Starting A Business2
“Starting a Monogramming Business?”
(Part Two - Pricing)
While there are new embroidery businesses sprouting up every day that are started by people with no background in embroidery, many new monogramming businesses are the result of a hobby that turns into a business.
Did you start out with an embroidery machine making gifts for friends?
As time went on, did you also do things for friends-of-friends, or next-door neighbors?
If you are regularly creating monogrammed linens or other specialties as a hobby, what is the difference between what you are doing and a monogramming business?
Quite simply, it’s the moment when you determine that you will charge something for what you do. Once over that psychological hump, you’re no longer a hobby monogrammer - you have a monogramming business. The next step is to make it successful.
One of the biggest hurdles to creating a successful business is determining what to charge for your services. This is one area where there can be a very different approach for a monogramming business than for a general embroidery business.
In the commercial embroidery business in general, many shops rely on a time-honored model based on the number of stitches in the design - usually calculated in 1000 stitch increments.
This approach starts with analyzing the design to be embroidered, then charging so much per 1000 stitches. Adjustments are made for the number of embroidery machines in use - a factory setting with a 12-head commercial embroidery machine might charge $.70 per 1000 stitches or less, while a small shop with one single-head machine might charge $1.25 or more per 1000 stitches. Using this model, there is always an adjustment made for the quantity, on a sliding scale - the more pieces, the lower the cost per piece.
It can be very instructive to use this model, since it requires you to address the time factor involved in sewing a design, and the amount of time involved obviously has something to do with what you charge.
There is another model, based on a per/hour cost to run the embroidery machine. This model is also based on time. This per/hour cost is arrived at by analyzing all of the individual costs that go into operating your business, including such details as:
The more detail the better. All of these costs are totaled up on a monthly basis, then divided by the number of hours you intend to work within that time period. The result is a cost per hour for operating your business. Since the majority of small monogramming businesses have only one machine, this figure could also be thought of as the machine operating cost.
How many hours do you want to work each day, and how much money do you want to make? Don’t be greedy, but also don’t sell yourself short.
Let’s suppose that you want to work an 8 hour day - like a regular job. In a regular job if you were paid by the hour, and worked 5 days a week, that’s 40 hours. Working 50 weeks out of the year, you would be working 2000 hours. If you were being paid $20.00 per hour, your pre-tax income for the year would be $40,000.
Comparing the Two Models
In theory, these two approaches should produce the same cost for a given monogramming job.
In order to test these models, let’s construct a simple comparison. We’ll use a design with 5000 stitches - a common starting point within the embroidery industry.
A 5000 stitch design, calculated at $1.25 per thousand stitches, is $6.25 per item. The majority of shops that use this model also charge a setup fee - sometimes called a hooping charge. The assumption is that there is an investment of time for alignment, cutting stabilizer, hooping, etc. before you even turn on the machine. For the sake of our very general experiment, let’s add a setup charge of $2.00, which brings the total charge per item to $8.25.
Now, for comparison, let’s try the other approach.
Making a very casual guess on the results of your business cost analysis, imagine that it produced the conclusion that your hourly machine operating cost was $40 per hour. Although this may strike you as high, at this cost basis, working 8 hours a day, 50 weeks a year, your business income would be $ 80,000 - not an unreasonable target for annual sales for a small business.
Using the same 5000 stitch design, you will need to determine how long it will take to sew the design in order to apply that result to your hourly cost.
Coming up with this number may seem simple, but it’s important to think about this carefully. The maximum speed that your machine can sew is not the best number to use. Some commercial machines can sew as fast as 1500 stitches per minute. However, this speed is too fast for small, detailed designs like monograms. Regardless of what the manufacturer says, you will not be running your machine this fast. High operating speeds create more wear on the machine, more operating noise and vibration, and can have an effect on the quality of the sewout. Higher speeds also increase thread breaks.
Tread breaks will completely change your calculations - and regardless of the quality of the digitized designs there will always be thread breaks. Also, even without any thread breaks your machine will not be operating at the maximum speed that you choose for the entire embroidery sequence if there are trims or color changes - the machine will slow down or stop for these tasks.
Taking all of these issues into consideration, and using a worst-case scenario, let’s determine that the production speed will be 250 stitches per minute. That means that the 5000 stitch design will take 20 minutes to sew out, which is 1/3 of an hour. Dividing the $40 per hour cost by 3, the cost for this job is $13.33.
The per-1000 stitch model for this job, using these admittedly casual figures, is approximately 60% less than the per-hour model for the same project.
Which one is correct? The simple answer is “neither one”, but setting out to revise them will address some important issues.
Another Look at the Hourly Model
Starting with the per-hour calculation, simply changing the per-hour cost from $40 to $25 will get the two cost calculations to match. You may think that change is entirely justified because:
1. You are the operator, and don’t need to pay yourself a salary.
Consider: If you aren’t making any money, you don’t have a business, you have a very time-consuming hobby. It’s reasonable to assume that you may be willing to work for less than CEO salary levels while you get your business established, but you should always pay yourself something - or at least plan to in your pricing scheme.
2. You are operating your business from your home, and don’t pay rent.
Consider: Do you always want to operate from the spare bedroom, or does your overall plan/fantasy include a nice monogram shop in it’s own location? If you don’t include some factor for rent (call it a savings account if you like) you’ll never be able to afford a separate space.
3. The machine isn’t actually running 8 hours a day.
Consider: The per-hour figure isn’t really a per-hour machine cost, it’s a per-hour cost for operating your business. The more business you have the busier you will be, but what happens when you aren’t busy? Your costs don’t stop. Try to keep in mind that unlike a business that sells a product, purchased from another source for a certain price, a monogramming business is a service.
4. The operating speed could easily be increased from 250 stitches per minute to something higher, thereby reducing the time and the job cost.
Consider: While 250 stitches per minute may well be slow for you, be careful raising this estimate too far without some basis for doing so. If you haven’t been paying close attention to how long it takes to embroider a design, choose one with two or three colors and approximately 5000 stitches, and sew one or more samples. Time yourself.
Another Look at the Stitch Count Model
The per-1000 stitch model probably also needs some revision. For one thing, it doesn’t take into consideration what other companies may be charging. Finding out what the competition is doing is always instructive, but use this information in an informed way.
The 1000 stitch model assumes that there are multiples required: 12 shirts with corporate logo, 48 hats, etc. It works best if the multiples are larger quantities, and if those quantities are relatively consistent from one job to the next.
Many corporate embroidery purchasers have the multi-head embroidery pricing structure already in their heads, either from previous orders or from having seen ads in airline magazines, etc. for embroidery jobs. Small shops will of necessity be more expensive, and most customers won’t understand why.
A small shop with only one embroidery machine can’t possibly compete with a larger shop on price alone. Anyone with one single-head embroidery machine (home or commercial) who has ever taken on a job for 200 logo golf shirts for a local restaurant or a church fund-raiser can describe the feeling of complete exhaustion at the end of a 12 hours day, coupled with the sinking feeling that not enough money was made.
While it is tempting to simply set your prices a little lower than the competition, we feel that this is absolutely the wrong concept. Typically, this approach results in the new low-price shop not making enough money and going out of business.
We also feel strongly that in starting a monogramming business, rather than a general embroidery business, you are embarking on a different path, and although it can be useful to consider the pricing structure of the mainstream logo embroidery businesses, it’s important to realize how your business is different:
You may want to consider reducing the cost per 1000 stitches at bit, charging a lower per-item setup fee, or reducing the setup cost on multiple items somewhat in order to get your prices down to a level that you are comfortable with.
If you carefully analyze your own situation you will be able to come up with a pricing structure that you have confidence in, and in the process you will also have a better understanding of what it costs to run your business.
If all of this seems too daunting, you might consider purchasing special software for pricing. Two examples:
The preceding pricing discussion has only been about the cost of embroidery, and hasn’t considered the item to be monogrammed, where it comes from, or what it might cost.
In monogramming as well as general embroidery, the items that you apply embroidery to are often called “blanks.” In order to operate a monogramming business you are most likely going to need a supply of monogram-friendly items.
It is typical to purchase these items at wholesale cost and then mark them up for retail sale. There is no exact science on how much to mark up the items, but you should always apply some mark-up - it’s another income area for your business.
Some monogramming shops try to keep their markup low, reasoning that it allows them to keep their embroidery costs a little higher. Some shops take exactly the opposite approach.
No matter how you address this issue, try to consider not only your cost for the item itself, but also shipping costs, the time it takes to source the item to get the best quality at the best price, the cost to store your inventory, credit card interest payments, etc. If you take the same detailed approach to this issue as you take toward pricing the monogramming you will see that there is more involved than you might have realized at first.
What sorts of items should you carry? That depends on how specialized you want your shop to be. Unless you are going for a very narrow focus (monogramming for pets, or monogramming exclusively on hand-made purses) some good choices would be:
* Towel Sets (Bath Towel, Hand Towel, Washcloth)
* Shower Curtains
* Baby Blankets and Receiving Blankets
* Bedding (Sheets, Duvet Covers)
* Tote Bags
All of these items can be successfully monogrammed regardless of the type of machine you have. This is a very brief list, and could easily be expanded.
How much to have on hand? If you have a limited budget and limited storage space, these factors will largely answer these questions. You can always order what you need as you go. Try to focus on basic colors - white is always in fashion - with other options as special order items.
Some monogrammers solve the issue of blanks by only monogramming on customer-supplied goods. Even if you provide your own blanks for monogramming you will certainly be asked if you will apply a monogram to a customer’s dress shirt, jacket, towels, etc.
It is critical that you have a policy on items provided by your customers and that whatever that policy is you have thoroughly considered it. If you don’t, and your answer to any question is ... “Sure, we can do that” ... you will develop a policy by trial-and-error.
Some things to consider: