Pricing of embroidery and embroidered items is one of the most serious and critical ongoing challenges facing new and existing embroiderers alike. Due to the fact that market conditions around the country and the world vary from location to location and over time, it is difficult to state in a publication of this nature that one specific method or level of pricing is the correct one.
In most pricing examples, real world market prices and conditions will tend to dictate at least the range of prices that can be successfully asked of the buying public. While market pricing will certainly influence selling price to a large degree, the actual operating costs of a given embroidery shop should practically dictate pricing structure and the direction a company takes to realize the greatest profit level and return on investment.
It would be ludicrous for a shop with one single-head machine and a cost per thousand of fifty-five cents to take part in the contract embroidery business where the price per thousand in some markets around the country can be as low as ten cents. In this example, the single-head shop would lose forty-five cents for every thousand stitches embroidered.
Some shops make the mistake early on of accepting any project that comes their way for the "cash flow", glossing over the fact that they are truly losing money minute by minute. Or, it is possible that they really do not know their cost of doing business day by day.
In any event, taking on a project based on the offer of cash flow as opposed to taking on a project based on a prudent determination of profitability is a problem for the embroiderer for several reasons. First, it is a problem because of the potential for actually losing money on a project while seemingly making money, creating a false sense of security. Secondly, this approach is a problem because it distracts the shop owner from devoting time and energy to profitable activities that will actually make money for their business.
The more hours spent on "cash flow" producing, yet technically money losing projects, the less likely it is that the owner will ever take their business in the direction that it should be going.
While there will be the occasional project that comes along that a shop can complete while working around other, more profitable orders, it is important to not confuse the issue of cash flow with the issue of making profit. Many embroidery shops, as mentioned elsewhere in this guide, have lost money and subsequently gone out of business while still not fully understanding exactly what taken place.
After all, they were "busy" - the phone was ringing, there were orders being placed, money taken in. What happened? They were not making money - they were, instead, taking in money but not making a profit.
Many embroidery shop owners have been blindsided by this phenomenon after going about their daily business for many months. Due to the level of start up capital on hand and the flow of cash in and out, sometimes it takes literally months for a shop to hit bottom, to come to that day of reckoning where it becomes painfully obvious that something is seriously wrong.
Generally, at that point it is too late to salvage a viable business from the remains. In these examples, typically the owner knew that they were busy, felt that they were, in fact, making money and in the end was dumbfounded by the harsh reality and outcome.
The prerequisite to any pricing effort must be the calculation of costs. Without knowing specific costs of doing business, calculated down to the level of cost per hour or cost per thousand stitches, it will be impossible to create a pricing structure that has relevance or that takes profit into consideration. As this section moves forward, it will be assumed that you have calculated your costs.
You will also need to have a complete understanding of your production capacity - your shops' ability to complete a specific order in a specific period of time taking into consideration number of sewing heads in your possession and number of employees, if any.
When determining much time a specific project will take and how much to charge for it you will need to consider how many stitches and colors are in the design to be embroidered. You will also need to consider the garment or item that the design will be embroidered on and if the location of the design on the garment is considered a difficult application. Also note if the design requires significant operator intervention during the embroidery process or if it requires metallic or other more difficult to work with thread.
You will also need to consider the time taken to receive and unpack the items prior to embroidery, time to hoop the items, the time taken to trim, remove backing, fold and repackage the items following embroidery.
After considering all of these issues and after having calculated your costs, how do you proceed with pricing?
Well, we know that your costs are just that - costs. They are your aggregate expenses that go on day after day whether you open your shop or not, whether the equipment is operating or not. So, any price that you charge has to be sufficient to recover that particular projects incremental costs and also allow for a sufficient profit margin as a return on your financial investment and time devoted to your business.
What you specifically charge for your work will depend on how much you actually want to make. What you charge will also be tempered by pricing levels in your local market. If an embroidered cap in quantities of one hundred are selling for $7.50 each it is very unlikely that you will be able to sell an equivalent embroidered cap in your market for $10.50.
So, the question - can you embroider one hundred caps with the requested design in an amount of time that allows for you to make a profit? If you are buying the caps at a wholesale price of $2.50 and selling them embroidered at a retail price of $7.50, this would enhance be a gross profit of $5.00 per cap.
If the order for one hundred caps embroidered with a 3,000 stitch, two-color design took ten hours to embroider on your single head machine and another two hours to unpack, trim and repack you would have a total of twelve hours in the project and would have made a total of $500 gross profit - ($5.00 per cap X 100 caps), or approximately $41.00 per hour.
Really made some money there, right? Well, possibly, but that completely depends on your cost of being in business. At this point, to determine if you actually made money, you would need to do the arithmetic and subtract your cost per hour from the gross profit per hour of $41.00. Would you have made money based on your calculated costs?
As a further example, cut your gross profit in half to explore the scenario in which you would have not provided the cap but just the contract embroidery, at a price of $2.50 per cap. Everything else stays the same, but your gross profit per cap now becomes $2.50 and your gross revenues per hour now become approximately $20.50. Now, subtract your hourly cost of doing business from $20.50 - did you make a profit on the contract side of the business?
You can see from the examples used here that it is very important to obtain the item being embroidered at a wholesale price - in our example it doubled the gross profit. Also, lower hourly costs equal more profit for your bottom line.
If your production capacity is low, such as a single, two or three head machine, find a profitable niche that likes what you do, how you do it and is willing to pay for it. Avoid the larger market in general if possible unless you plan on contracting out your embroidery orders. Since your capacity is in the lower range, you should strive to fill your potential hours of production with work that is as profitable as possible.
It is likely that some readers of this guide expected some sort of a pricing chart to be included, listing out specific examples of how much to charge and when to charge it. Hopefully, at this point, it is obvious that to do so would have been impossible.
The process of pricing is largely conceptual and somewhat mathematical. Every one does it just a little bit differently. Be sure that when you price your work that you approach the situation as a totally knowledgeable participant. You must know your costs, the pricing structure in your market, how low you are willing and able to go to get the order and lastly, you must be willing to walk away from an order that will create "cash flow" but zero profit, or even worse, a loss.