Time is Money
Now that you have created your estimate for the amount of money your shop needs to generate annually, you also need to estimate the number of hours of production you will use as well. Just because you are open eight hours a day does not mean that production is occurring all day. In fact, most print shops won't consistently generate four hours of production per worker in an eight hour day, and most embroidery machines will only produce a maximum of 5 1/2 hours per eight-hour shift. What we need to know is how many hours per year the squeegees are moving back and forth at the presses, or the needles are going up and down on the sewing heads. Like the expense figures, this might seem daunting at first, but there is a simple way to gather this information as well.
Manufacturers keep logs of what they produce in a day as part of their regimen. The logs relay important information to management about how the company is meeting it's goals. If you aren't keeping production logs yet, today is a great day to start. A press log or embroidery log keeps track of every order produced in your shop. It records how long a job took to complete and how much work was accomplished. Each press or embroidery machine in your shop should have it's own log. By adding up the time required for each job throughout a month or year, you can determine how many hours of production occur. The logs will also record timeframes by segment so you will know how long each job took to set up as well as perform. In short, a log can answer most questions you will ever have about your production practices, and it will also show you where your company can improve. SMR Software produces a forms kit for the industry, and it contains both a press log and an embroidery log that work very well. You can download a free printable sample of their embroidery log or press log from these links.
If you haven't been keeping logs all along, even a few weeks worth of the data that they collect can guide you in determining how many hours of work your shop produces each year. By looking at a month's worth of records, and determining how this month relates to other months throughout the year, you can come up with an estimate. Of course, as you gather more data over time, you will want to fine-tune your findings.
Dollar Per Hour Computation
Dollar Per Hour Proof
Let's suppose that the example shop from our previous costing worksheet has a single manual screen press or a single-head embroidery machine. According to our logs, that machine produces one-thousand hours each year. When we divide the seventy-three thousand dollars of expenses & profit by the hours of production, we discover that this shop needs to charge seventy-three dollars per hour of production time used. Working backwards as we did in the rubber duck example, if this shop charges seventy-three dollars per hour of production time used, then sells & produces it's budgeted hours of production time, it will earn seventy-three thousand dollars. That amount will cover all costs of running the business and leave a thirty-thousand dollar profit for the owner. (See chart at right)
Of course, many shops have more than one press or more than one type of embroidery machine.* In the case of a screen shop with a manual and an automatic press, or an embroidery shop with two different types of machines - perhaps a single head and a four-head - you will need to allocate an appropriate portion of the annual expenses to each machine, and divide by the number of hours that machine produces. Your shop will end up with a different hourly rate for each press or machine type. That's good - they have different hourly capabilities as well. As you price jobs, one machine will give you the lower price at small quantities, but the other machine will net lower prices at the higher quantities due to efficiency gained. Giving your customer the lower price is advisable so long as you actually use that machine to produce the goods.**
So now you are armed with the knowledge as to how to arrive at a valid dollar-per-hour rate for the work your shop performs. Unfortunately, customers are highly unlikely to place an order if you tell them the price after you perform the order, keeping track of the time. The next step in the equation is to be able to reliably estimate the time involved in any job, no matter what garment you embellish. That too, is not actually very difficult. Keep those logs handy - they contain lots more valuable information. But at this point, you could say that we need to go our separate ways. Computations for screen printing and computations for embroidery will be slightly different. So please choose one of the links below to wrap up our discussing on pricing:
*All machines of a similar type are considered equal for costing purposes. If you have 2 single head embroidery machines in your shop, you would only create one machine type, and one hourly rate for pricing. You would combine the total hours from both machines to arrive at your total production hours. Likewise, if you own 2 manual 6-color screen presses, you would only create one hourly rate by combining the production hours of both presses.
**Example: Perhaps your embroidery company owns a single head embroidery machine and a twelve-head. The sewing field on the single head is roughly sixteen inches wide, but the twelve-head's sewing field is only eight inches wide. If you are quoting a large design on ninety jacket-backs, the twelve head will likely give a much better price than the single head, but it can't do the job.
*All ideas expressed in this post are the exclusively those of the author, and do not necessarily represent the policies or opinions of Decorated Apparel Magazine. The author represents that he or she is exclusively responsible for the content contained, and that he or she is the owner of any intellectual property used or expressed, and has the right to publish any statements or images contained herein. All content is offered 'as-is' and Decorated Apparel Magazine does not endorse or guarantee the accuracy of any statements contained in this or any other post. Your use of any advice or statements of fact or opinion offered are completely at your own risk.