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Build Your Business: Management
Are Custom Orders Costing You?
Custom work comprises the very thread of the decoration industry. It carries a high perceived value, which means you typically can charge a premium. The availability of new printing and embroidery technology now makes custom work not only feasible, but also profitable.
It seems like the perfect scenario: You buy a blank garment at a low cost, add some thread or ink — or perhaps both — for minimal cost, mark it up 200% or more and make money. What could possibly go wrong?
Maybe you are doing custom work now and are nowhere near as profitable as you hoped you’d be. Unfortunately, this scenario is too common. I regularly hear of business owners who are disheartened that they have fallen short in the profit column of their sales sheets but can’t figure out why. They have a good markup, have fairly quick turnaround times, ink and thread costs are minimal and they are getting a killer deal on the garment.
So what’s the problem?
Why Matthew Lost Money
Let’s take a recent conversation I had with a client about his business; we’ll call this client Matthew. He has a new direct-to-garment printer in a home-based business that has some pretty decent accounts. Since he works from home, his overhead is low. He hired one person to help with production so that he can focus on sales and growing the business.
Matthew negotiated good pricing for his garments from a supplier. Recently, he got a call from a local spa that wanted five shirts for an event. Since he doesn’t work in a traditional office and didn’t want the client to come to his home, he went to the spa to talk to the owner and get the order together. During their meeting, they browsed supplier catalogs, found the perfect shirt and discussed artwork.
He was in and out in two hours, and quoted the spa owner $20 per shirt for a total of $100 for the order. A quick calculation in his head seemed to indicate he priced it well above his cost, considering the shirts would only cost $2.50 per shirt and another $6 for ink. So his total cost was $26.25 (he had to pay for the shipping), but he quoted the spa owner $100, so he should expect a profit, right?
It turns out Matthew actually lost money on this deal but he couldn’t understand why. He thought he charged enough money; in fact, he was afraid that if the price was any higher, he would not have secured the deal. So where’s the problem?
Let’s start with Matthew’s business model.
Since he works from home and doesn’t necessarily want his clients to visit him there, he has to go to them; there is a cost for that. He never factored his fuel and transportation costs, and time spent driving to and from the client’s place of business. The current mileage rate in the United States is 57.5 cents per mile. If the spa is 12 miles from Matthew’s home, that means $13.80 should be accounted for in his expense estimates, not including his time.
Once he got there, Matthew spent two hours with the owner trying to decide on the perfect shirt and design. If he expects to make $20 per hour, that means $40 should have been added to his $13.80 in mileage and $10 travel time, which totals $63.80 before he even touches the order. Once you consider all the steps that typically are required to produce a garment (see “Respect the Process”), it’s clear why Matthew is left scratching his head regarding not making any money on this deal.
Most business owners don’t consider the time and cost it takes to produce a custom order. This can be the difference between turning a profit and logging a loss. There are, however, several things you can do to help minimize the cost and time it takes to manage an order.
First, look for ways to reduce the time involved. There are many great tools — both free and paid — that enable self-service for your clients. This is a growing trend and some clients both appreciate and expect this ability. It’s especially useful because it lets clients review the products and art when they are available, which may be at a time when you aren’t.
There are some key components of which you should be aware to ensure this is successful. First, you should consider limiting your product offerings. One of the reasons clients like to speak with you versus self-serving is that they often don’t know the difference between the products and why they should choose one instead of another, so they depend on your expertise.
For example, if you limit the amount of T-shirts you offer to two main styles, it removes the confusion and simplifies the buying process. This is key in providing a good buying experience. Offer complementary products, not competing ones. For example, a V-neck tee versus a crew.
Also, keep the art you offer to a minimum while still offering variety. Clients often get frustrated because there are too many choices and they don’t have the time to browse 50,000 designs. However, having only three designs from which to choose isn’t enough variety either. One popular self-service solution is to include an online designer on your website. Depending on your audience, this can be a great purchasing experience for your client.
Workflow also can be a black hole that swallows your profits. If you’re looking for ways to streamline your business, which you always should do, make your orders digital. This way, clients can accept, pay for and review their orders — and even reorder — easily. This can save you tons of time, which directly affects how much money you make on an order.
Finally, don’t be afraid to ditch the clipboard — you know, the one with all the order details, signed client approval, etc. It goes from desk to desk until the order is completed and shipped. Then, the paperwork has to be filed away and the “clipboard cycle” starts all over again.
The clipboard is inefficient and prone to errors. There are many great tools available that can help you reduce or even eliminate clipboard dependency. The best investment you can make for your company is just to revisit how you take orders and your processes.
By doing this, you will find ways to become more efficient, reduce errors and ultimately make more money on each custom order.
Marco Pena is business development manager for DecoNetwork. He has more than 17 years of industry experience, ranging from graphic and embroidery design to software development and e-commerce. For more information or to comment on this article, email Marco at firstname.lastname@example.org.
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