We've been criticized for our sample policies and prices in the past and most people think that they are expensive, and they are, and we know they are, but we stand firm. Samples are expensive to produce and they in no way guarantee that you are going to get an order out of it. Everyone is 'the next big clothing line'. A few of those claims are legit, but most are not. This may sound pessimistic, but you have to be realistic in your business and do what is right and profitable for you.
You are not crazy. The person who offered a 4 color all over print sample for $40 is crazy. Let them have the crazy business. $40 per screen seems reasonable to me, we charge twice that, and I know we're crazy, but it also works. Really, where is anyone going to find a company that will produce in essence one custom t shirt without a guaranteed volume order?
In addition, if you are sourcing the all over print, do not offer a sample. If you have a belt printer yourself then do what you feel you can do. if you don't, buy a sample that is already printed from your source to keep in your showroom to show what kind of quality and registration can be produced. If you get good art from your customer, this should suffice.
Samples are a sensitive subject. The screen printer kind of hates to hear that word, it sends shivers down my spine, not only because we don't really want to do it, but because explaining the process and why you must charge how you charge for it is a process in and of itself. It was said about us once, "If you are so confident in your quality then you will print a sample". I think just the opposite. We are so confident with our quality, as evident in the hundreds of sample prints in the showroom, and we are so confident in our pre press mock up and approval system, that we think you don't need a sample and will be better served to order 36 or 48 shirts that you can not only sample, but that you can sell! The customer must realize that the producer cannot shoulder the whole cost of the sample, and there will be some capital needed on their part. Again, order the minimum order rather than one sample...
As a screen printer you know what kind of labor and time goes into a sample, especially a 4 color all over print, so do price it accordingly. Explain that it is expensive and why. Not charging for the screens on a volume reorder is totally reasonable, but by all means to not refund or credit all of the sample money even if you do get a volume order down the road (who knows when either, right?), unless of course you land the job printing 10,000 pieces of that design, then you make concessions, but make those concessions AFTER you receive the job and a 50% deposit, not before. You will be setting up the job twice on that reorder, and your customer, if they are reasonable, will (oops, may) understand when you explain how much labor and time goes into one sample, and how just about the same labor and time goes into printing 36 or 48 of them. I've never seen an all over printer with a minimum lower than 144 anyway.
On that note, if the customer is confident they can sell thousands of pieces of a design, then the cost of the sample even if it seems high is negligible...