Every business owner has faced the challenge of pricing their products and services. It’s a difficult task to find that happy medium between profitability and customer appeal, especially if your company is just starting out. You want to sell your goods at a competitive rate, while staying above your cost margin.
Many companies create pricing matrices that calculate costs for printed designs, number of inks used, and base color to develop a set-price per garment. Taking a look at competitor models in the industry can be helpful to get an idea of where to start, but is not a one-size-fits-all guide for every apparel business. The rate at which you buy your materials, your building rent, and other expenses most likely differ from other companies. In order to correctly price your products and services, you’ll have to calculate your own overhead (fixed) and production (specific job) costs.
Overhead costs include the fixed, ongoing expenses of simply running your company that would allow you to break even. For example: rent for your space, utilities, employee wages and so on. Some businesses even choose to group estimated ink and supplies into their overhead costs. Take time to calculate this number for the year to determine your total overhead cost of doing business (Tip: You can do this by creating a simple excel spreadsheet).
Once you’ve got your total overhead cost for the year, divide that number by 12 to obtain the monthly breakdown. Then, divide your monthly number by how many days your store is actually open. Maybe you’re only open during the week and not on weekends, so 21 days out of 30. Using the example above: if your monthly overhead cost is $10,750 and your store is open 21 days out of the month, you would need to make about $512 a day to stay afloat.
This is where garment markups play a huge roll in the success of your business. To help succeed your daily overhead cost, your garments should be marked up in line with the industry standard of about 150 – 200 percent (basic garments should have the highest initial markup, and more expensive garments the lowest markup). This way you’re making money before doing the print job. Knowing the cash flow needed per day provides a baseline for customer negotiations, and allows your business to structure a pricing model for quantity breaks to remain competitive — without dipping below the daily operational expenses.
Production (specific job) costs vary greatly from business-to-business depending on the equipment your company uses and how efficient your team is. However, almost every screenprinting business considers the same factors when pricing a quote.
These can include labor expenses (don’t forget pre and post production), colors (of the garment and how many ink colors), locations (front, back, or a combination), flashing, and artwork complexity (easy manipulation vs. original artwork).
Pro Tip: Anatol suggests some simple equations to calculate many of the factors listed above.
It’s important to note this is not an exhaustive list of what you should or can include in your business’ pricing structure. You have to take into account everything that makes sense for your own company. That being said, your production cost equation would look something like this:
Labor + Colors + Locations + Flashing + Artwork Complexity = Production Cost
This figure will tell you the basic expense of the project. From here you can determine the profit percentage you’d like to add — anywhere from 20 to 45 percent is competitive. If the specific job cost is cheaper you have more room to profit, if it’s really expensive you may choose not to add a profit percentage at all.
Once you have the production cost with profit calculated, add that to the garment markup cost that’s helping you obtain your overhead expenses (including any quantity breaks/discounts offered) and that will give your final pricing for the entire project!
The amount of math that goes into pricing can be daunting, but it shouldn’t be discouraging! Getting the prices right will take time. It’s important to continually evaluate production to see if improvements or price adjustments needs to be made. Every so often pick a few days of work and compare the gross profits for the day against your daily overhead cost. If you’re not breaking even, go back and adjust the numbers.
Have you been considering overhead costs into your pricing structure? Let us know in the comments!
Pro Tip: S&S Activewear works with Printavo, an online organizational system for apparel shops, which allows you to create and keep track of your pricing matrices. You can easily add inventory you’ve ordered from S&S Activewear to your models.