Setting prices is one of the most sought after pieces of information by screen printers. Setting accurate, fair pricing could make or break a business. You do not want to price your goods too high and not get business, but on the other hand you want to make a profit to stay in business and grow. If you think that just setting your prices lower than your competition will get you work you may be right. But that does not mean you will make a profit on the job or keep your business running. Keeping your prices fair, producing good quality work and meeting deadlines will keep customers coming back even if your prices may be a little higher than the competition. So how should I set prices in my T-shirt shop?
THE FOUR ELEMENTS OF PRICE SETTING
(1) Cost of materials
(2) Cost of labor
(3) Cost of overhead
(4) What the market will bear
These are the primary elements to price setting. Determine these items on a per unit basis and you can establish a pricing formula for most every product that you sell.
COST OF MATERIALS
Let's go over the first piece of the pricing puzzle–the cost of materials. This is fairly easy. Let's use t-shirts as an example. How much do you pay per shirt for your blanks? How much is the cost of shipping to receive the shirts from your vendor? And lastly, how many shirts do want to allocate for misprints or returns?
For this example, we'll use an order of (50) t-shirts with a (1) color screen print on (1) side of the shirt. Let's say you're using a $2.50 blank t-shirt. Based on current commercial shipping rates, it'll cost you around .40 per shirt for shipping (depending your location.)
Let's say you expect a misprint (or other defect) of 1 out of every 100 shirts for a cost of .025 (let's round it up to 3 cents). So we have $2.50 + .40 + .03 = $2.93 for the cost of materials.
COST OF LABOR
Next is the cost of labor. Is it only you or do you have employees? In this example, let's say you are the only employee. What is a satisfactory hourly wage? $25, $35, $50 or $75 an hour? Let's say you want to make $50 per hour. While this may seem to be a decent wage (by most people's standards), you must understand that you want to be able to make enough money to be able to put some of it back into your business and cover your “overhead” costs. Let's assume that you can do the pre-production (writing up the order, artwork, shirt ordering, screen making, etc.) and the printing of (50) shirts in one hour. Using our $50 per hour labor rate, that will add $1.00 shirt cost. We're now up to $3.93 per shirt.
COST OF OVERHEAD
Every month you have to pay an electric bill, insurance, a payment on your equipment, etc. in order to operate your business. This is the cost of overhead. Because the variables will be different for almost every t-shirt printing business, we can only use an estimate for our overhead example. But before we do, here are some examples of “overhead” to consider.
● Telephone service
● Fax service
● Internet access
● Supplies (ink, emulsion, etc.)
● Gas/Propane/Oil for heating
● Legal fees
As you can see, overhead can add a significant cost to doing business because of the numerous expenses involved. Think of overhead as an “expensive employee.” For our example, our “expensive employee” will make as much as you do–$50 per hour. So let's add another 1.00 per shirt.
So what are we up to so far? $2.93 (cost of materials) + 1.00 (cost of labor) + 1.00 (cost of overhead) = $4.93 per shirt. Look's like a good price so far. But read on…
WHAT PRICE “WILL THE MARKET BEAR?”
Although mathematical exercises are useful for determining your prices, no business operates in a vacuum. The ugly word “competition” must always be considered. Because the marketplace will almost always have influence on your prices (unless you are fortunate enough to have no competition), take a survey of your competitors. Are your prices in line with theirs? Are your prices significantly lower or higher than most of your competition? If so, why is that?
One important thing to remember is never copy your competitor's prices or always “underprice” the competition, as you do not know what their cost of doing business is. Or worse, your competitor may be using “idiot pricing” — which is simply pricing they dreamed up with no thought whatsoever to their cost of doing business.
The best approach to determine your pricing is use mathematical analysis for your operation and then see where you stand in the marketplace and adjust if necessary. If you are significantly higher, figure out how to lower your production costs. If you are fortunate enough to be significantly lower, either raise your prices for a better profit or position yourself as the pricing “market leader” and see if you realize an attendant increase in sales.
MAKING A PROFIT
Your primary reason for being in business should be to make a profit. Although t-shirt printing is a fun and a creative way to make a living, you have to pay your bills and make plans to retire some day.
So let's talk a little about profits. The prices that we have come up with so far have not included a profit. We have only covered the cost of the blanks, labor expense, and the overhead. So what about profits? If you think your $50 per hour labor rate is your profit, that type of thinking will get you in a “no-growth” situation because you are only “working for wages.” If you want to succeed and grow your business, you must factor in “profits.”
What is a “reasonable” profit to make? A “reasonable profit” is whatever the market will bear! If the cost of doing business in your shop is very low compared to the competition because you are a single employee operation or you're home-based, you may enjoy a significant profit margin. Use this to your advantage and make as much as you can! This is how you will grow your business or be able to sock away large sums for your retirement. Once you begin to expand (if that is your goal) by adding more equipment, employees, etc. you will not enjoy the profit margin that you previously had. Take full advantage of significant profit making while you can.
Back to our price setting sample. So far, we are up to $4.93 per shirt. Let's say you want to make a 30% profit, certainly a “reasonable” amount. That will add $1.48 to the price of shirt, making the final selling price $6.41. Will this price be acceptable in the marketplace? I think so. But would it work everywhere? Maybe, maybe not. The key to setting prices is “do your homework, then test the waters.”
As you can see, setting prices is not just as simple as adding up some numbers. It would be nice if it were that easy. This author's recommendation on setting prices is to read as much information as you can on the subject and analyze the marketplace carefully. Become an expert on knowing your costs and determine how to operate your shop as efficiently as possible. Monitor your competition’s pricing and keep constant track of your overhead costs.
Your goal should be to become as profitable as possible and yet still be able to maintain a balanced lifestyle for yourself.
For more information on this very important subject, the U.S. Small Business Administration offers tutorials on this subject and many other useful topics. It can be found here: http://www.sba.gov/
The content of this article is an excerpt from the ASPA training course The Secrets of Printing T-Shirts and How to Make Big Money!