Please find some links and notes from the 2 Regular Guys Podcast. This week we welcome back into the show, the jet setting Erich Campbell of DecoNetwork. He has been traveling the country talking to businesses using the DecoNetwork Platform and we are going to ask him about embroidery by the numbers. We will use his extensive experience with embroidery and his new role with DecoNetwork to give us an in-depth look at costing and pricing your embroidery decorations.
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Embroidery by the Numbers with Erich Campbell
Give us the overview of embroidery costs and pricing.
- Embroidery is not a monolith: Different shop models
- Cost and Pricing are two very different things
- Costs: what it takes to keep the doors open and produce a garment
- Price: what we can reasonably expect a customer to pay
- Can’t price on cost alone; we have to talk about value, and it can’t just be a discussion about material costs; market fit, demand, marketing, niches; much more goes into the price you charge that is more subjective than the cost of production.
- Models: Base garment + markup + cost of embroidery; Garment + markup + flat rate; Price matrix: One one axis you have cost per thousand stitches, with the cost decreasing with stitch count increase, on the other you have garment costs, decreasing at quantity breaks – generally with a base price; hooping a garment and putting it on a machine always takes a certain amount of time. Base of 6-8k stitches at a flat initial rate, then +per K.
- Markup isn’t the only way; huge contract shops price on decoration only, but that’s not how an average small shop works – PW survey – the models I talked about are common, but not the only methods; the key is knowing what things cost and your capabilities.
Talk to us about the impact of embroidery production time as it impacts your costs.
- Time is everything. Materials costs are actually quite negligible; at the most expensive rates, a quality thread at retail rates is roughly .06 cents per thousand estimating 4mm stitches. At that rate, even a 10k stitch logo has only 6 cents of thread in it, add about 7 tenths of a cent for bobbin thread, pre-cut stabilizer, averages maybe 10-15 cents for a pre-cut left-chest sheet. If I go for specialty stabilizer, maybe 20 odd cents. If I add a water-soluble topping, maybe add another 3 cents there, all high estimates. The likelihood is the materials cost me 25 to 30 cents per garment on a fairly high stitch count.
- The most important factor is always time; even on a modern machine, with hooping, color changes (which are extremely slow and lead to the most lost time) and other miscellaneous losses, I estimate machines run at an average of 500 stitches a minute. A 10k logo then needs 20 minutes on average per run if we’re estimating conservatively. If a shop averages roughly 6 hours conservatively out of an 8 hour work day that we can expect to be running, it means we only have room for 180k stitches on any given machine per day. 18 runs of that 10k logo are all you can expect. You have 251 working days in a year in the US, if you ran this way every day, your year has 45,180,000 stitches or 45,180 ‘thousands), so about 4518 runs of that 10k stitch logo- so 4518 X number of heads, and that the number of garments that has to pay for you to run and profit.
- Do time studies to find your actual times for hooping, loading, trimming/finishing, etc.
- Labor costs are always the largest cost, sometimes more than the garment. *your labor counts, solopreneurs*
Let’s talk about paying the bills – our overhead expenses and breaking them down.
- Fixed vs. Variable Costs
- Fixed: Rent, Utilities, full time employees, machine lease, (should add deprecation for machine replacement/upgrade and *marketing*)
- Variable: Supplies, Garments, machine repairs, seasonal and other labor. misc.
- Overhead is very different for diff. Models; industrial shop in a place with cheap comm. Real estate very different than a gift embroiderer in an expensive retail location. Regional, too.
If you’ve been running a while, you’ll have info here, if not, you should start logging these costs now. After 8 weeks, you’ll have your first rough estimate, though you really want a year cycle if you can get it, due to seasonality.
Once you know what things cost, you can start dividing that down for those 251 working days of roughly 6 hours a day; when you do that, you’ll end up with your breakeven cost just to keep the doors open. If you’re smart, you’ll at least have figured in a living wage for yourself as the business owner, and when you are actually doing business, you’ll account for profit in that calculation.
Now we’re getting to the part that listeners tuned in to hear. How about the actual costs of producing a garment?
Stock polo from a major distributor: $11 dollars your cost. Cost of embroidery materials is .30 cents. Cost of labor, if you are paying your operator 15$ an hour and we have a 10k design, is going to be about $5 divided over the number of heads. Let’s say you are running 4 heads, that will be about $1.25 per garment. If that’s the case, you have between $12.55 in that polo if you aren’t accounting for the other overhead. The thing is that labor cost and overhead vary based on market, and you can see that on a single head, the garment may cost some $16+ dollars instead of that 12+. That’s how scale matters. The price you can charge won’t vary that much in your region unless you can market to a specific need or niche, so that 3+ dollars per garment is just profit you’ll miss if you are regularly pulling large orders on a single-head.
Let’s discuss efficiency in what we do as it impacts our costs.
- Time as the primary cost with embroidery
- Supplies – Quality supplies save time, and you can use less w/stabilizer. 1 Md. CA
- Digitizing – Reduce color changes, thread breaks, and unnecessary stitches. I averaged 15 to 18% less than digitizers whose work I was asked to repair.
- Workflow – Reduce movement of goods, looking for tools, supplies
- Information Management – access at each station, no hunting paper, order management systems.
Let’s talk about what we charge and making a profit
- Cost: is what you pay- Value, is what your customer is willing to pay; You can increase value through quality, value add services, and experience. This is why marketing is so important.
- You have to be able to pitch your value proposition: What do you do that only you do or that you do better than the rest. If you can’t answer that and say it out loud, you are competing as a commodity, and that won’t work for the average shop.
Erich Campbell is the Relationship Manager at DecoNetwork, and a long-time machine embroidery digitizer & designer. He frequently contributes articles to embroidery industry magazines as well as a host of other blogs and industry social media channels. He is now teaching and talking at trade shows and continues to be an evangelist for the industry.
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