The exact formula for embroidery and creating a profit seems to be different for every embroiderer that I work with. The information that they have received from other embroiderers and the information that is available on the internet can be very controversial.
There are many ways to figure pricing and the markup on your embroidery and the items that you are selling with embroidery. I have always figured a 50% markup on goods after I have added the shipping cost and then the embroidery can be marked up to whatever your market will bear or what you want for a profit on it. You must make a profit. That is Business! If you are counting on working with embroidery alone and not selling items to markup, you must mark up your embroidery higher to make up the difference.
Some embroiderers markup their products double what it costs them from the distributor and then they will give the embroidery at cost. It is your choice as to how you want to figure your markup, but you must make a profit or do not bother to stay in business. It will be a losing battle for you that you will not win under any circumstances.
When you are figuring your pricing, do not be fooled by thinking that you can charge for the stitch count only. If you have taken my how to price embroidery course then you know exactly what I mean. If you have not, then you will need to add to your stitch count cost, all of the other items that go into the process to actually figure your pricing. If you charge by stitch count alone, you will find very quickly that you are not making enough money.
The cost for each embroidery is based on the hourly cost rate that you must have to break even, plus, plus, plus! This is a must!
Can A Small Business Embroiderer Make Money Doing Contract Embroidery?
I always advise my students not to take in contract work. Does this mean that you do not do any items that are brought in to you! No, I mean do not think that you are going to run a successful embroidery business on doing items for other people alone. This will not work. You must have a mix of selling your own items and doing items that are brought into you.
Many times you are approached with the idea that if you do large quantities for other people and work on a slim margin, that you will make the money you need because you are keeping your machines busy. This approach is not a good one. You are better off going out after your own work and concentrating on selling your own items, marking them up and adding your embroidery. This is how the successful embroidery shop owners operate.
When you have retail customers that bring in their own items, this is fine, but you want to remember to add more of a markup for the embroidery because you are not making a profit on the item that they brought in. Many times you will find that it costs you to do that one item so you need to establish a minimum charge for someone that brings an item into your shop for you to add the embroidery. My minimum charge is $20.00. You must figure yours. This means that if they bring in one item even if it is just a single name on a jacket, it is $20.00. It all depends on the actual embroidery, the price and how long it takes to do it. You must be paid for your time.
Here Is A 10 Step Formula For Creating Embroidery Pricing That Will Make You A Profit!
Step 1: Figure all of your base costs so you will know exactly what your breakeven point is per month. Figure what your breakeven point is per hour to cover all of your overhead costs.
Step 2: Divide that cost into minutes and then into seconds.
Step 3: Go through all of your processes to determine how much time each process takes and what the cost actually is for each process. Multiply the time for each process by the cost per minute or seconds. (This is your production cost, hooping, steaming, packing, waiting on customers, planning, etc, beyond your stitch count running time)
Step 4: Add those figures together to figure out what your actual production cost is per minute beyond the stitch count.
Step 5: Multiply your costs per minute by how many hours you run your business per day to get your daily breakeven point. You now know exactly what it costs you per day to operate your business.
Step 6: Figure out how long you are actually running your embroidery machine per hour. (How many minutes of the actual hour your machine is running) If you are only running your embroidery machine 30 minutes during the hour, your breakeven point is going to double for the hour. If you are charging by the minute when the machine is running and not for the time that it is sitting there doing nothing, you are losing money.
If you figure out that on an 8 hour day your machine is running a total of 4 or 6 hours, you must divide your total daily breakeven point into the 4 or 6 hours to arrive at your true breakeven cost per hour. Divide that cost up into minutes. You will now have a true cost per hour that you figure your pricing on for stitch count per minute of machine running time.
Step 7: You will have to figure out how long it takes to run a design on your machine by the stitch count. Multiply that running time by your cost per minute. When you are timing your designs, do not forget the color changes and trim times. You are actually figuring the total time, start to finish, not just the stitch count run time.
Step 8: Add the Stitch Count cost to the Production cost in Step 4. You will now have your true cost per design for however many stitches are in your design. You just cannot figure your pricing on stitch count alone. It does not work and will not make you any money.
Step 9: Figure what you want to add for a markup. Without a markup, you do not have any profits to build or grow your business on. You cannot do it just charging for your costs. After your markup, you now have the selling price of each embroidery per stitch count.
Now you can Create your price list based on the actual cost of each design. You will need to experiment and run several stitch count samples to come up with a good cost per thousand stitches for your price list.
Step 10: Create a price list for the items that you sell. Take your purchase price from the distributor and add the shipping cost for your true cost and then add a markup. Add your embroidery to create your total selling price.
I hope that this formula will help you to think about how you figure your pricing. This formula works. Pricing your embroidery for a profit is not hard. It does take time to get this all figured out, but you must take the time to do it in order to make a profit with your business. If you cannot make a profit there is no point of staying in business! I know that this sounds like you are going to have a very high price for your embroidery, but that is what you should be charging for your embroidery! Most embroiderers are not even covering their costs, let alone make a profit!
To get more information about how to price your embroidery and get access to my simple system of pricing, go to http://HowToPriceEmbroidery.com You will be able to create your own profitable price list quickly!