How many times have you heard clients say they can get a product that you sell at a cheaper price somewhere else? Have you “given away” your products because you were afraid you were charging too much or been hesitant when giving a price quote? Have you ever felt like you had no real clue about what to charge for products?
If you answered “Yes” to any of these questions, you should know the following:
• The most successful shops rarely are the cheapest.
• Customers who come to your shop looking for a low price will leave it looking for a lower price.
• Someone else always will provide cheaper services.
• Low prices don’t build long-term loyalty.
In the sublimation world, pricing is a challenging subject and there is no simple solution to building an accurate system that guarantees a profitable pricing structure. Each shop has unique costs and operational characteristics that must be considered. In addition, each market has a different take on what constitutes a fair price.
The first element of a profitable pricing strategy is the most important: cost. If you don’t know what it costs to operate your business, then it’s highly unlikely that you can create a pricing system that works. Too many people focus on the equipment or consumables costs, but they are a small part of the equation in the grand scheme of things. Therefore, it’s best to begin the pricing process with a focused cost-analysis strategy.
1. Determine operational costs. The first step is to identify and add all of your business’s projected operational costs for one year. Some costs are fixed, while others may change as your business grows. Put everything in a spreadsheet so you can update it as your business changes. Also, costs such as merchandise for resale will be recovered in the sales process, so don’t include it unless you are entering into a payment plan to purchase such merchandise.
The result of this exercise will be the total estimated amount that you need to pay all of your yearly bills and yourself. Always keep in mind that there will be unexpected costs and fluctuations, so don’t assume this number is carved in stone. But it’s a reasonable starting point for your cost analysis.
2. Break down the costs into usable increments. After the initial assessment phase, you should have an approximate figure for the annual operational costs. Break this number down into something that’s easier to understand.
Decide how many weeks you plan to operate your business per year. Most people start with 48, as it allows for two weeks of vacation and 10 business holidays. If your annual operational cost is $60,000, divide that by 48 to get a weekly operating cost of $1,250. In other words, you need to bring in at least this amount of money in net dollars each week for 48 weeks per year. Divide this number by five to figure out the daily operational cost ($250) and divide that by eight to determine the hourly cost ($31.25). For the purposes of this article, let’s round that number down to $30.
Now, you realistically can see what it costs to run your business daily. This information makes it easier to track performance because it provides a series of production goals that must be met to generate the required amount of annual revenue to pay the bills and yourself.
3. Compare production against operational costs. Once you have usable operating-cost figures, you can compare them to your “logical” production capabilities to see what it really costs to generate sublimated images.
Unlike many other decoration processes, sublimation usually is constant in terms of production time. Regardless of the image size, the pressing time remains the same — about one minute for most applications. Sublimation printing time can vary with image size and the printer being used. Printing time rarely exceeds one minute for most jobs but there are exceptions, like ceramics.
Assume it takes one minute to print, one minute to prepare the substrate for press and one minute to press per item. At three minutes per item, you theoretically can output a maximum of 20 pieces per hour. If your hourly operational cost is $30 and your potential maximum production is 20 pieces per hour, then the production cost per item is $1.50. That includes ink, paper, labor, insurance, utilities and more. In fact, the only thing it doesn’t include is the cost of the substrate and, of course, a sizable markup.
These numbers assume your equipment continuously is running all day, but that won’t be the case. Every job requires setup and finishing, which means pre- and post-production downtime that can be longer than the actual production time for small orders.
Let’s say you have to produce 12 plaques, each taking about three minutes to print and press, for a total production time of 36 minutes. However, you need to do logo work, which will take another 15 minutes. At the end of the production cycle, you will need to wrap and box the plaques, which will take about 15 minutes. The total job time is 66 minutes. At an hourly cost of $30, the cost to produce the entire job is $33. Divide that by 12 to reveal that each plaque costs $2.75 to create (not including the substrate).
Discounting by Volume
Everyone expects a lower price when buying a larger volume of goods. However, you can’t offer a discount unless you can produce larger orders for a lower rate.
Producing one item potentially would require separate pre- and post-production for each design, which translates into downtime. If it took 15 minutes of pre-production, three minutes of true production and 15 minutes of post-production, you would spend 33 minutes to produce a single item. At $30 per hour, the per-piece cost is $16.50.
On the other hand, producing six items with the same image would require 15 minutes of pre-production, 18 minutes of true production and 15 minutes of post-production for a total of 48 minutes. The total job cost is $24, which equals $4 per piece.
This simple example shows that when you produce larger quantities, the per-piece production cost drops because of increased efficiency. You can lower that cost even more by focusing on reducing pre- and post-production times.
In addition, with sublimation, you sometimes can produce more than one piece during a single cycle, depending on the item’s size.
You must analyze the production process when generating baseline costs and translating that into volume discounts. However, if you play with numbers and variables, you can figure out basic pricing.
Understand your customers’ needs, then look for unique products that can fulfill them. A good marketing plan will go a long way toward increasing a product’s perceived value in a given marketplace — and that will translate into higher margins.
Award-winning author and international speaker Jimmy Lamb has more than 25 years of apparel-decoration experience. He currently is manager of communications for Sawgrass Technologies, Charleston, S.C. For more information or to comment on this article, email Jimmy at jlamb@sawgrassink.com.
Unique Sells
The beauty of sublimation is that you easily can create so many cool products with a high level of perceived value. The key is to take advantage of the available tools.
Too many decorators simply process orders exactly as dictated by the customer. Though this sounds like good customer service, you may be losing money because of the customer’s lack of knowledge and imagination.
Using high-energy graphics, inspiring layouts and cool products, you can turn ordinary orders into extraordinary ones, which accomplishes three important objectives: higher margins, larger-volume orders and increased sales from repeat orders.
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