Charging the Right Price For Silk Screening
Printing Price
Determining the right price to charge is the most difficult problem in most businesses.
Charging the right price is especially difficult for companies that provide screen printed,
transfer and embroidered products. In fact, there is no right price,
only an optimal price.
An optimal price results in the most profit dollars, but necessarily foregoes the opportunity
to sell to some people willing to pay more than is being charged. The
optimal price at the same time is too high for some sales prospects who would
pay a lower price that delivers a profit to the business. These lower
profit margin customers are forsaken.
So, an optimal price takes from the market potential the most that can be earned with
one price, but does not permit a sale to every willing buyer at the maximum
price that buyer is willing to pay. Unfortunately for almost all businesses,
even the profit of the optimal price is not achieved, because the optimal price
is never determined.
Does your business subscribe to the following practices?
- Charge the same as competitors.
- Charge cost, plus a percentage.
- Cut prices when business slows.
These methods of determining price are not optimal, do not develop optimal
profit, and should be avoided. The folly of such methods will become
obvious.
Decorators will shop and hassle vendors spending time and money to knock $5 off the price
of a gallon of ink or a thread purchase which works out to be a fraction of
a penny per garment, but make zero effort to test selling prices. That
effort may add $5-10 or more to the selling price per shirt. Why chase
fractions of a penny and not look at the big dollars? When was the last
time you tested selling prices, if ever? Here is one method.
You want to sell one color images on T-shirts to contractors, other local businesses,
Little Leagues, colleges, events and the like. First, different types
of customers should never be lumped together. They may, in fact, probably
will, be willing to pay different prices for the same effort on your part. Let’s
take the first one, contractors.
Before establishing a price, print one shirt, the type of shirt the contractor will
buy, with a typical custom image for a contractor. Then ask contractor
personnel in advance of soliciting orders what they would expect to pay for
the shirt. Record their answers without ever giving any approval, disapproval
or indication of your reaction.
In fact, the optimal price will not be known until at least 30 responses have been received. Maybe
more will be required, and less introduces risk to setting the optimal price.
The number in the sample, whether it be 30, more, or less, is influenced by the range
of responses. A sample of 30 responses spread evenly from $5 to $12
is different from 30 responses all between $8 to $9. Both average $8.50,
but we will have greater confidence of optimal pricing when the deviation from
$8.50 is only plus or minus $ .50, or 5.9%.
Sometimes high confidence levels can be achieved from sampling. For example, college
students in the Northeast pay $12 for one color screen printed images on the
front and one color on the back of a light colored, 100% heavy cotton, short
sleeve shirt.
An $11 price simply foregoes an opportunity to make more money, and a price higher
than $12 will cause sales to drop way off. Long sleeves sell for $15,
and nearly all students will tell you these prices on a price survey. Prices
in other parts of the country could be different or the same.
Such high confidence levels come from the population of sales prospects being influenced
by the same reference point of price. Sales people like my son have gone
through the dorms of many colleges all using the same price. The students
are conditioned to expect the $12 and $15 prices.
Less confidence will result, and you will be confronted with a more difficult pricing problem,
when the people in the survey group do not have the same reference point from
which they draw their conclusions about the right price for the product. Then
the real work begins. If the data range is more than plus or minus 10%,
excluding any errant responses, then increasing the sample size may be appropriate. Often
that is not practical, and the risk must be assumed.
EXHIBIT A
| Number Responses | Price Answer | Printed Shirt | Profit Each | Maximum Profit |
| 2 | 7.00 | 3 | 4.00 | 120.00 |
| 0 | 7.50 | 3 | 4.50 | 126.00 |
| 2 | 8.00 | 3 | 5.00 | 126.00 |
| 6 | 8.50 | 3 | 5.55 | 143.00 |
| 10 | 8.75 | 3 | 5.75 | 115.00 |
| 4 | 9.00 | 3 | 6.00 | 60.00 |
| 4 | 9.50 | 3 | 6.50 | 39.00 |
| 2 | 10.00 | 3 | 7.00 | 14.00 |
When the price responses are as shown in Exhibit A, the optimal price can be calculated. If
all customers, 30, are charged $7, the profit each of $4 produces a profit
of 30 times $4, or $120. This assumes that all prospects will pay the
low price, and that is a risky assumption as will be discussed later. However,
for the moment, we assume the risk and see a $120 profit.
On the other extreme, if $10 is the selling price, then only a total profit of $14
will be earned. In actual practice, a few people at prices close to
$10 might be persuaded by excellent sales representatives, but most
people will not.
Where is the optimal price? A $7.50 price presumably will attract 28 sales at
a profit of $4.50 each, or a total of $126. So a $7.50 price is better
than a $7. Similarly, an $8 price will earn $140, and an $8.50 price
will earn $143, but $8.75 will earn only $115.
- How to: