Pricing custom embroidery accurately is one of the uncertain areas an embroidery business comes across. Achieving the optimum amount that is neither too low or too high, is difficult, especially if you are just starting out. But this problem is not only limited to small or medium-sized embroiderers. The confusion is also prevalent with large-scale commercial embroidery businesses.
If embroidery is priced towards the lower end of the price scale, an embroidery business can’t expect to meet profit targets. The low selling price of embroidery will meagerly make anything to the business above operational costs. If cash flows are not precisely observed, it will eventually lead a business owner towards being broke. In short, a recipe for disaster.
Unfortunately, the consequences of high pricing are not very different. High custom embroidery pricing will not earn a business substantial number of customers leading to low profits. The dilemma of pricing custom embroidery in narrow optimum limit is an acute challenge. Today, we will address this problem in detail by discussing some strategies to price custom embroidery accurately.
Determine Business Costs:
The first step towards accurately price your embroidery is to determine the base cost that it must cover. The base cost here is the cost that it takes to prepare that embroidery. In a broad sense, it is the operational cost of your business. Knowing the operational cost of your business is imperative as it marks a minimum threshold for pricing custom embroidery.
Start off with your machine lease payments and rents. Annual electricity, phone, and postal bills. You don’t need to have the exact figures for all these expenses. Since we are just determining the cost per hour, a good estimate figure for all these expenses will also work.
Now, include an estimate of your yearly supplies of raw materials. Include costs for threads, needles, lubricants, hoops, and stabilizers. At this stage, leave the cost for garments and products. We will deal with it later in this article.
The last step in determining the cost of running your business is adding labor costs. If you outsource to an embroidery digitizing service, calculate the approximate annual embroidery digitizing cost for your machine embroidery business. Make sure that you add all your labor or services expenses. If you run a home-based machine embroidery business solely, still add a reasonable labor cost.
Once you are done with determining the operational cost of your business, calculate the number of hours your business operates. Multiply weekly hours with the total number of weeks in a business year (approximately 52 weeks). Divide your total expenses with total hours and here you have the hourly cost of operating your business.
Cost Per Unit:
In earlier calculations, we have not included the cost per unit in operational costs. Figure the stitching speed of your machine. For instance, it’s 15,000 stitches per hour for your embroidery machine. Determine the cost of 1000 stitches. Consider it is $0.9 in your case.
Multiple stitches per hour with hourly cost (15,000×0.9) and you will have the hourly cost of embroidering. Add this figure to the operational cost of your business and here you have the total hourly cost of running your business.
Now, that you have the cost price of embroidery, we can work from here to determine a suitable selling price.
Cost Plus Pricing:
Selling price is simply the base cost plus the profit you make. We have the base cost. In this method, we will work backward with the yearly profit target to determine a selling price. Let us consider an amount of $50,000 that a home-based machine embroidery business wants to make yearly.
Divide 50,000 by the number of hours in a year and then hourly stitch count of the machine. Adding the hourly base cost to this figure will provide you an estimate of selling price to generate similar profit.
Instead of taking the cost of garments as a constant, mark up its cost in the final price of your product. Keep it flexible and decide a different markup for a different garment. This, therefore, depends on your competition and buying behavior in your region and niche.
Market Down Pricing:
Marketing down pricing method is based upon forecasting the profit that your business will make and deciding the selling price of the product from market insights. As opposed to taking cost price as a base for pricing custom embroidery, it primarily takes into account the price of similar products in the market and extracts a selling price from there.
Market down pricing implies that a customer buys on the price he gets for a particular level of quality. It is of no interest to him that what it costs you. Therefore, the parameter of cost price becomes fairly irrelevant while pricing custom embroidery.
The way forward is to take both above-mentioned methods in parallel. Look for the competition, your base costs and customer trends before making a pricing decision. Of course, not all fronts will have a winning situation for you. Apply reasonable trade-offs between multiple factors to determine the selling price.
Competitive Custom Embroidery Pricing:
Having competitive prices is inevitable for a business to grow. By competitive, we don’t mean the lowest price. You can be the most expensive manufacturer and still be competitive. Furthermore, you should understand that you are not just producing embroidery by utilizing certain resources.
Think of your business and embroidery as a means of rendering value. Each design is not created equal. Hence, if you want to price your work higher, due to higher business costs or simply for more profit, try increasing the perceived value of your products.
An integral part of improving the quality of is embroidery digitizing. Ensure that every aspect, from digitizing to supplies, is top notch and you can easily price higher along with being competitive. Consequently, If you want to partner with a trusted and professional high quality cheap digitizing service, we are here for you. See pricing which are just $1 per 1000 stitches or get in touch for more details.