Issue link: https://docs.hic.us/i/403552
simple concept, yet the average Embroiderer has no idea what it costs to produce anything. It's sad to say, but most shops base their prices strictly on the competition. By doing this you are assuming the following things: 1) The competition has carefully calculated realistic pricing based upon their cost of operation. 2) The competition has the same overhead as you. 3) The competition is smarter than you. Do you really want to base your future on these assumptions? So where do you start on the quest for profitability? The first step is to determine where you spend your money. Make a list of all of your business expenses over the course of a year. Things like rent, loan payments, utilities, embroidery supplies, insurance, advertising, wages, etc. Every penny counts, so be thorough. I also suggest adding in your paycheck. You are in business to make money and this is the most important expense of all – paying yourself. When you're finished, total all of the expenses together to come up with a yearly amount. This is not 100% percent accurate, since some of the expenses are fixed and some are variable. But you have to start somewhere, and this is the place. You can always fine tune the expenses as you go. Once you have come up with your total annual (estimated) expenses, it's time to break down these numbers into units of time. Decide how many weeks you plan to work per year. Most people go with 48. Divide the yearly costs by 48, to find out what your overhead is per week. Now lets determine an hourly cost. This can be tricky. It might seem logical to divide the weekly overhead by 40 (or however many hours per week you think is appropriate), but we need to identify weekly hours of production. After all, if your machine isn't sewing, you aren't making money. Try to determine how many hours your machine(s) is running per week. Don't worry about how many minutes per hour just yet, only the total number of hours. Once you have this information, then divide the weekly overhead by the number of hours to come up with a basic hourly overhead figure. If that number is $30.00, then you know that you will have to produce $30.00 (net) worth of orders every hour, 40 hours per week, 48 weeks per year. If you do this, and none of your expenses change over the course of the year, then (in theory) you will be able to pay all of your bills and your salary. Of course, we all know that things change. Thus it's important that you create a spreadsheet to track this information and update it frequently. Overhead will fluctuate! Sales will fluctuate! You must be flexible and willing to change your data as needed. Okay, let's go a little bit further with our cost analysis. Since most Embroiderers like to charge by stitch count, lets figure out the cost for that as well. Let's start by determining how many stitches per hour you can generate. The first question is how many minutes of sewing do you achieve in a typical hour. Don't even think about 60 minutes. Don't assume 45 minutes either. The real number is more like 35 minutes in a single head shop. (Some of the multi-head shops approach www.hsi.us care@hsi.us 141