New version of TrueSizer e2 available now
Register | Login
Pricing

By Wil Parker

The primary goal of a business is to make a profit, but many embroidery businesses fail to do so because they do not price their products and services appropriately.

There are essentially two types of embroidery businesses, contract and finished goods.  Contract businesses do embroidery on customer provided blank products. Finished goods businesses purchase the blank products and add embroidery, either for stock or for a custom order.

Typically contract embroidery is very competitive and the customers are price sensitive.

Finished goods businesses offer a one stop shop and so they can often charge a premium, for convenience and time saving. The price per item is high since it includes the embroidery and the product. But they have the added complexity associated with helping the customer make product selection and the purchasing of the product.

No matter whether you are going to be a finished goods or a contract embroiderer you need to be charging the right price.

But what is the right price? Well there is no one right price; it depends on; what you are selling, your customers, the market and how your business is set up. This means you need to know who your customers are and what they want and are prepared to pay, what your competitors are charging, and finally you need to know your costs.

If you are lucky enough to be providing a unique service to a niche market you will be able to charge a premium, if not then your price will need to be competitive and you will have to more closely manage your costs.

There are a number of different approaches to pricing, but no matter which one you choose you need to be covering your costs. Work with your accountant or business consultant to do some forecasts and decide how you will allocate your costs, so that your pricing model achieves your profitability target.

Some common pricing approaches are:

Going-Rate Pricing

This basically means finding out your competitor's prices and then basing your prices on theirs.

This is a popular approach, however its weakness is that it ignores your costs and is based on the assumption that the competitors are profitable. If you use this approach it is important to base your prices on competitors who you believe are profitable, are of a similar size and who are offering similar products and services.

This approach is fairly easy if you're doing contract embroidery, in fact you will probably find your competitors print or publish an embroidery price table.

If you're doing finished goods, it is more complex as the price of the blank product is generally the dominant factor in the pricing. If competitors do not separately publish their embroidery price tables then you will need to get pricing on a broad range of products and different embroideries to determine their pricing model. In many cases you will find businesses who have inconsistent pricing, if you find this then don't base your pricing on theirs.

Competitor's web sites are also a good source for finding out 'going rate' pricing for finished goods, providing the information is current.

If you are a finished goods embroiderer and you can't find a sensible competitor pricing to determine the "Going-rate", then you have little choice but to add the "Going-rate" for embroidery to the product suppliers recommended retail pricing. Since you and your competitors are likely to be purchasing products from the same suppliers it is not unreasonable to assume that they are buying at the same rate as you.

Discount Pricing

Discount pricing means that your prices are less than your competitors and you will be promoting yourself as a discount business. To succeed you must have lower costs, this can be achieved by negotiating with suppliers to get lowest prices, having a lower cost facility, limit the options and products you offer, and if you are keeping inventory then by only stocking what sells.

The disadvantage of this approach is that the customers attracted will be price sensitive and are likely to want to negotiate. They will want to know separate prices for the embroidery and blank product and they will play you off against larger discount retail stores and other competitors. 

Discounting is a risky approach, the tight margins mean you have to closely monitor your costs and adjust prices to make sure you remain profitable; you can also end up in a price war with competitors which could send you broke.

Premium Pricing

Premium pricing relies on you providing a superior service so that the price is not the customer's main focus. Superior service could be speed, quality, customer service, convenience, location or exclusive products or services. Typically the attracted customers are willing to pay a premium and are not interested in a detailed price breakdown. So the prices for the product, embroidery and other services can be rolled up into a single price which discourages the customer from shopping around.

To determine what your premium price is going to be, you first find out what the "going rate" is, then add the estimated value of the special customer benefits you offer. Make a list of these benefits and then estimate what you think a customer would pay for them. For example; if you guarantee a 2 day service you might estimate that this justifies a 10% premium, you also estimate your personal service adds another 5%, add all the premiums to the "going rate price" and you will have your pricing model. The Premium pricing approach is subjective and will probably need fine tuning. If you find you are not getting enough work then maybe your estimate of your special benefits was too high, if you have too much work you could be underestimating your special benefits.

If you adopt this approach it is important that you are consistent and that you don't erode your own price strategy by cutting prices for no reason, to win a customer or job. Once you do this you are setting a precedent for future orders, and you will be surprised how quickly other customers will find out about that special deal you offered. If you choose premium pricing it is better to provide additional services than discount your price.

Cost based pricing

This approach relies on you determining your costs and then adding a margin. This may seem like a logical approach but it completely ignores market forces and you may either be missing out on work because you are over priced, or you may be charging less than the market is prepared to pay.

Embroidery Pricing

Historically the embroidery industry has used a price table where the price is based on the embroidery's stitch count and the quantity plus some set up charges. This is a fairly simple approach that most customers can understand.

pricing_table.GIF

When you are setting up your embroidery price table you need to decide on your stitch and quantity breaks, make sure you have enough quantity breaks otherwise you will find that the prices are distorted between quantity breaks.

If you are running a finished goods business you may even decide to use a simpler approach where you increase the price of garments so that they include one embroidery in a nominated location, and have additional charges for variations or additional embroidery. This approach works if your margin on the raw product is high relative to the embroidery cost.

The cost of embroidery depends on the time a job will take and how you allocate your business costs. If you are unsure of how to allocate costs get your business consultant or accountant to help you.

The time taken to produce embroidery depends on the following key factors; the embroidery characteristics, the type of work, the type of machine used, operator experience. See table below for more on factors affecting production time.

Obviously, to make a profit on a job the price you charge must be higher than the costs associated with it. But there does not need to be a direct relationship between cost and price, ie your pricing doesn't need to always be 50% more than your cost. The reason is that the amount your customers are prepared to pay is influenced by many market forces including; competitors prices, alternative decorative processes, perceived value, urgency etc. So your margin may vary by type of work, quantity, product, customer etc. The actual price table you develop also depends on your pricing approach (premium discount etc).

It is likely that you will end up with multiple price tables for different types of work and probably a few special price tables for selected customers, this is normal but don't create too many as you will have to manage them.

When you start using your price tables make sure you review your job times and cost regularly to ensure you are making the profit you want, if not you will need to adjust your prices.

Unless you have to, don't hand out or publish your price tables, customers will use them to shop around and competitors will also get them and use them against you.

Artwork and Design charges

Customers will expect you to quote on the creation of the design, and if they don't have production ready artwork you will end up creating artwork as well.

If artwork has to be created you should charge separately for this, and it should be based on the complexity of the artwork.

Historically design creation has been based on stitch count but with modern embroidery software, stitch count is no longer a realistic indicator of the time it will take to create the embroidery design. Rather the time taken is dependant on your company's digitizing skills and the design's complexity ie; how many shapes and their outlines complexity, and any special artistic features. So if the market allows quote on complexity.

Estimating how long a design will take to do is something that you will learn over time, but be aware that the process of creating artwork and the final embroidery design can be a drawn out process, and if you spend more time on it than you quoted it can make a small job unprofitable.

Product Pricing

The price you charge your customer for the blank product depends on the pricing approach you decide to take. If you are unsure of what you can charge, then use the suppliers recommended retail price as a starting point. Your price needs to be high enough so that the margin you are achieving is sufficient to give you a profit after all the purchasing and handling costs.

Costs

No pricing discussion is complete without a discussion of costs, your pricing decisions and your operating costs determine your profitability.

Identifying your business costs is fairly easy but how you allocate those costs is trickier, you will need to work with your business consultant or accountant to come up with a cost allocation strategy. As part of the cost allocation process you will have to do some forecasts and identify which costs are fixed (cost which do not vary with the amount of work you do, eg rent, depreciation… ) and variable costs (cost which vary with the amount of work you do, blank product). For some variable costs you will find it difficult to track to a particular job, and so you may decide to treat them as fixed costs and amortize them across all jobs, be aware that this can lead to distortion of job costs.

 If your business grows or changes significantly, you will need to review your cost allocation to make sure it still makes sense.

Conclusion

There is no such thing as the right price, since the market place and conditions are continually changing; all you can do is come up with a pricing that is appropriate for your business and your customers. And most importantly it is important to monitor your business and market to make sure your pricing makes sense and that you are covering your costs and maximizing your profit in a way that your business can continue to prosper in the future.

 

Appendix: Key factors affecting embroidery production time

Factors affecting embroidery time are summarized in the table below.

Factor

Description

Setup

Each job no matter how small involves setup and handling. This is usually a fixed time. It does not generally vary by quantity and can include such things as order handling, machine setup and teardown.

Quantity

The number of pieces is one of the primary factors affecting production time, and different quantities will be produced more efficiently on different machines sizes.

Stitch count

Embroidery machines have a maximum stitch rate so the more stitches there are the longer a job will take.

For existing designs you will know the stitch count but for new designs you estimate what you think the stitch count will be. For low volumes the accuracy of the estimate is not critical as the handling and setup costs are the largest cost factor. For higher volumes, it is more important that your stitch count is more accurate.

Colors

Machines have a limited number of needles/colors. If the embroidery colors aren't already on the machine the operator will have to load them. If you can limit the number of colors you offer your customers then you will have less color changes and your production efficiency will increase.

Type of work

Cap, shirt, jacket, badge etc, all impact on the hooping time and potentially on the job setup time. If the machine is set up for caps and a shirt job is next, the frame will need to be changed. If you feel it justified, you may want to set up special price tables for certain job types—e.g. caps.

Fabric

The maximum speed a job can be run is dependant on the fabric. Fabrics may not be the same for all panels of a garment or the same for all colors in a style.

Location

The embroidery location affects hooping time and potentially machine speed—e.g. across join on a cap.

Machine

All machines have different performance characteristics and capabilities, and different jobs will take different times on all your machines.

Experience

Operator skill and experience will affect the production time.


Posted on Saturday, February 10, 2007 (Archive on Monday, January 01, 0001)
Posted by EMBStartUp  Contributed by EMBStartUp
Return

Did you like this article? Rate this article and share your comments below!

Rating: 1 = Poor : 5 = Excellent


Rating:
Comments:
Save

Current Rating: 4.57
Rating: 5
Rating: 5
Rating: 5
Rating: 3
Rating: 5
great information
Rating: 4
Rating: 4
For someone who is just starting out. This was very helpful and insightful.
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 3
how the no.of colors in a desogn affect its pricing. how the size of the design affect its pricing.?
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 5
great help thanks
Rating: 5
Rating: 4
Rating: 5
Rating: 5
I am just starting to look into the embroidery business and found this article very helpful. It presented many things to consider.
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 4
Rating: 5
Rating: 5
Rating: 5
Very concise and informative
Rating: 5
Very helpful
Rating: 5
Rating: 1
Rating: 5
Rating: 5
Rating: 4
Rating: 5
Rating: 5
Rating: 5
I like!
Rating: 3
Rating: 5
good info
Rating: 5
Rating: 5
Great
Rating: 5
Rating: 4
It gave me something to go by. I will need to study it some more.
Rating: 3
Gives you lots to think about. Cool....
Rating: 5
Great info
Rating: 5
Rating: 5
Rating: 1
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 3
Rating: 5
Your price table and appendix were the most helpful and quite well done
Rating: 5
Rating: 5
Rating: 5
Rating: 3
Rating: 4
Rating: 4
Rating: 5
priceing for dummies
Rating: 5
good work,very informative...
Rating: 5
Rating: 4
Now I am scared about doing some work from home !
Rating: 5
Rating: 4
strating up business price help alot
Rating: 4
Rating: 5
Rating: 4
Rating: 3
Rating: 5
Rating: 4
Rating: 5
Thanks!
Rating: 5
Rating: 5
I'm looking at buying an existing embroidery shop without having any knowledge of this type of business. I found this article extremely informative. T
Rating: 5
Rating: 5
Thanks just starting and pricing is a big question... thanks
Rating: 4
Rating: 4
Rating: 5
Thanks for the great info
Rating: 4
Rating: 4
Rating: 4
Rating: 5
very good info thanks!
Rating: 5
good info
Rating: 4
my head is spinning!
Rating: 3
Rating: 5
Vey useful info
Rating: 5
Rating: 5
Rating: 5
Info was good
Rating: 5
Rating: 5
Very informative
Rating: 5
thanks for the insite
Rating: 5
Thanks very informative and easy to understand
Rating: 4
Rating: 5
Rating: 5
This is just what I've been looking for.
Rating: 5
very good, I had no idea on pricing this has made it very clear. thanks
Rating: 5
Great help
Rating: 5
thank you!!I agree with Margaret
Rating: 5
very helpful and informative.
Rating: 5
Rating: 5
thanks...i've been so lost. Lillian
Rating: 5
I have been so lost on how to price an item. Now I at least have a place to start. Thank you for this wonderful information. Margaret
Rating: 5
Brill
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 3
Rating: 5
Rating: 4
Rating: 3
Rating: 5
Do you have a pricing guide for Australian Dollars
Rating: 4
Rating: 4
Rating: 3
Rating: 5
Rating: 5
very helpfull for for a newcomer to the embroidery business. Thanks!
Rating: 5
Rating: 5
Rating: 5
Rating: 4
How do you justify a quantity price break? Quantity price breaks usually rely on some type of learning curve. If one has a one-head machine doing th
Rating: 4
Rating: 4
The chart and the appendix are very helpful. Thanks!
Rating: 4
Rating: 5
This is exceptional and was very informative in particular understanding "how to" price
Rating: 3
Would be great if there were average set up prices for items like a simple 3-letter monogram, etc.
Rating: 3
Rating: 5
The chart was a big help
Rating: 5
The chart was a great help to me. thank you
Rating: 5
Rating: 3
Rating: 5
Rating: 5
Rating: 5
Love the chart, for the first time I understand how to price my work.
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 5
Rating: 4
Rating: 5
Excellent!
Rating: 5
Copyright 2013 EmbroideryStartup.com Advertise with us :: Privacy Statement :: Terms Of Use