What you need to know when starting an embroidery business
2023-12-19
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2023-12-29
Pricing embroidery works is often a challenging task for those new to the embroidery shop. How are embroidery works priced? We have been asked this question a lot recently. Obviously, this is a hot topic and now is the time for us to provide you with effective pricing methods.
In this article, we will introduce four pricing methods, each of which has its use cases. These methods are for reference only, and you can decide how to price based on your actual situation.
Without much ado, let's get started! This article will introduce the following pricing methods:
#1 Charging $1 per thousand stitches
#2 Overall pricing method
#3 Charging by the hour time
#4 Charging based on your expertise
Method 1: Charging $1 per thousand stitches
You may have heard of this method: charging $1 per thousand stitches. This method is very old and has been used since the early 2000s. It may have worked 20 years ago, but now this approach is somewhat outdated. If you're still using this pricing structure, it may be not that suitable.
In some designs, charging $1 per thousand stitches may work; it may also work if you have multiple heads. But in general, this approach is no longer suitable in most cases. While this method is still popular, it shouldn’t be your primary method of billing. If you want to go with the $1 per thousand stitches approach, you can combine that with charging by the hour time.
Method 2: Overall pricing method
The basic logic of the overall price pricing method is : calculate the total cost that the customer should pay for this order, divide it by the number of pieces in this order, and finally obtain the price of each piece of embroidery. Sounds simple, doesn't it? The key point is to calculate the overall cost that the customer should pay for this order.
We use this formula to calculate the overall cost, that is : Expense + Profit = Total Price.In order to get the total price, we need to first calculate the expense and profit.
Okay, let's first take a look at what costs we will have. There are many expense factors that we need to consider, but they can generally be divided into two major categories: fixed expenses and variable expenses.
Fixed Expenses
Fixed expenses can also be called business expenses, which are any costs that do not change as the number of orders increases or decreases. Regardless of whether you receive an order or not, and regardless of the quantity of your order, you must pay this fee every month. These expenses will repeat in each month, and the monthly changes are not significant.
It’s crucial to factor this cost into all your orders, as your order needs to be able to cover your fixed expenses when you finish the day's work.Typically, fixed expenses include: rent, utilities, employee salaries, insurance, monthly maintenance fees, and other common expenses.
Based on your monthly expectations, you'll need to spread these fixed expenses over each of your orders and calculate how much fixed expenses need to be allocated to each piece of embroidery. This number is different for every embroidery shop owner, and you need to set a reasonable number based on your actual situation.
Variable Expenses
Variable expenses fluctuate with order quantity, depending on how many orders you receive.This part of the cost is mainly the expenses of your embroidery materials, including: Garments (blanks) and consumables (such as: needles, threads, stabilizers). Depending on the actual situation, you need to allocate this cost to each of your orders and calculate how much expenses to allocate to each piece of embroidery.
Next, let’s consider where you can make a profit.You can consider profits from two aspects: time compensation and markup on garments.
Time Compensation
Time is our most valuable asset, and you need to let customers pay for your labor time, which is also the most important charge item.When processing each order, you need to objectively judge how long the order will take you, and then charge the appropriate time compensation accordingly. As for how much each hour of time is worth, this varies from person to person and depends on many factors. You need to set an appropriate number for it based on your actual situation.
Markup on Garments (Blanks)
You can also make extra profit by adding a markup to the cost of your garments. Usually, we can mark up 50% on the cost of garments. For example: If you buy a T-shirt for ten dollars, you can add 50% of the ten dollars, which is an increase of five dollars. Of course, you can also increase the price by more or less, which needs to be determined according to the actual situation. For example: when embroidering hats, you can add more to the price because people like hats and are willing to pay more for a personalized hat.
How to calculate the price of each piece of embroidery
OK, after sorting out our cost factors and profit factors, we will officially start to calculate the price of each piece of embroidery. Here, we use an example to illustrate.
Step 1: Calculate our total cost
Formula: Total cost = Embroidery pieces X [Fixed cost allocated to each embroidery piece + Cost of each garment + Consumables cost allocated to each embroidery piece]
We make the following assumptions: Our order for this time is 20 T-shirts. The fixed cost we allocate to each T-shirt is $8. Our purchase cost of each T-shirt is $10, and our shared consumables cost on each T-shirt is $5.
Then the total cost will be: 20 X [8+10+5] =$460
Step 2: Calculate our total profit
Formula: Total profit = Time compensation + [Embroidery pieces X Markup for each piece of garment]
We make the following assumptions: We need 4 hours to process this order, and decide to charge $150 for this time. The purchase cost of each T-shirt is $10. We decided to increase the price of each T-shirt by 50%, which is an increase of $5 per T-shirt.
Then the total profit will be: 150 + [20 X 5] = $250
Step 3: Calculate the total price we should charge
Formula: Total price = Total cost + Total profit
Based on the calculation above, the total price will be: 460 + 250 = $710
Step 4: Calculate the price of each piece of embroidery
Formula: Pricing of each piece of embroidery = Total price / Embroidery pieces
Based on the above calculation, the pricing of each piece of embroidery will be: 710 / 20 = $35.5
This is how overall pricing method works.
Next, let’s move on to the third method: Charging by the hour time.
Method 3：Charging by the hour time
The calculation method of charging by the hour time is somewhat similar to the overall pricing method, but it is a different method that pricing embroidery from the perspective of hourly payment.
Everyone is familiar with paying by the hour, which is a common method. You need to figure out how much profit you want to earn per hour, which is only known to yourself and not to your customers. This number is a baseline that you need to use for calculation when pricing.The basic logic of charging by the hour time is to first calculate the cost of each embroidery item, then calculate the profit amount that needs to be added to each embroidery item based on the target profit per hour, and finally add it up to obtain the final pricing of the embroidery item.
Okay, let's first take a look at the cost of each piece of embroidery.The cost here includes several aspects.
First of all, the cost of the garments (blanks). Here we assume that the cost of each garment is $10.
Next is the cost of your consumables, such as needles, threads, and stabilizers. You need to make a reasonable judgment on how much consumables will be incurred for producing each piece of embroidery. When processing different orders, this number may vary slightly. For example, when embroidering a product with a large number of stitches, your embroidery thread will be consumed more, which will increase the cost. In this regard, you need to accumulate more experience to determine the most suitable number. Here, we assume that producing each piece of embroidery will cost you $3.
In addition, some of your fixed business expenses should also be taken into account. You need to calculate all of your business expenses and then allocate these expenses to each piece of your embroidery. When calculating this number, you need to clarify which items you pay for each month, such as rent, utilities, and so on. And, you need to estimate how many orders you can receive each month.
After sorting out these two figures, you can easily calculate how much business expenses need to be shared for each piece of embroidery. For example, if you need to pay a total of $1500 per month for various business expenses, and you can complete 750 embroidery pieces per month, then the business expenses allocated to each piece of embroidery is: $1500/750=$2. Next, we calculate the amount of profit that needs to be added to each piece of embroidery.
Formula: The amount of profit that needs to be added to each piece of embroidery = the target profit amount per hour / the output per hour
Obviously, first you need to figure out how much money you want to make per hour. This is a payment for your time, this number is based on your actual situation. Then, you need to objectively judge how many pieces of embroidery work you can produce per hour. This number will vary somewhat when you process different orders. You know, many factors will affect your working speed and production capacity, such as: different embroidery products, different designs, different embroidery machines, etc.
After getting the figures from the above two aspects, you can start to calculate the amount of profit that needs to be added to each piece of embroidery. For example: Suppose you want to earn $60 per hour, and you can produce 4 pieces of embroidery per hour, then the amount of profit that needs to be added to each piece of embroidery is: 60 / 4 = $15.
Okay, let’s finally calculate the pricing of each piece of embroidery.
Formula: Pricing of each piece of embroidery = Garment cost + Cost of consumables allocated to each piece of embroidery + Business expenses allocated to each piece of embroidery + Profit that needs to be added to each piece of embroidery
According to the above calculation, the pricing of each piece of embroidery will be: 10 + 3 + 2 + 15 = $30
This is how the charging by the hour time works.
Next, let us introduce the last method: Charging based on your expertise.
Method 4：Charging based on your expertise
Finally, let’s introduce the fourth method: Charging based on your expertise.
This method is different from the previous methods, it is only suitable for a few people. If you have extensive experience in a specific garment industry, or are particularly good at doing certain types of projects, and people always come to you to do certain projects, then you are particularly suitable for this pricing method.
When using this method, you will still continue the final pricing formula of charging by the hour time, which is: Pricing of each piece of embroidery = Garment cost + Cost of consumables allocated to each piece of embroidery + Business expenses allocated to each piece of embroidery + Profit that needs to be added to each piece of embroidery
The difference is that when calculating the profit amount that needs to be added to each piece of embroidery, we no longer consider the target profit amount per hour and the output per hour. Instead, we decide what that number is in another way: by setting the profit amount based on your expertise.
It's not hard to imagine something that will always happen, that is: there will always be people who don't mind the price, as long as they get what they are looking for, they are willing to pay for scarcity value. They may want to do embroidery customization on unique garments, they may want to make unique designs, they may have special requirements for the quality of the embroidery, or they may only have special requirements for the delivery time of the order. In summary, their order requirements are not routine.
At this time, if you can show your expertise and use your expertise to solve the special needs of customers, then you can charge for your expertise and earn some extra profits on each piece of embroidery.When it comes to determining how much profit you make, you have a set price and a lot of that price has to do with demand. What you have to do is try your best to become an expert in a certain field, and preferably this field has a large enough market demand.
Don't think it will take 20 years to become an expert in a certain field. All you have to do is find a goal that you will work in every day. You will be committed to that specific goal and master the relevant skills, then you will reach that level.When you reach that level, you can increase your regular profit to a higher level. Your profit will no longer be a regular profit, but a high profit, that's because of your expertise.
Okay, this is how to charge based on your expertise.
Okay, that’s all we have to share today about how to price your embroidery. When you quote a price to a customer, you need to calculate your final price based on actual conditions. In fact, when we report the price of embroidery to customers, this price is often challenged by customers. We also need to learn how to make reasonable adjustments to the final price. We will continue to discuss this with you in subsequent articles. See you next time!