One of the most frequent questions I receive in one form or another is, “How should I price my embroidery work?”\u00a0 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.<\/p>\n
However, for the purposes of this discussion let\u2019s keep it simple.\u00a0 Start by asking yourself two critically important questions:1. How much money do I want to make from my embroidery business?<\/p>\n
2. What are my TOTAL costs for keeping the doors open not including me?<\/p>\n
Once you have the answer to these two questions you can talk about pricing.\u00a0 But before we go there let me tell you how you DO NOT determine pricing.\u00a0 You should not simply take the average of your competitors prices and decide if you want to be above or below the mean.\u00a0 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.<\/p>\n
Pricing is a function of what you want to take away from your business.\u00a0 Only you can decide what is acceptable for the amount of time, energy and investment you put in to your embroidery business.\u00a0 Unless you answer to a Board of Directors or Business Partner you decide how much you want to pay yourself. \u00a0This amount should be figured in to your cost structure BEFORE profit is figured.\u00a0 Your personal profit (a.k.a PAY) should be figured like all other costs.\u00a0 If you have money left over after you have paid yourself a predetermined amount then you have what I would call a \u201csuper profit.\u201d\u00a0 \u00a0Depending on what you do with those funds you might call them something like retained earnings or any other applicable accounting term.<\/p>\n
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.\u00a0 Do not consider your pay an afterthought.\u00a0 \u00a0We have all been told that the business owner is the last person to be paid.\u00a0 Practically speaking that might be true but if you go in to your venture without a predetermined financial goal you will almost certainly flounder.\u00a0 You must set realistic financial goals based on your ability to delivery your products or service.\u00a0 You must understand predatory underpricing to get business is just as deadly as over pricing.<\/p>\n
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.\u00a0 First and most important is to understand your costs with your compensation included.\u00a0 Then determine how much of your product you need to sell to meet that goal.\u00a0 From there, work your pricing backward.<\/p>\n
I understand most of you are really asking \u201cHow much do I charge for XXX?\u201d\u00a0 Unfortunately \u00a0the answer is a moving target and it is different for each of you based on your costs and your capacities.\u00a0 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. \u00a0\u00a0But 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.<\/p>\n