typically, embroiderers who charge by stitch count do so based on 1,000-stitch increments. “In cost-based pricing, you determine your actual costs to produce the embroidery – or any other apparel-decoration process,” says Jennifer Cox, co-founder and spokesperson for the Kent, OH-based National Network of Embroidery Professionals.
“In the model that I teach to our members, we break the numbers all the way down to the cost per stitch, on average, for their business. When you know how much it costs to create a single stitch, and that cost includes your overhead, wages and materials, it’s straightforward to calculate a price for an order that includes the four key elements: the cost of the product, the profit or markup on the product, the cost of the decoration process and the profit or markup on the decoration process.”
In general, most embroidery jobs fall in the 4,000-to-10,000-stitch range, with 8,000 stitches being an average. Where the difference really shows is time on the machine, or how many stitches per minute you can sew, which depends on your equipment and workflow efficiency. In an online white paper How to Price Embroidery Work, experts from SWF/ColDesi Inc. provide examples illustrating how you can determine your price per unit, the unit being stitch count. For example:
If you use a single-head embroidery machine, it should produce anywhere from 18,000 to 30,000 stitches per hour (300 to 500 per minute). You can attribute a cost to those stitches. (Visit www.swfeast.com/how-to-price-embroidery for more details.)
Ultimately, the amount would be added to the cost of running your business per hour, including labor, materials, overhead and so on. “I’m surprised at how many embroiderers and apparel decorators either don’t know their actual costs to create their decorating processes, or they don’t add any markup or profit to their decoration costs,” Cox says. “The decorating process shouldn’t be a pass-through; it should be a profit-generating part of the pricing equation.”
Five Ways to Cut Stitch Count
- Eliminate large filled areas, such as expansive backgrounds.
- Reduce the amount of text – tag lines, for example – in the artwork.
- Omit any unnecessary “words” such as “Inc.” from a company name or
- “www” from a Web address, if the client is amenable to doing so.
- Reduce the size of the imprint.
- Remove a border around an element or recreate a logo that has two outlines around it, so it only has one outline.
Another model that Cox finds useful for rookies is time-based pricing. “This is particularly effective for people who are very new to the embroidery business, as they sometimes struggle to come up with the numbers to effectively establish their cost-based pricing in the beginning,” Cox says. “In the simplest of terms, you determine how much money you need to earn in an hour as profit, $15, $25, $40, $60 and so on.It’s totally subjective, and it needs to only meet the needs of the business owner and their expectations. The next step is to determine how many of product X you decorate in that same hour with your current equipment.” Cox explains how it works in this example: A shop owner wants to earn $50 per hour in profit.
She has an order for a small design that takes 10 minutes to hoop and sew. She needs to price the order to include the cost of the garment or product, plus her estimated costs to decorate the product, plus $10 profit per item. She’ll earn her target of $50 per hour profit if she produces five of these products per hour.
Pricing Multimedia Decoration
When a client shows you her logo or design, one way to set your shop apart from the competition is to suggest a multimedia decoration. “The only thing that changes in how you quote a price is the amount of time for each separate process,” says Joyce Jagger, The Embroidery Coach and owner of TheEmbroideryTrainingResourceCenter.com. “You have to know how to price out each different type of process that goes into the finished logo.”Therefore, whether you combine screen printing with embroidery or embroidery with rhinestones, you need to know how much the supplies and overhead/time to execute the design will be. You can also ramp up your design, and consequently your price, by flexing your creative muscles. “While thinking outside the box is rewarded in almost all industries, for embroiderers in the decorated-apparel market, it can bring increased profits by about 20%,” says Alice Wolf, marketing and communications director for Madeira USA.
“Specialty threads, often a challenge to a less experienced embroiderer, were designed for embroiderers to set themselves apart from their competitors, allow their customers to stand out from the crowd and enable them to increase their pricing up to 20% for the addition of threads that offer a new dimension.”
For example, metallic thread adds bling, fire-resistant thread adds safety, wool-blend or matte-finished thread adds artistry or fashion. “Each specialty thread comes with a higher price point, but, in turn, allows the embroiderer to charge additionally for providing what his or her neighbors can’t,” Wolf says.
Whichever approach to pricing you choose, always be aware that mistakes happen. “A common error made by hungry startups is underpricing their work,” says Alice Wolf, marketing and communications director for Madeira USA. “A veteran embroiderer once told me that she has a plaque hanging on her studio wall at the point of purchase. It reads: ‘You can have it fast.You can have it cheap. You can have high quality. Pick two.’ The inference, of course, is that reality reigns supreme, and as friendly and charming as the neighborhood embroiderer may be, it’s a business. Startups need to hold their ground at pricing that’s fair to both parties, and that will ensure their being around for years to come.”
Every embroidery shop owner will, at some point in their career, be faced with price-conscious clients who try to pit one decorator against another in a skirmish for the lowest bid. “No one wins a price war,” Taxdahl says. “A customer who comes to you for a better price will leave you for a better price.”
And therein lies the common thread to embroidery pricing: Base what you charge on your investment, service, creativity and quality. Never undervalue your work, and price accordingly for profit so your business will continue to grow.