Ryonet | #PoweringThePrint
Pricing is probably one of the most common questions we get, next to marketing. You can print shirts all day long, but if you don’t know how much you should sell your shirts for to make a profit, you can print yourself right out of business.
Let’s start with the obvious question: Why are you doing all this work?
To make money.
Even nonprofits need to make money to continue their mission and to succeed. So, unless you are only screen printing for fun, you need to know how much you should sell your shirts for to make a profit. There are a few books out there on the subject of pricing and some “pricing guides” available in the industry but, for the most part, there isn’t a good direct answer. And, if you do adopt one of those pricing guides, you really have no way of knowing if you’re actually making a profit off of the price you are using. The best way to know for sure how much you should sell your shirts for to make a profit is to use a profit calculator.
Since there really is no one-size-fits-all answer, we’ve offered up an easy way to understand the equation behind a profit calculator so that you can make sure that the price you choose is actually making you money. (For an easy profit calculator without all the math, check out our downloadable document at the bottom of this BLOG.)
Most of the factors that go into this equation fall into one of two categories: overhead cost or specific job cost. Overhead cost is the often the most over-looked element by printers when calculating out the price to charge for a specific job, but it shouldn’t be. Before you even think about processing the cost of a specific job, your first step should always be to find out how much money per month you spend on simply having a business. That includes rent, electricity, internet/phone bills, insurance, equipment cost, and the amount of money you want to pay yourself as a business owner. Find out what the total monthly cost of these expenses are, divide that by the average number of items you print each month, and you have the amount you have to charge per item to cover overhead for that month. This will help you figure out what you need to remain sustainable. Here’s what it looks like typed out:
$ overhead total cost per month ÷ # average number of shirts per month = $ overhead cost per shirt for that month
If you already use a profit calculator to price out your jobs and you just need to start adding in this overhead fee, then you can just add this number to the per-item price you already offer. If not, then this is where you have to start calculating out your other job-specific factors. The equation isn’t pretty, but it goes something like this:
This gives us the number of hours needed per item for that particular job. You may have to estimate some of these, but as you practice and get more experience with it, you will get better at knowing what these values will be. After this, you need to know how much the labor needed to print this job is going to cost. The equation for that looks like this:
Once you know how much it will cost to print the items, you have to calculate the cost of the materials that go into the printing itself. Here’s where a little bit of experience will go a long way.
This number is what most printers base their pricing off of, but remember, it’s only part of the true cost that goes into printing a job. After this value has been found, you can now calculate the total cost of each item in the job:
Remember, this number is your cost per item for this job, not the number you should be charging your customers. Anything lower than this for that particular job and you’re actually losing money on it. Keep that in mind next time you get into a price-war and you will save yourself the pain of lowering your price beyond your cost margin.
As we all know, the point of a business is to make profit, so your next step would be to calculate what you want that percentage of profit to be. Because there are so many conflicting theories on how to calculate your profitability, there are also many varied “ideal” percentages floating around in our industry. I like to aim for 20% to 45% profit, depending on the situation. Some people’s set-up simply won’t allow them to get a 45% a margin due to high production time, or material costs, or overly competitive local pricing. My suggestion would be to “shop around” a particular job to the other people printing in your area. Knowing what they are charging for that job, and comparing it to your own base-cost estimate for the same job, will help you to get an idea of what the market will hold. You may find that other shops are charging prices that are far below your ideal profit percent. There are many possible reasons for this, perhaps the shops around you have found ways to cut their overhead costs, or have found a source for cheaper supplies, they might choose to pay themselves or their employees less than you would like to, or they might simply have faster or more efficient set-ups in their shop. It’s also possible that they don’t know how to properly price their own jobs and are actually losing money on each of them without realizing it. If you find that you simply can’t keep up with the pricing of your competition, consider specializing in something that they don’t offer. If the shops around you only print jobs over 300 shirts, then find a way to specialize in smaller orders, or consider getting a numbering system and taking the athletic and sports-team corner of the market. There are many niches in the printing market and you might find your desired profit margin fits one more than another.
Now, let’s look at how to calculate the profit margin based on a particular job:
This number is the exact amount of profit you will make on each item in that job. If it’s $2, then you made $2 on each item you print in profit. Next, you need to add that amount to the base cost of each item for that job and multiply it by the number of items in the job. That looks like this:
We have now reached our final number; the price that you need to charge the customer for that particular job and achieve the profit percent that you designated. You may be surprised by this number, pleased to see that you’ve been hitting it right on already, or find yourself having to rethink some of your strategies. Don’t forget that there are a hundred ways to take your corner of the market, whether it’s on a shirt-by-shirt basis, or by owning huge 1,000 shirt-per-order accounts. If you find that you aren’t hitting the numbers you want, consider that maybe you just haven’t found the right corner for your business to thrive in, yet.
Now that you understand the equations and numbers that go into this process – try using this
profit calculator that we put together in Google Sheets!
UPDATE: We have uploaded a new pricing calculator video with an updated document here.
Access more exercises and learn new things about this industry by visiting madetomakeitbook.com