How it works: Pricing Screen Printed or Embroidered Garments
by Scott M. Ritter
© copyright 2010 Scott M. Ritter, all rights reserved

You've probably been performing screen printing or embroidery for some time, and you've likely sold a few shirts. If you are reading this, you probably already have a pricing structure that you are using, but you are not satisfied with the profits your company is making. How did you come up with the prices you've been charging? Most entrepreneurs in this industry start creating their pricing system by checking a competitors price list, then - to gain a competitive advantage - they undercut the competitor. Sound familiar? That's OK - there is no problem using such a system - assuming your competitor is a financial genius who lives in a forty-two room mansion, and your profit desires are appropriately smaller. But if you don't idolize the business acumen of the guy you copied, you need to consider some harsh realities. Does your system ensure that all costs of each order are properly addressed, and an adequate profit is included on every job? How would you know? Realistically, if this is how your pricing structure began, your only certainty in this business is that you will make less money than your competitor with every order you secure.

Think about this: If you created your first price list this way, and the person who you copied created his pricing system the same way, and the person he copied did this too... Well, it should be no surprise that it's hard to make a dime with the prices you are charging.

Somebody once told me that 90% of printers and embroiderers price their goods using pretty much the same formula. Interestingly, that same 90% figure is also said to represent the percentage of companies in this industry that fail within the first five years*. There might be a correlation. If you are going to survive in this business - or any business - you need to know that your pricing system accounts for all costs involved in the manufacturing process. You also need to feel secure that the prices you charge over the course of the year will leave you with a profit figure that you can be happy with. If the only thing your pricing structure can tell you for sure is that you are charging more than the garment costs, you can't be certain you will be left with a profit at all.

In order to price your goods correctly, you'll need a system that was created based upon your specific needs, your shop, your equipment and your workflow. Many entrepreneurs would prefer that I just throw out a price table and say "Charge this." That won't work because every shop has different needs, goals and capabilities. That does not mean that you won't know exactly how to correctly price your goods before you finish reading this article - you will - it just means that you have to contribute some effort to your success.

The Objectives of a Pricing System

The US Small Business Administration (SBA) cites "Failure to price your product or service correctly." as one of the top six reasons businesses fail, and stresses that you must have a "clearly defined" pricing strategy to succeed. You may not think that creating a pricing strategy requires a lot of time spent on defining your objectives. The objective of a pricing system is to make a profit, right? That's not quite enough. A pricing structure for screen printing, embroidery, or direct-to-garment printing needs to meet these objectives:

• Consistency: Your pricing structure must be made to deliver the same price each time the same job is priced, no matter who does the quoting, or when the customer asks. If a customer can call on the phone and get one price, then walk into the shop and get another, you destroy customer confidence.
   
• Equity: Your pricing system needs to generate prices that are fair for both you and your customer, neither undercharging or overcharging when competing for business. If you charge too little, your business will not survive. If you charge too much, you may not be able to secure an adequate quantity of orders. Some people state that being "Competitive" is an objective of the pricing system, but being "competitive" is actually a function of the "equity" principle.
   
• Logical Quantity Discounts: Discounts must be proportional to efficiencies gained as quantities rise. As customers order larger quantities, they expect discounts. That discount must be based upon a lessening of your cost per piece as quantities rise, not an arbitrary drop in price.
   
• Profit Oriented: Each price generated must pay for materials used, labor expended, an appropriate portion of general overhead, and leave a specified profit.
   
• Forecastability: You must be able to forecast an approximate annual profit that the system will generate.
   
• Proportionality: Profits must be directly proportional to the amount of work performed. If you are like most garment decorators that come here, you use a system where profit per hour of work performed actually decreases as the complexity of the job increases.

Does your current pricing model accommodate all these objectives? If you think it does, ask yourself this: Can you generate a price for a job based upon a $60,000 annual profit goal, and then price the same job based upon a $90,000 annual profit goal? If you can't, your system fails the forecastability objective - and that usually proves fatal to businesses. I mention this because most shop owners tell me that it is impossible to price goods based upon the annual profit they want to generate. But if that were true, how do all the Fortune 500 manufacturing companies issue "guidance" to stockholders as to what they expect to achieve as a quarterly profit figure? They don't say that it's impossible to forecast profits. They just know something that you don't. Well, you don't know it yet - but you will before you finish this article, and you will be surprised how easy it is.

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*It has been widely believed that 90% of all businesses fail within the first five years. The US Small Business Administration (SBA) has determined that this is a myth, and estimates that 62% of all businesses fail within the first six years. (However, some industries are more prone to larger failure statistics than others.) View the report.