Pricing is probably one of the more difficult challenges faced by the embroiderer. Charging too little will cause profitability problems and make it harder to expand the business in the future. Charging too much makes it difficult to sell in a competitive market.
The goals of this article are to provide insight on establishing pricing by considering the cost characteristics of you business as determined by customers’ needs, and to provide suggestions which might help you become more successful.
Know What You Are Selling
Pricing must be based on thoughtful analysis of your embroidery business. All aspects must be considered and examined starting with knowing your product.
The following questions will help you define what it is you’re selling: Are you selling embroidery? Are you selling items that can be embroidered? What services do you offer? Do you offer custom digitizing, stock designs, lettering and/or monograming? Do you have any specialties such as embroidering on leather, finished caps, etc.? The more details you know about your business, the easier it will be to establish a method of pricing.
Customer Base and Needs
It’s obvious that you can’t address the entire embroidery market. You must target the embroidery market segment that you want to serve. Target customers who will benefit from your services. The answers to the following questions will help you get a clear understanding of your customer base.
- What kind of services do these customers need?
- How can you service those needs better than your competition?
- Do they need a high degree of assistance in design selection, design layout, and the selection of garments; or do they know what they want in advance of contacting you?
- What are the quality expectations of these customers?
- Do they need quick turnaround of their orders?
- Do they need pick-up and delivery services?
- Do they require special packaging?
Knowing your customers’ needs enables you to provide them with the desired products and services, and will enable you to work the related costs into your pricing picture. The following are two types of embroidery operations that serve different market segments.
The first scenario is for a retail establishment. In this case, the customer’s orders range from one piece to perhaps 72 pieces; with the majority of the orders falling into the range of 1-24 pieces. This customer base is comprised of small businesses and individuals. This operation utilizes two embroidery machines – a single head and a four head. This retail business deals directly with the customers and needs a location that is convenient. Since the customer will be purchasing a variety of items for personal use, having a variety of stock designs is a great sales tool. The retail store will want to either stock some garments or at least have some samples on display. Selling garments is a good way to add to total revenue and profit. The customer in this case typically expects personal service and rapid turn around time.
The second scenario is for a contract embroidery firm. The typical customer for this firm is an ad specialty account that has large orders of 144 pieces or more. The ad specialty customer allows an average delivery time of three weeks. In this case, the customer provides the garment and often accepts a two to three percent spoilage rate in exchange for a lower piece price. Here, the embroidery firm operates two or more 12 head embroidery machines and is located in a low-rent industrial park. Garments are not stocked and only custom digitizing is offered, as there is little need for stock designs. Pricing for this type of business will be relatively low compared to the retail example.
The retail embroidery business requires a lot of interaction between the business’ employees and the customer. The order quantities are relatively low and the order is completed using smaller embroidery equipment. Retail embroidery operations have a higher overhead in relation to the number of piece produced.
The contract embroidery firm requires little interaction between the business’ employees and the customer. The ad specialty customer typically has some understanding of the embroidery process, which makes taking orders less time-consuming. Contract embroiderers use large equipment and usually run two or three shifts which spreads the fix costs over a larger number of pieces produced.
It is probably obvious to you that the two companies illustrated above are not competition for each other. Each has its niche and can determine prices based on its cost and desired profit margin. It would be impractical for either to focus on the other’s price list and try to compete because each is serving two different types of customers.
Understanding Profit and Cost
Your selling price must cover your operating costs and provide a profit. Costs are usually categorized as being fixed or variable. Fixed costs sometimes referred to as overhead do not change with change in the level of production. Variable costs change proportionally to changes in production volume. Rent would be an example of a fixed cost while supplies would be a variable cost. Knowing how to relate cost to your product and service is fundamental to calculating your selling prices. Due to some inefficiency in your business, some of these costs may be higher than necessary.
Examine your operation’s work functions for efficiency. Carefully evaluate everything from working with customers, paper handling, embroidery programming, hooping, sewing, garment handling and cleanup. Take special note of things that your employees do well so that you can build on those positive strengths; also note areas of inefficiency so that suggestions can be made for improvement. Ask for help from employees and be open to their suggestions.
Use this information about the work functions of your company to initiate a plan of action to improve efficiency and eliminate unnecessary costs. Having your employees’ input and support will ensure greater success in reaching your business’ efficiency goals.
Thoroughly train employees in any new procedures that will be implemented to ensure an opportunity for early success. Consider accessories to improve their workstations both for employee comfort and productivity. Also give them the opportunity to tell you if a new procedure is just not working. Continue to evaluate to see if you are getting close to your efficiency goals.
Tips for Success
Hire employees who have good “people” skills, who have a good sense of design and color, and who will be dedicated to your organization.
Know your prices and speak them with confidence. A pause when quoting prices will place doubt in your customer’s mind. Practice saying your prices until you can say them with confidence. Have representative samples of your work marked with actual prices. Refer to a discount chart if you offer discounts because this builds credibility. Treat all customers alike; don’t offer favors you can’t repeat. People buy on trust, and if that trust is broken, it is hard to get that customer back again.
Recognize that there are costs to taking orders. Establish a minimum dollar amount per garment for embroidery. Sometimes more time is spent taking an order than performing the work. Charge for programming custom designs, and charge for combining stock designs with lettering.
When quoting jobs, always do so in writing. Date the document and include and expiration date. Be sure to indicate prices for larger and smaller quantities to eliminate confusion when the customer brings in a single garment instead of the 144 quoted on.
Establish a pleasant environment for you customers. Be sure your showroom is neat, clean and well maintained. Frequently walk in the front door and ask yourself if there is anything that can be improved. A customer’s first impression of your business often determines whether or not he will buy from you or your competition.
Target customers who will benefit from your services. Service those customers better that your competition. Keep your operation efficient, your quality high and state your price with confidence.
Ruth Guenther will be presenting 2 Seminars at the 2016 DAX Shows
- The Art of Hooping Difficult Fabrics
- Spectacular Embroidery Effects
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