Embroidery Pricing Myths Embroidery Project

Without a doubt, pricing still remains the greatest challenge for Embroidery Shops. Big or small, old or new, it doesn’t matter, what to charge for your goods and services is still a tricky business and the only successful way to do it is to build a system that is based on your shop’s situation, not a bunch of myths, half-truths and misconceptions. To help you keep your operation on a true course in regards to profitability, here are 5 common embroidery pricing myths that should be avoided.

Unfortunately, this is such a pervasive myth that it won’t go away. In fact it becomes more widespread every year as more people hear it and repeat it. You hear it from well-meaning equipment Reps, message boards, and chat rooms. It pops up in magazines and newsletters. It’s so prevalent, that embroiderers feel comfortable accepting it as truth. It’s not!

This myth started about 10 years ago, when a Magazine printed the results of a survey of Single Head Shops. One of the areas was pricing and they found that the average price charged by Single Head Shops happened to be $1.00/1000 stitches. (The survey did not indicate whether any of the shops were actually making money or not.) This got twisted around and turned into a standard over time.

Suffice it to say, you must do a thorough cost analysis of your business and use it to determine what it costs to produce embroidery. This is something I have covered in numerous articles and seminars in the past. To learn more, tune in to one of my FREE WEBINARS at www.hirschinternational.com. Click on Events, then Webinars to see a complete list of topics & dates and to register.

If I Know My Competitors Prices, I Can Simply Charge 5-10% Less And Get All The Business

While it’s helpful to know what the competition charges, you cannot simply lower your prices to compete. By doing this you assume that:

1. Your competition has the same overhead as you.

2. Your competition has based their prices on the calculated cost of doing business.

3. Your competition is unwilling to drop his prices in response.

Basically, you have no guarantees of making any money by taking this approach with your pricing. The end result will probably be a price war and rarely does anyone win, including the customer. Focus on calculating a profitable price structure and then only take-on profitable orders.

Your customer promises “If You Give Me A Really Good Price, I Will Bring You Lots Of Business.”

Customers love to drop this line on you. Bottom-line, if you give him a break today, he will expect it forever and there is no guarantee that he will bring in additional work or send other people to your shop. 

Never give a discount based on a promise of future work, unless there is a written contract involved. As an alternative, you can reward the customer who really does follow through on such a promise.

Also be aware of the customer who asks for a quote on 500 pieces, then proclaims that he only needs 12 pieces today, but since he plans on getting the rest soon, he expects the 500 piece price.

If I Have Money Coming In The Door, Then I’m Making A Profit.

There is a big difference between making money and making a profit. Money coming in the door is known simply as revenue.  You achieve a profit, when your revenue is greater than your expenses. There are plenty of companies who have a steady stream of work, but aren’t making any profits.

You must ensure that you develop a profitable pricing structure, then carefully apply it to each job, so that you know exactly what your profit margin is on each order. Even then, if you don’t have enough sales, you still may not be making money, as it takes more than a few profitable orders to actually make a profit.

For example, if your operational overhead was $300.00 per day and all of your orders were profitable on an order-by-order basis, you still wouldn’t make any money unless the sum total of daily net revenue was greater than $300.00 per day. 

Bottom-line, there are two aspects to making a consistent profit – a profitable price structure and a constant stream of profitable orders.

The Customer Claims That Someone Else Will Do It Cheaper

Actually this can be quite true, as it seems as if there is always someone willing to go lower on price. But when a customer throws this statement in your face, he is probably bluffing and simply wants to see if he can get you to drop your price. 

Don’t let the customer set your prices! If he really could get it cheaper “down the street” then why is he wasting your time and his? Chances are he is simply playing games. Or he got a really good price, but there is some problem, such as an extended turn-around time or poor service in the past.

And on top of all that, price wars are dangerous.  If you do give in and drop your price, the customer is just as likely to play you off against your competition, by running back to them with your quote in hopes of getting him to go even lower.

So yeah, pricing is a challenge and always will be, but that doesn’t mean you can’t develop a successful strategy. To be honest, pricing is linked hand-in-hand with marketing, as a product is really only worth what someone will pay for it, regardless of what it costs to produce. Therefore, you must focus on high-profit items that fit your targeted markets, rather than just randomly offering embroidery services. This will ensure that you have the highest possible margins in your pricing system. It also puts you in a position to carefully select products that are unique to your business, rather than just trying to add someone’s logo to a polo shirt or cap, which every embroidery shop on the face of the earth can do! Uniqueness and originality are what really set the successful shops apart from everyone else, because they have put themselves in the position of being “the source” rather than just another supplier of the same old, same old.