I published the story of One Printer’s Experience with Embroidery in the March 6, 2012 Crouser Report and then heard from several more. Following is the original article along with pertinent repsonses.
= = =
I didn’t hear from many regarding those printers who added embroidery as a service, but I did receive one detailed response from a franchised printer who started up an embroidery service, then closed it down. I thought his story would help some of us considering it. (I have edited his comments for clarity and brevity) BTW, if you do embroidery and would like to be part of my study group, then hit me with an email at email@example.com
Reader writes: I had no guidance when I started the embroidery operation; rather I inherited machines and used my experience as a printer to guide me. Obviously, the problems I ran into could be overcome especially if they were known beforehand, but I found them to be obstacles to our success. With enough sales and experience we could have succeeded, but we didn’t have that so it was easier to shut it down. Here are the obstacles as I see them:
1) Cost of the direct materials (shirts, clothing, etc.) is significant. In printing, we are shooting for a 25% cost of goods sold (direct materials). In embroidery it is in the 50% range. We would buy shirts for $20 and the order would be for 100 of them. We marked up the shirts 50% and then added for embroidery, about $5 a shirt. That meant the total price was $3,500, but the shirts (direct materials) were $2,000 of that plus some thread and backing which was minimal. So the direct materials are 57% of the job. There are a number of reasons why this is significant.
a) Mistakes: even a mistake on a single shirt was very expensive to fix, as you had to reorder the shirt, and possibly pay shipping on a small order.
b) Franchise Fee: We were doing this as a department of a franchised print shop and did not fully realize the cash ramifications. Our royalty bill on a $3,500 invoice at 7% is $245 which is very significant when compared to the margin after materials ($1,500 embroidery vs. $2,625 printing).
c) Accounts Receivable: in printing, we give customer terms and since some of our existing customers bought, we extended terms here also. Everything was fine until a customer didn’t pay on time. Because of the much higher direct materials that we had to pay for, we had a severe cash crunch financing the receivables. We were selling more but had less cash flow. Additionally, we had a hard time asking a good printing customer for cash up front on embroidery work.
2) Customer’s resistance to shirt prices (direct materials). We would show a customer our catalog and agree on a $20 shirt. Then they would then come in the next day with a dozen shirts that they got on sale for $15 each. We then had a couple of options, none of them ideal. Rarely does a customer bring paper to a print shop, but many bring products to be embroidered. Again, I was faced with trying to get a higher margin, but could not over price the garment relative to what the customer’s perceived value. Most don’t know how much paper costs, but they sure know how much a shirt costs.
3) You end up with a lot of small orders. You start off doing a large order; say 50 shirts for a sales team. You then have to support that customer, so every time they get a new salesman or the president wants a new shirt, you get an order for two shirts. It’s difficult to charge the enough for those two shirts.
All these problems are dealt with in the successful embroidery shop, but we didn’t have the right information, experience or guidance. There are many successful embroidery operations and I should be able to operate one of them. I remember thinking, that with more information, I could have made it work.
Tom’s Comments: our friend gives us some really good things to think about before we expand into embroidery or any other product/service.
First is to calculate whether we have enough cash to make money. Say you sold widgets that cost you $500 for $100,000. And say you had already lined up five sales. That’s $500,000 in sales on a $2,500 investment – heck, who wouldn’t jump at that? What you didn’t know though is customers would pay you $1 a month for 100,000 months. Oopsy. Now there’s a problem. So use a cash-flow budgeting system to figure this out.
Second is to have a good price strategy. Here the printer relied on the markup of shirts to make the profit instead of the embroidery. Instead of selling the shirt for $20 and the embroidery for $5, could the shirt be sold for $15 and the embroidery for $10? Not saying that it could, just saying that one has to price appropriately to avoid price quagmires as the reader described. This would also help with the two shirt order as would perhaps a set-up and run charge as we typically see in printing. Okay, I’m still on the hunt for embroiders, so just reply to this message with an email and I’ll put you on my special list.
= = = = =
The message above was published on March 6, 2012 in the Crouser Report and I received several messages in response. The responses follow:
= = = = =
Wisconsin printer writes of his pricing method: There is a set up if a particular typestyle or logo is needed. To embroider words, as long as they can accept one of the standard type styles, there is no set up charge. Costs are based on the number of 1000 stitches. We use a base cost no matter what the customer wants; they will pay $5.65 for up to 7500 stitches and $0.35 for each additional 1000 stitches.
For real large files (over 100,000) or if there is a lot of pieces being done (more than 50) we always discount. The files need to be digitized for embroidery and the standard PC can’t read or recognize a digitized file without the program (another expense I have no need for).
Anytime a logo is involved, there needs to be a digitized file.
There are a lot of companies out there that offer to digitize files for customers. Once they have received a number of jobs from you, the relationship grows and they are willing to make adjustments at no cost to tighten thread patterns or other small fixes to get it just the way the customer wants it to be.
Before decorating any garments for the first time, I have a sample output to bring to the customer for a signed approval. Expensive garments can cost you a lot if YOU decide it looks good enough and your customer doesn’t agree with you.
It is a process at the beginning but when my customers can find everything they need under one roof and you truly take care of them, they have no need to look elsewhere and the repeat business and word of mouth they will share with their vendors and clients that work with them, just continues to snowball your business.
I don’t allow the customer to bring me clothing that they have bought for a number of reasons. (I used to but no more) They get a good deal on what I offer and the companies I deal with stand behind what they sell.
= = = = =
Another Wisconsin printer writes: We added embroidery to our printing business in 1998. It was a very successful part of our business for 10 years. We sold the embroidery portion in 2008 and then sold our printing business in 2009. We started with a single head, ran that for 6-7 years or so then added a 4 head machine and paid it off within the year. Running an embroidery business certainly comes with its own set of headaches and challenges … It did fit well with our business and the dealer that sold me my equipment was a wealth of information for us. As always – it’s good to know what you’re getting into and what the challenges might be before you make that kind of investment.
= = = = =
And another printer: Tom, very interesting article on Embroidery, and yes it’s very true and accurate. Customers/Prospects are “clever”; they know what they are doing with prices & materials. We all encounter pricing obstacles.
I endeavor to be fair to the customer, and maintain a reasonable profit. Yes, if a shirt is damaged it’s a LOSS and the customer doesn’t pay for spoilage. Every customer is uniquely different, so there is no standard of their acceptance.
We price the shirt at 50% profit off invoice (double the price); and we order a few extra shirts in the event of spoilage and actually add them into the price, so we are at 50% profit on Invoice. We also add in any shipping costs, artwork & digitizing – at 50% of invoice. Sometimes we deviate if necessary or we feel compelled to seal the deal. We start high enough, that we have good margins, and do everything possible to hold the margin, by selling our reasons for pricing. We almost always get our price; we will not work less than 40% profit of invoice.
Overs, we try to negotiate up front, there is a plus or minus, as there is spoilage in the process.
Customer supplied material, we will accept – they must supply extras, of each size & color or variance to the order to insure we finish with full quantity. It is also stated, we will use their material subject to inspection by us, to determine if we can use them. We do not replace or pay for any spoiled goods… they pay for every piece we handle; we’ll give them the spoiled ones.
We charge triple (retail) for embroidery, artwork, digitizing, shipping/delivery, to compensate for loss of profit on material.
It’s not worth working for free or lower margins. They will not receive better service or quality, and they have the option to go anywhere. Because, we also ask what they will be using the garments for : example on Polo Shirts, sometimes 100% synthetic is best, or a blend, or all cotton… even the color makes a difference in what type of material we suggest or what level of quality, fit, style, – poly-bagging or even boxing as a gift.
We do a lot, so we need to be compensated [but that is] easier said than done. I just had a client call me and they want me to supply them the ‘DST” file, the actual stitching – they could take that to another embroider – it’s like the printing plates, who owns them? We do. We’re discouraging them by asking them to find-out the equipment make model, tension, thread weight, and type of garments. Hopefully, we’ll retain the business, they love what we did. We re-did their logo to accommodate embroidery and actually took out all the air-brushing (Photoshop), their inexperienced artist did when making their logo. Also, we realigned their TYPE and ART so it really stands out.
Conclusion: If we don’t obtain good margins we can’t stay in business and be an outstanding supplier.