Sublimation - The true cost and setting your prices for profit
When many sublimators look at the cost of making their products, they only consider how much they spend on ink, paper, substrate and shipping. This approach impacts their businesses negatively, as overhead and labour are not factored into the equation – and this is where the bulk of the real cost of production lies.
As a result, they may be setting prices too low to sustain their business, and look back to cut costs in what they think is the bulk of their production expenses: ink, paper, substrates and shipping. This is a common mistake that small businesses and those new to the industry often make finding themselves in a continuous cycle of trying to keep their heads above water and stay in business
Sawgrass Digital Printing Solutions out of the UK believe that business should take a wholistic view at calculating the costs of running a sublimation business and set prices that cover all production costs to achieve a true profit on every product.
What are your costs?
Sawgrass advised WFOL that whether you have a home-based business or your own shop in town, your cost formula is the same: divide all the operational costs for a given period by the number of units produced during the same period. Operational costs – or overhead - includes all your anticipated costs: rent, power, insurance, phone, website, e-mail, advertising, marketing collateral, chamber and professional association fees, depreciation on fixed assets (printer, heat press, computer), accounting fees, etc. They should also include your ink, substrates, paper, software and artwork expenses.
Then there are labour expenses. Even if you are a solo operation, you need to pay yourself. Your time and expertise are valuable, which is why it’s so important to establish an efficient system of sublimation production. The time spent on doing anything other than making sublimated products for sale is a missed opportunity for more revenue. Remember, it’s the product people are paying you for.
How do you begin to calculate overhead? Start by projecting all your anticipated costs for the year, including desired pay cheque. Then decide how many weeks you want to work per year (typically 48). Finally, divide your projected annual overhead cost figure by that number. This will give you a rough weekly overhead figure to either meet or work toward. Then divide by 40 hours to come up with an hourly overhead figure for your business.
For this example, assume that your hourly cost of operation worked out to be $30.00. If you could print and press 30 items per hour, then each one costs $1.00 to produce – regardless of cost of ink, paper, substrates or shipping. If you could make only two units per hour, then the cost per unit is $15.00.
This example may seem elementary, but it very accurately illustrates how important efficiency is to turning a profit. The more you print and press, the lower your actual costs are, when you take in all your expenses. Small and new businesses often fall in to the trap of simply looking at the percentage of profit on a single item based on the tangible costs, rather than forming an overall business strategy that looks at the big picture of all costs involved in doing business.
Cutting is not the answer
Sawgrass believe that when businesses are struggling to get off the ground or are finding they are simply not making enough money, the first instinct is to cut costs. While running lean is usually a good business practice, you should impress upon your customers that they must choose their cuts carefully so as not to sacrifice product quality and to ensure they are impacting their bottom line.
Sawgrass hear lots of people talk about how sublimation inks are expensive, or how off-brand inks are such a great buy. We are sure you do, too. When you have an expense of several hundred dollars, that can seem like a great place to cut costs. But the reality is that reducing the cost of ink expenditures makes a negligible impact on profit margins, and your customers risk losing much, much more than they would have spent on the high-quality inks and printers in the first place.
For example, if you had an order of shirts that needed an 8.5” x 11” full bleed print, and you used an SG800 with Extended Capacity Cartridges, your ink spend per shirt would be $0.44. If you cut your ink costs by 50% it would save $0.22 per shirt in production costs – hardly a make or break scenario when your real cost of production is $.50 per minute. Even if you look at the cost of the substrate ($2.50), ink ($.40), paper ($.20) and shipping ($.12) alone, your costs only go from $3.22 to $3.02.
On the other hand, if you could improve your efficiency, you can generate more pieces per hour at a lower cost per piece. When you spend time refilling ink cartridges (which can get messy), running nozzle checks and head cleanings (because prints are coming out with lines and smudges) and troubleshooting clogged and broken print heads (which kills your printer, meaning you must spend more money on a replacement) instead of printing, that $0.22 in ink you saved cost you so much more.
That doesn’t even take into consideration time, paper, substrates and ink spent trying to get colours right. Off-brand inks do not come with color software designed to work with both printer and ink, which is essential to making high-quality prints that command premium pricing. Many companies offer no or limited technical support, as well, leaving you on your own to adjust settings and waste more materials.
Save with efficiency
How do you increase your efficiency? Sawgrass believe that business should focus on how much time is true production and how much is downtime. When the heat press is open, when you’re filling in cartridges and trying to figure out why your prints don’t look the way you want, you aren’t making money. Look at ways to trim the downtime so that print and press cycles are maximized.
If you are running an older printer, then consider a newer model. Advances in technology have led to faster speeds and less ink consumption. For example, the SG800 can print about twice as fast as say the Ricoh 7100, which really increases your images per hour and lowers your cost per image significantly.
There are lots of angles you can take here, but, material costs may be immaterial when you look at the big picture. The material cost (not the cost of the blank) is just a percentage of all your operational costs, which must be accounted for in your production numbers.
Set your prices for profit
How much should I charge? This is one of the most common questions we hear from customers. Pricing is a delicate balance between making a profit and the price people will pay. Set your prices too low, and your cash flow and profitability will suffer. Set them too high, and your sales will suffer. There are several things to think about and add into your calculations when setting your prices. Sawgrass have provided the following few tips to help business strike the right chord with their customers and make the most of the potential profits that come with making sublimated products.
Know your market
Identifying trends and introducing new products is a great business strategy. To be successful with new products, find out who else is selling similar products in your target markets and what prices are being charged. Look at what the products are, how they are presented, and any other information such as sales volume.
Once you have evaluated the market, ask yourself some essential questions: Is there enough room for another business? What new and innovative ideas can you bring to customers to make yourself stand out? What range of pricing is there within the market now, and how well can your company work within those parameters?
All too often, small businesses focus only on the cost of substrates, ink, paper and shipping. This is a costly error that often results in struggles to keep financially afloat.A pricing exercise must include ALL costs associated with running a business. If you’re at the hobbyist stage, this is a great time to think about how to make the jump to becoming a profitable sublimation business. If you’re ready to take that leap or are adding sublimation to your existing business, you know that your overhead expenses need to be built into your cost calculations. These include: rent, utilities, insurance, packaging, software, ink, printers, paper, substrates, memberships, etc. And, yes, it also includes your pay cheque.
This overhead cost will translate in to an hourly cost of production. For example, you may find that to produce any sublimated product costs you $30 per hour in total. Now consider the product you would like to sell and the price that it is already fetching in the market. How long would it take you to produce that item?
Sublimation is a process of create, print and press, with the printing and pressing only taking an average of two minutes. The creation of artwork and preparing of files takes the most time within most sublimation jobs. Estimate how many minutes it would take you to complete the create, print, press process to come up with a true cost of your product.
The more you produce, the lower the cost – and the higher the profit you can make. Taking advantage of jobs where you can print and press multiple products at once will result in even greater profit.
Forget the old formula
The rule of thumb for most retailers is to multiply cost times two or three, to ensure profit. With sublimation, however, this formula can leave a lot of money on the table. The reason for this is that the cost of production is often many more times less than the price the market will bear.
For example, the cost to produce a 14” x 14” velvet pillow, with a premade design, may cost you $5 to make, and can easily sell for $20 in most markets. That’s cost times four. If you tweak the design to add in someone’s name, you can add another $5 to $10 to the price – resulting in cost times five or six.
Adding pictures, names and custom colours always add value to a product in the eyes of the customer, but not much to your expenses. To keep design time down to a minimum, focus on creating designs that can be quickly and easily edited to includes these little premium additions. The result will be more cash in pocket, with minimal time added to your production.