Making Your Printing Business Profitable

Printing ProfitWhether a decorator owns large automated equipment, or the smallest, simplest equipment, profit is made the same way. Profit is the result of profit per piece times pieces per hour.

Both screen printers and embroidery shops face the same problems. Actually, there are three problems. Address these three problems successfully, and you will make a lot of money and not care about the small costs of your business.

Many shops produce quality work. They are production oriented. This could be the shop with expensive automated equipment that is a contract decorator at low profit margins or the small shop that accepts small orders from customers who walk in the door.

The very profitable shops, by contrast,

have mastered the production issues, and then work with greater intensity to discover how to master the three problems: profit margin, volume, and overhead. The low profit shops spend their days with production issues getting orders out the door. The very profitable shops have competent associates to get the orders out, and therefore have an owner or associates who focus exclusively on the three problems.

Defined your printing market Actually, there are many market descriptions. A 300 piece order would be a large order to a shop with 3 people, but small to a shop with expensive automated equipment. Market can be defined by what is being decorated, such as T-shirts, golf shirts, bags, signs, and even bizarre items like hockey pucks. These alternatives to a definition of market are easy to array and document, and then pursue individually based on profit and volume potential.

The difficult challenge to market is identifying the volume buyer who will pay prices with high profit margins. So profit margin is the first issue to address.

Make a Profit Silk Screen Printing To achieve a high margin, first, we must recognize that all customers do not pay the same price for the same work. For example, high school and younger children will pay more for a T-shirt or cap than their parents, because parents earn the money and have a better sense of value. So age and how much money people have as disposable income can have a bearing on what they will pay. Location also is important. High cost areas like New York City support higher prices than very competitive markets like Southern California or Miami. However, decorators in even those markets can identify high profit margin market segments.

If a decorator is offering the same product as competitors, then often price becomes important to the customer, and profit margins will be low. On the other hand, if the decorator is offering a product that the customer wants, and other decorators are not offering, then price will not come under the same pressure. So the decorator should be looking for products competitors are not offering.

The best products are ones that customers view with a high perceived value, but the cost to produce is actually low. For example, quality golf shirts cost about $10, but can be sold for $30. Go into the pro shop of a public golf course and there will be shirts on the shelf for about $60. All products in the golf industry are retailed at two times cost. So the shop keeper expects to pay $30 for a shirt that will be sold for $60.

The pro shop demonstrates that the highest profit margins are achieved by offering products at prices people expect to pay rather than having one price for all potential customers or a pricing formula that is based on cost plus some factor to cover overhead and profit. Such formulas doom the business to be a low profit business.

The golf pro shop can lead to other opportunities as well. The people playing golf see these prices, and that public display of price gives credibility to the price. So if the decorator is proposing similar high pricing to a corporate executive who has been in the pro shop, there will be acceptance based on that price being the market price. A volume buyer would not pay $60 per garment, but might think he or she is getting a steal of a price at $30 to $45.

If a customer expects to pay say $14 per T-shirt based on prices at the shopping mall, and you quote $18, the customer will flinch. Price becomes an issue and focus of the transaction. Similarly, if you quote $8, something must be wrong with the product, and the customer will flinch again. If the product is quoted at the price the customer expects to pay, then price is not an issue or the focus, and other issues like delivery, art, colors, sizes and more will be the topics of conversation. So knowing what people expect to pay can be key to getting a profitable order.

What do people expect to pay?

If you want to know what people expect to pay, and the price has not been publicly displayed, then ask. However, never ask at the beginning of the conversation. Well into the conversation, and after many of the other issues of the order like art, colors, size and delivery have been discussed, a comment that is presented like a question of little importance might yield a big dividend. “Have you ever bought this product before?” “Did the supplier do a good job?” “By the way, what did you pay for the shirt?” The expression “by the way” is designed to get the customer to drop their guard and reveal this critical information. Once you know the price, immediately change the subject and do not come back to the price issue.

Decorating licensed art or legally protected art is another way to protect a high price from low price invaders. Of course, a license fee will be a cost, and the image has to be one of great public appeal that will sell in great volume despite the price. That could be from the sports or entertainment worlds, or any market that attracts lots of consumers. Lots of Boston Red Sox T-shirts licensed by Major League Baseball are in the stores at prices like $19 despite poor print quality.

Prices with high profit margins can also be protected by offering items potential competitors are unable to print. Many decorators have no experience or inclination to learn how to decorate items like towels, gloves, tote bags made of 600 denier polyester, gift market items, and if the decorator screen prints, signs, bumper stickers, paper bags and hockey pucks.

Too much emphasis is often placed on price as being the deciding factor of whether you get an order or not. Often customers buy for other reasons. Here are some examples. People spending the company’s money rather than their own money might give you the order, because they do not want to spend more time looking for your competitors. That happens a lot with corporate buyers where the decorated items are incidental to their business. Financial service companies (investment bankers, stock brokers, private equity firms, and more) and large law firms are focused on their businesses and give little thought to the money they could save by shopping the price.

Deciding factor
The deciding factor might simply be that the customer likes the sales person. Meeting a delivery requirement or date could be the deciding factor. Helping the customer with the details of the order, like getting the art done for the customer, can make deciding to buy from you easy for the customer. Of course, long term relationships and loyalty are the best factors to have in your favor, but today many people are not loyal. Proving why you are the best supplier is important with every customer contact.

Decorators located near resorts that cater to corporate groups should approach the person at the resort who is the key contact with the group. Often groups will decide after they have arrived that a golf shirt, tote bag or other item should be given to members of the group. So golf shirts sold at $45 each to the group with $15 of that price going to the resort employee will create sales without competition.

Volume What is volume? Volume is a number of items to be decorated where the work per item should be incidental to the output. Embroidery will be a low stitch count. Screen printing will be only 1-2 screens in a manual shop or a large quantity order when more screens are on an automatic silk screen press. The work of creating art, and then digitizing, or making, registering and cleaning screens are costs to be absorbed by the number of items processed in the order.

In fact, there are many other costs associated with an order. Time is spent dealing with the customer. The quantity of the order could be 48 pieces or 1000, but the time dealing with the customer could be the same. Then garments and supplies have to be ordered, art prepared, and so forth. The decorator needs to control how his or her time is used so that the number of pieces produced per hour is maximized. For that reason, I advise people in most cases to avoid retail locations, because customers will take time away from production by key people.

Overhead In a managerial sense, rather than by strict accounting definition, overhead is the summation of all costs other than the item being decorated. By this definition, overhead includes rent, payroll, taxes, utilities, advertising, and even the thread or ink used to decorate. All costs for the month other than the costs of the items actually decorated are lumped into one total amount. Then divide that number by the number of working days in the month to get the overhead per day.

Next, any shop that wants to know if it is making money screen printing should be counting and recording the number of pieces decorated per hour. A total for the month can then be divided by the number of working days in the month to get the average number of items produced per day. That number divided into the overhead per day is the overhead per item. Overhead per item, plus purchase cost of the time is total cost. Now the total cost can be subtracted from selling price to find out if we have made any money, apparently.

Immediately we are aware of the fact that under certain circumstances we produce more items per hour than under other conditions. Stitch count is critical to an embroidery shop. Screen printers should produce 100-120 one color shirts manually per hour, but production drops to maybe 50 pieces on a 4 color order. So the overhead cost is a greater burden on high stitch count orders and multiple color screen printed orders. If the business owner will do the simple math of pieces produced per hour times profit per hour (selling price less cost of item decorated and overhead), often higher prices for more stitches or screens does not compensate for the lower productivity.

By matching cost and revenue for each item we decorate we first find out if the order is profitable. Next we can compare sales opportunities and direct our sales efforts into more profitable market segments and away from sales opportunities that lose money or are not desirable when there are more profitable orders to fill the work day.

Conclusion To start and operate a business that is financially successful the owner must know the cost per hour to operate the business, and the revenue per hour being generated. Finding orders with high profit margins and quantities requires time and attention that will not be available, if the owner is pre-occupied with production issues or managing incidental costs to the business that have little impact on the profitability of the business. Just managing profit margin, volume and overhead is a full time job.

Questions and comments contact Roger@rjennings.com