Word to the Wise: Planning for Profit
Here's a pros and cons list of the various pricing models
With minimums established, you can plan for profit and move beyond maintaining in order to develop a model for markup. Though models vary from shop to shop, most run with a variation built on the following examples.
Garment price + markup + decoration: Takes the price paid for a garment and marks it up directly, adding the cost of decoration calculated in the minimum to maintain that price. This is often done by merely doubling the garment cost, which some call keystone pricing.
- Pro: It’s simple to calculate and common in the industry.
- Con: Marking up just the garment costs results in too little profit on extremely cheap blanks, but increases prices beyond what a customer will comfortably accept on extremely expensive blanks.
Garment price + profit-adjusted decoration: The price paid for a garment is unaltered, but the added decoration costs are adjusted to include the desired profit margin. A shop using this model establishes a yearly profit target, adding that to its minimum to maintain, and dividing it by the year’s available work units to create an adjusted decoration price.
- Pro: It provides consistent decoration pricing independent of garment costs, and it makes estimating profits simpler because labor fluctuates less than garment prices/selections.
- Con: It requires an accurate understanding of time investment per task/process, and requires you to predetermine the profit you want to make for a full-filled year of production ahead of setting pricing.
Garment price + marked-up decoration: Very similar to the garment price + profit-adjusted decoration model, but rather than setting a profit goal, decoration cost is marked up by a flat percentage.
- Pro: It calls for little to no calculation.
- Con: It’s unlikely to produce the desired profit margin without estimating decoration volume and/or complexity.
Flat rates; inclusive flat rate: This model includes everything as far as decoration and garment in a fixed, stated price. Flat rates assume a mixture of simple and complicated jobs, and that they will average out so that labor and material outlay will be reasonably average on a per-job basis. Though it removes the difficulty of calculating quotes, it can allow a string of complicated, time-consuming jobs to stress your margins. Most shops will abandon or alter this model over time.
- Pro: It removes quoting, explaining prices, and educating customers.
- Con: It either overprices simple jobs, creates the risk of unprofitable jobs sinking margins, or confuses customers with potential decoration and garment restrictions.
Flat rates; combined flat rates: This model includes garment and decoration in a single price. Decoration and garment parameters are often directly specified to ensure profitability.
Per-location flat rate: Takes the garment cost plus a flat fee for every decorated location. The garment may or may not be marked up.