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Discussion Starter · #1 ·
I am at a loss as to why prices go down with larger quantities ordered. Can anyone shed some light on this for me?

I have a one-head embroidery machine am trying to decide on my pricing structure. For me the amount of effort I have to put out for each one embroidery is the same if I create 1 or 10 or 100 products.

So what is the reason behind other embroiderers charging less per product if the customer orders like 100 or 200. How can the prices continuously be going down the greater the quantities become?

Thank you!
 

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In 'most' cases, larger orders are done on multi-head machines. Aside from the time it takes to hoop things, an 8 head machine can embroider 8 garments in the same time it takes you to do 1. If you are running a single, you can still save some time by not having to reload a different design for every hooping.
 

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I have a single-head machine. My pricing stays the same! With multi-head machines you can offer lower. Customers come to me because I am prepared to do small runs. I have been accused of being expensive (for the country I am in). Tough! You want to wait 3 to 4 weeks before a big concern can fit you in, in order to save a few cents on an item? Be my guest.

Orders for baby things (which are usually one of each item) I refer to one of the two embroiderer's in the area who specialize in that. I get all their digitizing work. :)

Decide what you are worth and stick to it.
 

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There are scales of efficiency with larger runs and the game is played on volume discounts.

I would recommend that you find a trustworthy contract embroiderer. Send your bigger jobs out and build volume while you work the little ones and digitizing.

You can make good money sending the jobs out because you can digitize and test in-house and get sign-off on the embroidered design. This will help you buy your next machine by making sure you have the volume before you have the machine.
 

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Discussion Starter · #5 · (Edited)
I understand that embroiderers with multi-head machines can charge less because they can do multiple products in the time I can do 1.

But what I don't understand is why pricing structures KEEP going down the greater the quantities get.

Even for a 10-head machine the effort for the first 10 is the same as for the second 10, so why do prices keep dropping lower and lower the greater the quantities ordered become?

Sorry, I still don't get it...
 

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Because customers expect to pay less when they buy more. You are correct on level of effort, but it just is what it is. Why is water wet?

You should know what your cost per thousand stitches is including labor, utilities, etc. Stick to profitable stuff and don't chase people down the rabbit trail of working for free.

There are lots and lots of ways to shuffle margin around. I used to get really angry when I'd see someone offering "free embroidery" when it reality it was just included in the 150% margin on the shirt.
 

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The initial cost gets spread out over more pieces, bringing costs down per item...
For example...lets say it takes you 1 hour to pull a design, set up and do a test run. That one hour costs you 50 bucks in time. That cost needs to be spread out over the full order.
Say the cost of the item and run charge is $10. So one piece would cost your customer $60. Where as two pieces would be only $35 each. 50 pieces would be $11 each. The higher the quantity, that $50 gets spread thinner and thinner...at some point, there is no further discount(unless you can get the garments, or supplies discounted through the wholesaler for buying in bulk).
 

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Good points TH.

At some point though every shop has it's "max economy of scale".

For example. When I had my shop, we had 6 Melco Amayas.

I knew that hats ran best at 500spm. So that's 500 spm. My average design was 3.5K stitches, but we'll say 4K for simple math. It takes an average of 1 minute per cycle to change/hoop/etc and will allow 30 seconds per cycle for threadbreaks.

That's an 8 minute average design with 1.5 minutes of overhead, but for conversation purposes let's call that 10 minutes per unit produced.

Now I can say that I can do 6 units per machine per hour, and having 6 machines and assuming I can keep them busy that's 36 units/hr. The reality is that one person can keep up with 3 of these beasts and not much more when you factor trimming, hooping, drinks, potty, chatty, etc.

But back to my example.

My overhead costs are about $1/hr for utilities and another $1/hr for rent.

My staff was $15/hr including taxes/benefits at the time.

Thread is so cheap it doesn't matter.

Backing and thread together are 25 cents/unit.

So I'm looking at a production cost of $17/hr spread over 18 hats per hour for a single person.

That means we can effectively say that my best possible cost for hats is about $1/hat for the embroidery.

My hat itself should have it's own margin (20% or more or you are going to starve)

So no matter what, my embroidered unit price shouldn't get below $1.35 to $1.50 for that hat. That's a 30 to 50% margin and you can survive there.... but remember you probably don't have unlimited orders so you need to charge more to make up for potty, chatty, phone, and other non-revenue time.

I hope this makes some sense. Every shop has a different cost.

Btw, I can break this back down to 4,000 stitches at 1.50 is 38 cents per thousand stitches or so.... I'm doing the math in my head.

Now, on flats I could reliably run 1,000 spm. Melco claimed 1200, and it would do it under ideal circumstances.... but those ideal circumstances didn't factor real shirts with real people...

But the net is that my cost per thousand stitches drops to roughly in half on flats because I can do twice as many per minute. Assuming all else stays the same and I run 8K flat designs.

Design size influences time and you can't short overhead for hooping/trimming/threadbreaks.

Btw, jacketbacks are way more profitable. :)
 

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Discussion Starter · #10 ·
OMG, thank you so much, Puppy, that was phenomenal. I really have tried to do my calculations accurately, but that explanation just answered most of my questions right there.

Only one last question remains:
So if at some point the cost per unit flatten out, meaning stay the same, let's say after 300 hats, you can't discount anything further, how come that some of the price lists I have seen still keep lowering prices?

Is it like you said and customers are used to see continuously falling prices with increasing quantities and that's why shops do it? Or do the big shops really do get everything that much cheaper than the small shops that have to pay almost retail prices for their supplies?
 

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I don't do embroidery, only screen printing but the concept is the same. Once I have the press set up (which I charge for,) the first few shirts go slowly as I get used to the new job, then it takes me exactly the same amount of time for each shirt whether I do 20 or 500.

But, I charge less per shirt for larger quantities because of a few things:

1. Garment markup: This can be flexible based on the number of garments I need to order. I mark up garments for smaller orders by a larger percentage.
2. Opportunity cost: Once I have a job set up and start printing, the more shirts I print the more money I make. At say, one minute per shirt, I'd rather spend an hour and print 60 shirts than spend a minute and print one. So it's worth it for me to discount the amount of profit I make on each shirt.
3. Competition: Even though I have a manual press, no employees, and can only print one shirt at a time that doesn't change the fact that there are other printers in my area and I need to be competitive with their pricing.
4. Non billable time: Every job requires a certain amount of time spent with the customer for communication, proofing, invoicing etc. that you can't bill for. This amount of time is similar for all jobs, so a larger job is more profitable than a smaller job.
5. PITA factor: Customers who order larger quantities tend to be less time consuming than customers who just want a few items. They'll tell you what they want, how many they want, and leave you alone to get it done. Small customers often want to spend time discussing options, looking at samples etc. etc. etc. Once again, it's time you can't charge them for.
 

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For us it is this simple, the cost to set up amortized across all the units, the cost to acquire the next job spread across all the units. I would much rather set up once and run 10,000 than set up 10,000 and run 1.
 

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OMG, thank you so much, Puppy, that was phenomenal. I really have tried to do my calculations accurately, but that explanation just answered most of my questions right there.

Only one last question remains:
So if at some point the cost per unit flatten out, meaning stay the same, let's say after 300 hats, you can't discount anything further, how come that some of the price lists I have seen still keep lowering prices?

Is it like you said and customers are used to see continuously falling prices with increasing quantities and that's why shops do it? Or do the big shops really do get everything that much cheaper than the small shops that have to pay almost retail prices for their supplies?
I used to write for Stitches Magazine and I've taught presentations on this topic before. I'm always glad to help others understand pricing. When we all price based on our real costs we can all make money.

Some people have lower costs (faster machine, cheaper rent, cheaper labor, etc) and many people don't know their costs so they just figure they will be 10% cheaper than ABC Embroidery. They end up losing money.

There are a few kinds of jobs you should send away:
1) Ones where you can't do a good job. Sometimes it's an impossible customer wanting cocktail napkins or panties embroidered...... sometimes they are just nitpicky and won't be happy. Send those to your competitor you hate the most. "Oh, gosh, that is such a great job, but I don't think I could get it right.... I think you should call Devil's Embroidery, they are great at this." Let them have the bad job and the bad customer. Sometimes it's just you know your machines don't handle lace or glitter thread or whatever. Be the source to the solution, not the sucker with the problem.

2) Jobs you won't make money on. Let's face it, we're in business to earn a living and make some extra money. Some jobs you are doing good to break even on. I once tried really hard to get a local quasi government organization's business in Houston. I found it nearly impossible to win bids. On a whim, one time I bid something way below cost.... like coffee mugs. I still didn't win. I later asked them why I didn't win and they said someone had a better price for the same product. I pointed out that I had bid below cost with no setup and no shipping and that I should have been the cheapest. They got real quiet. My point is that sometimes the job is going to require a price that you shouldn't be interested in... walk away. The other derivative of this is clients who are "great" but pay in 4 months.... if ever. Net 30/180. Meaning you tell them 30 days and they pay you when they feel like it in 6 months.

3) Abusive customers. I never tolerate customers who cuss at my employees or who are abusive. I once had a baptist preacher cuss out my customer service girl leaving her in tears. I got on the phone and asked what was going on. He started cussing at me. I told him that it was clear he was upset and I was sorry about that. I continued on to tell him that his behavior was out of bounds and we wouldn't be doing business with him or his church. I issued him a refund and moved on. He wanted the order rushed for free or something trivial like that. As they say, your planning failure isn't my emergency. I can hurry your order along, but I charge for it because it costs me money and I don't like doing it to every order.

Always always know your costs and make sure you price jobs so you make money.

In the printing world nothing frustrated me more than the energetic young family with 2 kids who thought they were making money running a manual press for 4 hours to print 80 shirts at a $1.20 markup each with free delivery, pickup of the goods, etc. Making $96 for 4 people to work 4 hours is not a business, it's slavery with money floating around.

The measure of a business is when it makes money while you are not there. If you have to be there for it to run, it's a job. There is nothing wrong with that, but we should all strive to have at least a good job and preferably a good business.
 

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I understand that embroiderers with multi-head machines can charge less because they can do multiple products in the time I can do 1.

But what I don't understand is why pricing structures KEEP going down the greater the quantities get.

Even for a 10-head machine the effort for the first 10 is the same as for the second 10, so why do prices keep dropping lower and lower the greater the quantities ordered become?

Sorry, I still don't get it...
The thing is to keep the machine running as much as possible I have single head machines I’d rather run them 8 hrs a day then 2 hrs it’s all about making money if I can have each machine making $25 an hour it works for me it pays all the bills and some left for me my employee costs me $12 per hour
 
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