Pricing Your Work: Determining Breakeven

Knowing your costs and factoring that figure into your embroidery price is essential for ensuring that you operate a profitable business.
Dec 3, 2007

By Steven Batts

Knowing your cost of doing business is paramount to setting your price for embroidery. If you don't know what your cost is, you might end up like the guys who bought watermelons for $1.00 each and sold them for $0.90 each, thinking that they would make their profit on volume.

Although we all recognize that such a practice leads to certain failure, many embroiderers don't realize that they effectively do the same thing when it comes to pricing their work. Factoring your cost into the embroidery price is essential to being a profitable business.

Flawed Pricing Practices
Many people price by sound. They will say, "So, how does $5 sound?" 

The customer may say, "That sounds good to me." But what if it sounds too high? What basis do you have to justify your cost? How much can you discount? How confident are you in your price?

A slightly better but still flawed way people price is by using the "going rate." They will call several embroiderers in the area, find out what they charge and make their price an average of those prices.

I say slightly better because hopefully some of those businesses have based their price on cost and factored in a profit margin. The reason it is flawed is that no two businesses have the exact same operating costs and production capacities.

Some of those people are in retail environments with high overheads and small production capacities. Others are contract embroiderers with large machines for high production set in warehouses to keep overhead low. Trying to compare the pricing structure of these two is like comparing the proverbial apple and orange. What's more, it does not reflect what your costs are.

Figuring Breakeven
Factoring your cost into your price is not rocket science. If you can do 5th grade math (Thanks to Jeff Foxworthy's new TV show, we now know how smart 5th graders are), you can figure your price. The first thing to do is figure your costs. Then break your cost down over time.

It is usually easiest to figure costs on a monthly basis. Once you have a handle on all your monthly costs, break the number down into a weekly cost by dividing it by 4.3. (Only February has exactly 4 weeks in a month). Then divide it again by the number of working hours in the week, typically 40. This will give you an hourly cost (See "Cost vs. Time" table).

Now all you need to do is figure out how many stitches, on average, you can sew in an hour. While this varies with machine speeds and design sizes, you can generally expect to get about 35,000 stitches off the machine in an hour (or a little less than 600 stitches per minute), taking into consideration color changes, trims, thread breaks, hoop changes, etc. Divide your hourly cost by this number. Since you end up with a very small number, multiply this cost per stitch by 1,000, and voila, you have your per thousand stitch cost.

Remember, this is your break-even cost. Unless you factored your salary into your monthly costs, you still need to figure out how much to add to this for your profit margin. Don't shortchange yourself in compensation. Your time is valuable. You aren't running a non-profit organization (Well, maybe some of us are, but most of us don't intend to). 

On the flip side, you already may be making more than this. Congratulations! At least now you have a basis for analyzing your profits. Also, it gives a basis for discounting. It makes your price sound good to you every time. And you will be less likely to waver on your final price if you know the cost you need to recoup when you are stitching.

The only catch about pricing this way is recouping setup time. There are several different pricing strategies to address this aspect of your business. We'll cover this subject as well as dealing with the cost of the garment in the future.

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-to-garment printing business.

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