Let’s Talk About Pricing

One of the most frequent questions I receive in one form or another is, “How should I price my embroidery work?”  On the surface this might seem like a simple question but it is not easily answered and depending on how involved you want to get it can be exercise in advanced accounting.

However, for the purposes of this discussion let’s keep it simple.  Start by asking yourself two critically important questions:1. How much money do I want to make from my embroidery business?

2. What are my TOTAL costs for keeping the doors open not including me?

Once you have the answer to these two questions you can talk about pricing.  But before we go there let me tell you how you DO NOT determine pricing.  You should not simply take the average of your competitors prices and decide if you want to be above or below the mean.  Of course you must be competitive and be aware of competitive pricing but you have no way of knowing a competitors cost structure or what they are willing to work for.

Pricing is a function of what you want to take away from your business.  Only you can decide what is acceptable for the amount of time, energy and investment you put in to your embroidery business.  Unless you answer to a Board of Directors or Business Partner you decide how much you want to pay yourself.  This amount should be figured in to your cost structure BEFORE profit is figured.  Your personal profit (a.k.a PAY) should be figured like all other costs.  If you have money left over after you have paid yourself a predetermined amount then you have what I would call a “super profit.”   Depending on what you do with those funds you might call them something like retained earnings or any other applicable accounting term.

The important thing to understand is you must price your products and services according to what you determine you need to take from the business.  Do not consider your pay an afterthought.   We have all been told that the business owner is the last person to be paid.  Practically speaking that might be true but if you go in to your venture without a predetermined financial goal you will almost certainly flounder.  You must set realistic financial goals based on your ability to delivery your products or service.  You must understand predatory underpricing to get business is just as deadly as over pricing.

It is far too complicated in a short blog to advise how to price each product or service you sell but I can give you this piece of advice.  First and most important is to understand your costs with your compensation included.  Then determine how much of your product you need to sell to meet that goal.  From there, work your pricing backward.

I understand most of you are really asking “How much do I charge for XXX?”  Unfortunately  the answer is a moving target and it is different for each of you based on your costs and your capacities.  Unfortunately you have to do your homework and find your own answers while keeping an eye on what the rest of the market is doing.   But no one said this would be easy and while it might not be apparent it is one of the reasons why being a small business owner can be so rewarding and challenging.

If any of you would like to ask me specific questions on this topic or any other please do not hesitate to reach out to me here or at steve.freeman@qdigitizing.

Happy Thanksgiving everyone!  I hope you all get to spend quality time with the people who mean the most to you.

Steve Freeman