Don’t confuse being busy with being profitable. You want your company to be doing the work that provides the highest returns on investment. Photo courtesy of Dubow Textile
If you’re busy, does that mean you’re making money? Or are you so focused on getting work—any work—you’re no longer paying attention to your bottom line?
Are you squeezing the most profit out of every minute of your shop’s day? Or are you spending too much time on less profitable work at the expense of jobs that could bring in more money for the same amount of time and effort?
Many shops, especially those run by newcomers, can greatly benefit from taking a hard look at how they are spending their time and evaluating what type of work best fits their strengths and capabilities.
“One reason embroiderers struggle with understanding the difference between profitable and busy is it feels good to be busy,” says veteran decorator Marshall Atkinson, of Atkinson Consulting (atkinsontshirt.com).
“A lot of times, we chase the low-dollar work because it’s easier to get. It’s harder to get more profitable orders, because you have to sell on more than price. The closer you get to zero, the easier it is to convince someone to buy…What embroiderers have to ask themselves is for the same amount of work, do I want to make $1 or $10?” Atkinson says.
With that in mind, what follows is a list of 10 things to consider as you strive to grow your company’s profitability:
How do you really know if you are profitable? management guru Peter Drucker once said, “If you can’t measure it, you can’t manage it.”
“Every single day, we get a production tracker of exactly what is produced for every department on every machine…. Based on those numbers, we can see if an operator and a department have been profitable,” says Rob Dubow, CEO, Dubow Textile, (dubowtextile.com).
“Our profit-and-loss statement gets checked monthly when it is published, and I watch our revenue and expenses on a daily basis. If I see our bottom-line percentage going down while our production numbers are consistent, I know it’s time to raise prices,” Dubow adds. “Over the past couple of years with rising wages and supplies, we’ve had to raise prices a couple of times to ensure we are profitable. We didn’t have a choice.”
Coordinate similar jobs to minimize the amount of time and effort you have to put into executing changeovers. Photo courtesy of Bolt Printing
If your shop is not running at peak efficiency, you will never know how much profit is being lost due to poor organization, step-wasting workflow, miscommunication, out-of-date equipment, etc. Some shops have been known to double their profit by fine-tuning their operations.
For higher-volume shops, one way to increase efficiency is to group similar orders together, so you don’t have to keep adjusting the machines, says Anthony Corsano, COO, Bolt Printing (boltprinting.com). For example, Corsano says, take care of all your flat goods before switching to caps, as opposed to going back and forth between the two.
“At Bolt Printing, our motto is to complete each step of the job thoroughly to make it easy and efficient for the next person to do their part,” he adds. “You don’t do your job as efficiently as possible at the expense of the next person down the line. Find the right balance.”
According to Corsano, “As a manufacturer, everything should be about efficiency and not working harder but smarter. At my company, we were able to significantly increase capacity without increasing head count. We achieved that by analyzing every step of our process and [no longer] saying, ‘Well, we’ve always done it this way.’ We reviewed how we take an order, how we process it, how we order blanks, all the way to getting goods shipped.”
“Efficiency is obviously critical, especially with the number of machines we have,” agrees Randy Carr, CEO of patch and emblem specialist World Emblem (worldemblem.com), which operates over 3,500 embroidery heads in six locations around the world. “The trick is in the scheduling and deciding what jobs to run on which machines to meet the customers’ delivery deadlines. For us that is a never-ending pursuit.”
A key component to being profitable is ensuring revenue exceeds costs. A common goof is not including everything when calculating prices. Are you leaving out tasks or services you should be charging for?
The price list for Dubow Textile, for example, has long been a work in progress, but Dubow now has it down to an art. “We’ve learned from our mistakes over the past 33 years, and we’ve developed a price guide that accounts for the time it takes to accomplish each task, because as a contractor, what we are really selling is time,” Dubow says.
According to Dubow, his company’s price grid, as he calls it, is based on quantity. It begins at 4,000 stitches to account for every type of job. If the job is a polo shirt that’s hard to handle, it gets an add-on charge. If the design includes metallic thread, that gets added on. The company also charges extra for additional colorways, thread changes and the task of sorting bulk shipments. A custom-built proprietary software platform helps handle all the variables involved.
“There’s no question there is a percentage of decorators who aren’t clear on how to cost their services, and they end up under costing,” Carr says. “One area is indirect labor. This is the people who receive and count the garments, the maintenance staff, the purchasing department and the office staff. None of them are touching the embroidery work themselves, but they constitute costs.”
“There are a lot of reasons why shops aren’t profitable,” agrees Atkinson. “One is embroiderers are not factoring in the company car payments or employee cell phone bills or their Google ad spend. All overhead needs to be included in your assessment.”
Atkinson adds: “When you discuss this with them and ask, ‘Who are you using as a bookkeeper?’ They tell you they are doing it themselves because they don’t have the time or money to pay someone, but they don’t know why they are not profitable or where their money is going.”
“Always try to embroider on the most-expensive, highest-end product possible,” Corsano says. “What people forget is the lion’s share of profit comes from the markup on the blank. If you have people running equipment, your most important goal is to produce as much revenue off those machines per hour as possible.”
Focus on decorating higher-end blanks, like this Nike polo, in order to make the most out of your markups. Photo courtesy of StitchMine Custom Embroidery
By way of an example, Corsano says, “If I buy a $2 beanie and mark it up to $3 and embroider 12, I make $12. If I embroider a $20 North Face vest and mark it up $10, I make $120. When you compare the revenue for those two jobs, I’ve taken my profit from $12 to $120 on the blanks alone.”
Along these same lines, Corsano notes, “If I could print and embellish only $50 blanks, I could go on a 10 percent gross margin and make more money than I could on a $2 item at 50 percent gross margin. You still have to produce what the customer needs, but anything you can do to sell a higher-end blank is the way to go.”
Finally, Corsano says. “In terms of maximizing profitability, the last thing you want to do is a second or third location because you get only one markup on the blank. The goal is to have orders you can get on and off that machine as quickly as possible because each time you load a new set of goods, you get that margin.
“Whenever you are taking up machine time with the same garment, you are making the same gross margin on the embroidery, but you are not making the same gross margin dollars. Always keep in mind that doing an analysis of gross margin percentage is equally as important as gross margin in dollars.”
A proven technique for wasting less time and improving profits is to filter out potential clients who are not a good fit for your shop.
With this in mind Gary Glenn of StitchMine Custom Embroidery (stitchmine.com), says he determined from the outset that he wanted his business to be “the Nordstroms” of embroidery shops, offering high-end retail brands like Nike, Adidas and Cutter & Buck.
“That’s what our customers want, and we price accordingly. We are not exorbitant, Glenn says. However, he adds, “We work on tight margins, and we want to avoid the client who’s never going to be happy. You want to filter them out as quickly as possible because time is finite.”
To this end Glenn says, “he long ago crafted a response for any client who tells his company they are accepting multiple bids for an order. “Our response is ‘If you don’t care about quality or delivery, I can give you some names of places to go. If quality is important to you, we are not the cheapest.’ And if the response is, ‘We don’t care, we just want the cheapest shirt,’ we say, ‘We’re not the place for you,’” Glenn says. “While it may be hard for a new embroiderer to turn away business, it’s better than wasting hours of your time.”
A shop’s sweet spot is work that is easy to do, takes advantage of a shop’s strengths and makes the most money. It’s the work you want more of.
“A lot of times in this industry, we just start, and we don’t know how we got here. We have no idea. But everything you do should be about outcomes,” Atkinson says.
“To achieve this,” Atkinson says. “You’ve got to know your numbers and identify your goals. You can’t wander around the shop aimlessly taking whatever’s in front of you. Design your business around where you want to go.”
That done, the next step is to go after that same sweet spot with an eye toward making that the goal of your business as a whole. For Bolt Printing, strictly an online business, this means leveraging a combination of SEO and advertising focused aimed at what it sees as its target customer.
“We’re not a local shop. We do everything we can to discourage local traffic. Our building is locked. We are not interested in the neighbor coming to buy shirts,” Corsano says.
Along these same lines Corsano says, “We are not going to advertise we have the cheapest shirts or can do a single shirt for Joe’s birthday. We are looking to provide apparel for the largest builder in town with 1,700 construction workers.
Another example of a sweet spot at Lincoln, Nebraska, based Relentless Merch (relentlessmerch.com) is blankets. According to owner Matthew Richardson, “We do these 600-piece blanket orders for an RV shop. It’s just a logo on the left corner of the blanket. My operator really enjoys doing these, and they go quickly.”
Similarly, at World Emblem, the company’s success has been built not only on a set of specific customer types in terms of size and orders, but in their customers’ ability to comply with the streamlined ordering system the company has developed, which has allowed it to be even more profitable and efficient.
“We’ve decided we’re only partnering with people who can work with us in a specific way,” says Carr. “We do not accept orders from clients who are not under agreements and don’t fit our specific business model.”
“Many of our customers have said we make ordering easy,” says Glenn of StitchMine. “We do a lot of the work for them. When a client calls and says, ‘Hey, I’m looking for a new polo shirt.’ We don’t just give them a catalog. We narrow it down to four, five or six items, so it’s easy to choose.”
Similarly, Carr says at World Emblem the company’s whole strategy is based on getting to know the customer and delivering based on what makes it easier for them. “We are always working on perfecting our product, our turn times and pinpointing pain points so we can continue to grow,” Carr says.
Another strategy embroiderers can employ is persuading customers to use embroidery-friendly blanks, or at the very least, apparel the shop has experience decorating.
If you choose to branch out into bags and backpacks, make a point of finding blanks that are easy to work with. Photo courtesy of Bolt Printing
At Relentless Merch, for example, Richardson says he has been experiencing increased demand of backpacks, and while his shop has a good selection of embroidery hoops, choosing packs specifically designed for embroidery has made all the difference in the world.
“The backpacks I have been embroidering are actually easier than other bags because the outside pocket is larger, which makes it easier to sew,” he says. “It has a U-shaped zipper, which offers easy access. We also have done golf bags that are designed like that. The pocket opens up, which makes it easy to get under the needle.”
Similarly, at Threadbare Print House and Design Lab (threadbareprinthouse.com), which has only been offering embroidery the last couple of years, figuring out which caps to embroider has been a process of trial and error, but worth the effort in the long run.
“The more expensive hats work better,” says Lauren Hay, the head of Threadbare’s embroidery department. “Sometimes people have brought in really cheap hats, and the needle would pull up threads and shred the cap fabric… While I do not talk to customers, I communicate with the account managers to let them know which hats are difficult to sew and which ones sew great and ask that they offer the better hats instead.”
What is profitable for one shop may not be for another. Many factors come into play, including equipment, hoops and accessories, digitizing expertise, labor and whether a shop is set up for doing a certain kind of work.
If you’ve identified a type of job that is not a good fit, try to offer other options or suggest another embroiderer for getting it done. This retains customers’ goodwill and future business while helping them out.
“A lot of people say, yes, to all kinds of work, because they’re scared they’ll never get another job,” Atkinson says. “If you want to be more profitable, sometimes it pays to say, no. Instead, send the less profitable work you hate to your worst competitor.”
Case in point: Hay at Threadbare says she has learned it’s not worth it to take some jobs.
“When they want a dense, sophisticated design on a cap, I suggest they send it back to the graphics designer to adjust the artwork so it will sew well. Otherwise, the stitching indents into the cap, and makes it look concave, and there’s no way to fix that without eliminating stitches from the design,” she says.
In this same vein, according to Glenn, examples of jobs that have not been a good fit for StitchMine, include full jacket backs and leather.
“Full jacket backs are typically sewn on a big bulky jacket, and we charge from $25 to $60 just for the embroidery,” Glenn says. “People don’t understand it, and don’t want to pay for it. They are used to China pricing. It takes up a lot of time on the machine, and we have to stitch it out once or twice before even putting it on the garment. Each run can take an hour and a half.”
As for leather, “I’m not crazy about it, but I will do it,” Glenn says. “We charge a lot because it’s a tough thing to do. You have to change needles, and there’s a big chance of damaging the item because of the nature of embroidering on leather.”
Finally, Dubow says be on guard against customers who don’t seem to know what they want. “We just did a large project for a customer we will never do again because the customer was totally disorganized. It cost us a lot of money and time, and time is money,” says Dubow.
There are pros and cons to accepting contract work. Smaller shops, for example, that are focused on custom worker may not be set up to make money without the markup on the garment itself.
One of the keys to profitability is focusing on those customers that are the best fit for your business model. World Emblem, for example, focuses on larger volume orders. Photo courtesy of World Emblem
Occasionally, you might be asked by a good customer to take on a contract job, and to maintain good will you may feel obligated to accept it. In this situation, to protect the shop from having to pay for or replace high-end damaged goods and lose money, Richardson says he requires the client sign a waiver.
“We created a waiver using an online application called Jotform that releases us from paying for a garment if something goes wrong. It has a digital signature, and the client just checks off the boxes,” he explains. “We’ve had clients who wanted us to embroider on Patagonia jackets, and there are things that happen you can’t prevent like a needle breaking. So, we only accept contract orders if clients understand they will be liable for damages.”
If the volume of work demands it, invest in the right equipment for the job, Richardson says. “For example, having the right hoops. Otherwise, you lose a lot of time fighting with a hoop that won’t work.”
Similarly, Corsano recommends if you do not have the financial knowledge to crunch numbers and interpret their meaning, find someone to do it for you. “An embroiderer should be willing to spend $10,000 to $20,000 to get themselves a short-term consultant who can help them understand their costs. It will be the best money they’ll ever spend in their entire life,” he says.
“Decide what [kind of] business you want to be,” advises Glenn. “You can’t be an embroidery shop for everyone. There’s a reason we don’t do a lot of scholastic work. Our focus on high quality does not fit school budgets. We work mostly with businesses, and we get along with them really well.”
And finally: “Don’t be afraid to charge for the services you provide. If they are not willing to pay for them, they’re not a good match for you,” says Dubow.
Deborah Sexton is a former editor of Impressions Magazine and now owns her own company, Saracen Communications, doing digital media marketing, copywriting, and public relations for companies in the decorated apparel industry. You can reach her at dsexton@sbcglobal.net.
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