Guaranteed Profits for Embroidery - Part 4

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If you have a calculator and an embroidery log with a number of varied jobs in front of you, you have everything you need to calculate two out of the four timeframes you need for pricing embroidery. The other two timeframes will take a little time and observation, as well as a clock with a second hand or stopwatch.

The first timeframe you need to calculate is called the Hooping Time. Your logs don't record how long it takes to hoop a full run of garments to make them ready to embroider. It's not really an oversight of the embroidery log, but a matter of technicality. Hooping the garments isn't normally considered part of the embroidery run, you usually hoop the next run of garments while the current batch is running. Some shops have separate personnel who hoop all the garments for an order, passing the hooped garments to the machine operator. Either way, it isn't the kind of timeframe the embroidery log should be looking for, but it is a timeframe that is important to the pricing process - even though it's not really part of the pricing calculation. We'll explain that conundrum on the next page.

To create a Hooping Time figure, you'll need to have a few orders ready to be embroidered, along with hoops & backing. You will want to set out the proper number of garments for one complete run. For example, it you are creating a hooping time figure for a six head machine, you need six of the garments for the order. If you are creating a hooping time figure for a single head machine, you need one of the garments for the order.

1. Start the stopwatch, or note the time on the clock and begin hooping the garments. Don't race - you want to proceed at a normal pace that represents a normal day in the embroidery shop.
2. Record the total time, and then repeat with the next batch of garments, averaging the time from several batches in several orders.
3. You'll need a hooping time figure for each type of machine in your shop, i.e. single-head timeframe, four-head timeframe, etc.
4. If you wish to be more accurate, you can create hooping timeframes for different types of garments, such as caps, shirts & jackets. Most people don't feel inclined to do so, and you can make your decision after you see how this figure is used on the next page.

Reload Time is the next timeframe you need to generate, and doing so requires the tools and hooped garments that you created in the last step. Reload time is exactly what the name implies. It is the amount of time that normally passes between the time your embroidery machine finishes sewing on a batch of garments, and the moment the next run begins. It accounts for the amount of time used to remove all the embroidered garments from the embroidery machine, insert another batch, and perform any tasks that get the machine sewing again. You might need to inspect bobbins at this time, inspect or occasionally change a cone of thread, and push a few buttons to make the machine spring back to life. With your clock or stopwatch and a number of examples to average, you'll want to create a reload timeframe for each type of embroidery machine in your shop.

Your embroidery logs are used to calculate the remaining two timeframes, the first of which is the Setup Time. If you are using the SMR Embroidery Log from the link on the previous page, you'll see that you have columns marked "Setup Start," "Setup End," and "Total Setup." When an embroidery machine operator is filling out the log, that person will enter the time of day when he or she began preparing the machine for an order in the "Setup Start" column. While setting up the machine, the operator will probably find the customer's design, send it to the embroidery machine, check bobbins, setup the needle order, hoop the first batch of garments and load them into the machine. Once the operator is ready to push the "Start" button on the embroidery machine, he or she enters the time of day into the "Setup End" column. At some point, the operator or some other person should determine how many minutes passed during this process, and enter that figure into the "Total Setup" column for the job. Arriving at an average setup time for pricing is as simple as adding up the number of minutes in the entire "Total Setup" column on the log, and dividing that figure by the number of jobs.

The other timeframe that your logs provide is the average Running Speed of your machine. Some people will tell me that their embroidery computer gives them this information, or they will tell me that their machine always runs at a certain speed. I would not recommend using those figures, as your machine varies it's speed to accommodate different lengths of stitches, and your computer's reports are generated in a manner to portray the most favorable results. To gain an accurate figure you will need to calculate it from the embroidery logs. Again, if you are using the SMR Embroidery log, you will have columns for Production Start & End, Total Production, # of Runs, Time per Run, Stitch Count and Average Speed. Here's how that information is used:

1. When the machine operator presses the start button on a job for the first time, he or she records the time of day in the "Production Start" column of the log.
2. When the last garment of the job finishes, he or she enters the time in the "Production End" column.
3. With these two times, the "Total Production" time can be calculated.
4. That time is divided by the number of runs or "batches" in the job to derive the time per run in minutes.
5. When you divide the time per run by the number of stitches in the entire design, you derive the speed that the machine actually ran at.*

Determining an average running speed for an embroidery machine is simply a matter of adding up the average speeds from all jobs in the log and dividing that figure by the number of jobs. Of course, the greater the number and more varied the type of orders shown in the log, the more accurate a figure you will arrive at. You will want to create all four of these figures for each type of machine in your shop so that you can calculate a price for each machine that could perform the job when quoting prices. The machine that yields the best price is also the most efficient machine to use in producing the job as well.

Once you have calculated your dollar-per-hour rate and gathered these timeframes for your machines, you are ready to actually quote a job!

*You could multiply the reload time by the number of runs, and subtract that figure from the total production time before determining the time per run. This would give you a more truthful running speed for the machine. Failing to do so understates the running speed of the machine, but provides a small buffer of additional profit in pricing.

Pricing a sample job

It required an investment of your time to collect cost and timeframe information about your shop, but now the job of accurately pricing any job becomes easy. Let's price a sample order to see how this works. Let's imagine that your shop has a six-head embroidery machine and a customer has asked you for a price on twenty-four golf shirts with a very small crest design on them. You estimate that the stitch count will be around 4,500 stitches.

As you will recall, we created a list of annual expenses & profit goal. We divided that figure by the number of machine hours per year to discover that we needed to make $73 dollars per hour of embroidery production time. Then we discovered average timeframes for the four tasks we discussed on the previous page. Your  six-head embroidery machine operates with the timeframes displayed in the table at the right. Using the information we collected, we are now able to price this job accurately as shown in the example below:

It might seem like a simple matter to divide the Total Embroidery Time Charge by the number of shirts in the order, but if you did that, you would probably fall short of your profit goal for the year. Why? Because there are two concepts that don't occur in the theoretical world that are bound to show up in the real world:

• Spoilage - or the rejection of defective pieces - is a natural and expected part of any manufacturing process. People are human, errors happen, and masterpieces become shop rags. If you don't account for spoilage in your pricing, then the cost of each rejected garment comes out of your pocket. You will want to keep track of the number of garments rejected by each machine type to figure out what percentage of garments don't survive being embroidered. If you discover that your six-head embroidery machine reject two garments out of every one-hundred sewn, then you need your pricing system to charge your customer for one-hundred-two garments for every one-hundred ordered.
• Salesperson's commissions - If your computations tell you that you need to charge a certain price for a garment, and a salesperson sells the garment, demanding a twenty-percent commission, that commission figure can only come out of your profits. You may need to account for this in your pricing - even if you don't have salespeople! (more on that in a moment) If a salesperson demands a twenty-percent commission, you can't just add twenty-percent of the selling price to the order. Once you deduct that percentage from the final total, you'll discover that you'll have something less than your original price left over for yourself. To arrive at a selling price where a salesperson can take his commission and leave you with your original price, you need to divide by the reciprocal of the commission rate. A reciprocal is the commission figure subtracted from the number one-hundred, so if the salesperson wants twenty-percent of the final selling price, you need to divide your price figure by eighty percent.

A Few Final Thoughts

• Charges such as art charges or tape charges (digitizing) were not included above, they are added in when the order is compiled as "extra" charges. Digitizing needs to be considered as a completely separate entity for pricing purposes, charging it's own rates and making it's own profits.
• Because the costs of setting up the embroidery equipment are incorporated into this system, and this only happens once per job, you will discover that the cost per garment decreases naturally as quantities increase.** This fulfills the Logical Quantity Discounts objective mentioned at the beginning of the article because the selling prices decrease due to genuine efficiencies gained. Because prices are based upon real-world costs and realistic profit goals, the Equity objective is satisfied too.
   
• Many embroiderers want to offer both a "Wholesale" and a "Retail" price list. Adding a salesperson's commission to your selling prices allows you to offer your commissioned price to anybody you meet, while offering a "wholesale" price (without commission added) to certain individuals. In this manner, "wholesale" orders will generate prices that will cover your costs and profit goal as needed, while "retail" orders will give you a little "extra" leftover profit. Most managers find that there are many occurrences throughout a year that will require use of that extra windfall.
• Most garment decorators hate to see customers supply their own garments. Emotionally, this thought is tough to overcome, but if you are using this system and a customer supplies goods comparable to the ones you would supply, they are now doing you a favor by paying you the same amount of money to provide the embellishment, while saving you the work of procurement.
• Most people who adopt a corrected pricing method discover that their old system was overcharging on orders of more expensive garments, while charging prices for less expensive garments that did not nearly cover the cost of producing them. If the need to increase prices on low-cost goods bothers you, consider:
  • When differentiating yourself from competition, price should be your last resort. Good sewers differentiate themselves using methods other than price.
  • If your competitor secures a job by offering a price that is too low for you to make money, is that such a bad thing? Assuming his costs are similar to yours, how long can he keep doing that?
• This pricing system shows the lowest price you can charge for an order and maintain a specific profit goal. On some occasions, the market dictates that you charge more.

*As mentioned on the last page, Hooping Time is not normally a figure needed in the pricing calculation, most jobs exceed the hooping time. However, we need to have this figure to avoid underpricing jobs that take very little time to run.

**On multi-head machines, prices will increase - sometimes sharply - when a garment or two are added past a divisible number of the machines' heads. In our example above, if the customer added one shirt to the order it would add one more run to the job, and the price per piece would increase. How you handle this is up to you. Most customers object to paying more when they add to the quantity, but they also understand when the addition does not give them a better price.