When is the Price Right?
Keeping it Simple
When I first entered the embroidery industry I was seduced by charts and figures into thinking I could make a living just stitching on goods brought to me by the customer. I quickly learned that if I wanted a healthier profit and to work smarter instead of harder, I would have to supply the goods as well—not such a simple task then as it is now with the Internet and its surfeit of suppliers.
One of the pitfalls I observed along the way was the penchant of the embroiderer to operate as if they were only a service business—wholesaling the garments to the customer at the same discount prices they enjoyed. That is no different than doing only embroidery—you are just working harder.
I still encounter embroiderers who are wary of doubling the wholesale price of garments to reach a retail price (called keystoning). Some mark the product up only 20-30%, leaving money on the table for the customer. Add to this uncertainty about what stitching time is worth, compound it with requests for discounts and insert hesitation to charge extra for rush time, special services, artwork, digitizing and the hours it takes to research the exact shirt and then trim and fold it for delivery and it’s no wonder that many embroiderers find pricing to be about the toughest part of running a business.
What Does It Take to Keep Your Doors Open?
Basing a pricing strategy on that of another shop can be the kiss of death. While it’s never wrong to survey your competitor’s pricing structure, you should base your prices on your own business model. Your competitor’s business may be totally different from yours. He may have multi-heads and do wholesale or contract work which does not compare to a single-head business. You may only do sports oriented work while the competition is geared to special gifts and monogramming. Another shop may be offering a “loss leader” to encourage sales—and may have inflated prices on other products or services to compensate for the calculated loss.
The fixed costs of running a business include but may not be limited to the rent (if you are home-based add the rent you would be paying if you had to lease outside your home), utilities, insurance, Internet services, general office supplies, loans, equipment leases and salaries—including a salary for you.
Let’s say that the total expenses—which are reality regardless of how many pieces you produce—equals $5000.00. Now, figure in the average number of pieces you produce each month. If that number is 8400, with 21 working days in an average month, that is 400 pieces a day. With $5000 required just to keep your doors open, you have to earn $240 a day to cover the fixed costs. Divide the daily number of embroidered pieces produced (400) into $240 and you find that if you add $.60 to each article you will defray the fixed costs (rather painlessly, I might add).
Do the calculations with your own numbers, adding a “fudge factor” if you are a novice to account for the learning process. You might be pleasantly surprised at how little it takes to keep the doors open.
But you still have to figure what to charge for the process of creating the goods.
Communicating Price to the Customer
Some embroiderers charge by the stitch count, which is hard to do when you are new and not experienced enough to estimate stitches quickly and accurately. But it is an easy and customer-friendly way to price when you are confident in your estimating abilities. This stitch count should include the costs (thread, needles. time etc.).
Many shops that price by stitch count, add the shirt and its profit as a separate line item. This can often lead to the customer searching for the shirts at a lower cost either in local stores or on the Internet and, unfortunately, many of our vendors will sell to the end user and effectively cut the embroiderer out of the profit loop on the goods. We can counter this by a shop policy that states we only stitch on shirts we provide, or we can price our embroidery separately and with a healthy enough profit that the source of the garments doesn’t matter. We can also invest some time in educating the customer to the reasons we prefer to supply the garment. One is that if the machine “eats” the shirt, we can and will replace it.
I have always listed the price for embroidery as a separate fee (which can include set-up, art and digitizing fees or they can be listed separately as well). My embroidery fees are non-negotiable since each item must be embroidered separately. I will discount my profit on the shirt if the quantity is high enough (since my shirt profit is much higher than 20-30%), but the embroidery is labor and is not open to discussion.
I have never given the customer a break because I take the risk of investing in a multi-head machine in order to stitch multiples. My investments are meant to lead to a healthy bottom line, not to customer discounts. When the customer wants to share in the payments on the equipment, I will consider giving them a share of the time-saving benefits.
Educating the Customer
Many customers today seem to be very sure of the price they want to pay for things but perhaps don’t understand the value, so it is up to us to educate them. One way to do this is to make a chart for your wall that shows the steps from the time the customer and/or the goods enter the picture to when delivery of finished product is made. A list of all the things we have to know—cleaning up or creating artwork, digitizing, ordering and quality checking, loading the design in the machine, maintaining and threading the machine, bobbin etc, choosing the right thread, needle and backing, choosing the right colors for the embroidery, troubleshooting, trimming, and more. The more exhaustive—and exhausting—we can make the list, the more they understand that this is not a case of Wow, you just push the button and the machine does all the work. That’s the time we should remind the customer that it is not pushing the button that matters—but knowing which button to push.
Another way to make your charges customer specific (because our work is not “one size fits all”) is to use a worksheet like the one on page 293 of Professional Embroidery, Business by Design (www.HelenHart.com), which allows the embroiderer to check all that apply to a specific order. Some things are inherent with any embroidery order (hooping, trimming, threading the machine) but others are job-specific—appliqué, specialty thread or needles, bagging (and un-bagging), opening and closing seams, rush deadlines, removing names, mixed media, matching existing embroidery—and the list goes on. The customer who needs the extra services should pay for them and what better way than to have a worksheet ready and tick off all that apply. It is far easier to explain the price when you have the specifications in front of you. It’s like ordering a la carte in a restaurant. You get what you pay for…you pay for what you get.
Having a tick list allows you to “waive” some of the fees to make the customer see their price as a bargain—and also makes it easier for the novice to get paid for what they do. Often they forget that part of their expertise is knowing what to do and when to do it. So much becomes second nature as we mature in this industry, but it is always a service we have learned so we can please the customer—and it should always be billable. Your clock should start when the deal begins and you should be paid for all you do—and know—until the product is delivered and the customer is satisfied.
Remember, if the customer begin to hem and haw about the unique and the extras and doesn’t want to pay for it, it is time to consider that they probably don’t need it, won’t appreciate it and you should suggest the standard method and the usual rate. If you give in and throw in extra work and product without charging for it, you will sacrifice forever the opportunity to charge a premium for your expertise to that customer and many who follow—as word will certainly spread.
So, What is the Right Price?
By now, you are probably wondering when I am going to tell you what to charge.
You need to determine your fixed costs, factor in your location (but don’t cater to it), decide on what your time is worth, figure what extra services should demand in extra dollars, and set your price based on your niche in the embroidery world.
If you want an easy way to start, double the price of the garment, set a minimum for embroidery (I don’t pick up a hoop for less than $12.00), never discount the embroidery, give reasonable discounts on goods for quantity orders and always let the customer know when you are waiving a fee or offering a discount by factoring it in on the invoice and then showing the markdown given. Showing makes an impression—telling makes a noise.
Two of my favorite maxims are “I would rather do nothing than work for nothing” which is quoted often at the Embroidery Line (www.EmbroideryLine.net) and the idea that perception of value drives the price like no other engine. Wood buttons and extra tailoring on a shirt should be noted and we should always upsell to a better garment (having the knowledge of our product to justify it).
I have sold framed antique linens with added embroidered quotes for 700% profit—the message resounded, the finished product impressed, the perception of exceptional value closed the sale.
What Is Your Life Worth?
Henry David Thoreau said it…the price of anything is the amount of life you exchange for it.
I don’t know about others, but I want to produce quality because it is remembered and remarked upon long after a bargain price is forgotten. And I want to be paid well for what I do. I don’t want to exchange any amount of my life for the cheap and forgettable.
Tack your resume up on the wall next to that embroidery chart and list the conferences, trade shows and seminars attended. List your years in business and any awards. Add a bulletin board full of testimonials and thank-yous.
Your education is an investment and adds to your professional presence. You don’t need a certification…you just need to demonstrate your knowledge and apply it whether you are assisting in choosing colors (which you should understand) or recommending fabrics and garment construction (which you should be able to compare and contrast).
Line up the right garments, the right application, the right methods—and CHARGE!