Know Your Operating Costs

In addition to equipment expenses, you need to figure your cost of doing business before you set your prices.
Nov 19, 2007

By Steven Batts

Knowing your costs is crucial to running a successful embroidery business, for two reasons: first, so that you will know whether you are actually profitable; second, so that you will know where to set your prices, which have to be based on your total operating costs.

How far above your operating costs your prices are depends on you and your market; however, if your prices are even or below your operating costs, your business will fail. Though this sounds obvious, it's surprising how many embroiderers I've met who have no idea how much it costs them to do business.

What is even more surprising is how many, after pointing out to them the costs and how much they might need to charge, retort, "I couldn't possibly charge that much!" My reply is simple: "You can charge what you want, but you need to determine what you want to get out of this business? In other words, how much do you need to make to accomplish your personal goals?"

That is really the first question for any new business. Once you have established this starting point, you can go on to look at the other costs associated with doing business and use it as a basis to establish your prices.

Figuring Costs
Evaluating the cost of doing business is part of the budget process. You need to consider all the cost factors for running the operation, including equipment costs and your salary, which many people fail to include in the equation. The other major cost is housing the business.

If you are going to be a home-based business, you may have already figured this cost into your salary. For everyone else, this is either your rent or cost of owning a property for the business.

The cost of housing doesn't stop at finding a place big enough to put the machine. There are things like insurance, phone lines, internet service, business permits, property tax and possibly maintenance fees, depending on where you are located.

For those of you planning on working from home, don't think you can escape all these items. Insurance, for instance, is just as important for a home-based business, if not more so, as renter's insurance in a retail location. A typical homeowner's policy will not cover anything that happens to a business or its equipment if it is damaged by fire or other means. A business rider to your existing homeowner's policy is often the most economical solution for this.

Investigating the requirements for your area is really worth the effort. Many towns require even home-based businesses to file for a business permit to operate. Permits generally don't cost a lot — unless you get caught without one.

After you have figured out what it is going to cost you to do business, the next step is to figure out how to recoup the costs in the price of your product. That will be the topic of our next column.



Steven Batts, a 14-year veteran of the embroidery industry, is a regular speaker at the Imprinted Sportswear Shows. He owns Righteous Threads Embroidery, Greensboro, N.C., which offers digitizing, embroidery, machine maintenance and repair, and consulting. Call him at (336) 379-9380 or e-mail righteousthreads@gmail.com.

This is one of a series of original online articles designed to help prospective decorated apparel business owners get off on the right foot. For classroom instruction, visit ISSshows.com for a complete schedule of courses on how to start and grow an embroidery, screen printing, heat printing or inkjet garment printing business.
 

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