Expert: - 10/5/2010

Question
Hi!
I have a slef owned business where I sell and make children's clothing.  Some clothing is made from scratch, and some I buy the basics, such as the pants and shirt, and I add fabric to them.  I also embroider and add appliques and ribbon.
Each month I have been setting aside 30% of my total sales (not my profit).  Meaning I am losing money because I am putting aside 30% of everything, including my costs.  BUt my problem is how do I put a price on embroidery?  I can kind of figure out how much fabric is used and ribbon, but how to I calculate my profit on using thread? Or tiny peices of fabric used for an applique?
Also, I have a tub of ribbon and fabrics.  Some, I don't even know how much I bought them for, making my "cost" of using them unpredictable.  I think what I sell is hard to figure out my exact profit.
Do you have any guidance?
Thanks!

Answer
Hi Keely,

I am not clear if you make the clothing from scratch and you are the manufacturer of the items or if you are embellishing items. Regardless it is very important that you know your "cost of goods" otherwise you have no way of knowing if you are making a profit or not. You need to have a way of measuring what you are using.

Here are my suggestions as to where to start:

Embroidery:

You need to know how much thread you are using. The best way to do that is likely to have a good scale and weigh your thread spools before and after. If you are doing the same embroidery over and over mass production then you could weigh first and then weigh when you have completed the production - then divide by the number of units you have made.

You will also need to know how much time it takes you and then figure your labor per unit. Make sure you include an amount that would be equivalent to how much you would pay if you hired out the work - otherwise you will not be pricing correctly.

Any other pieces you use will also need to be accounted for. I am not clear if each piece you are creating is different. So you may have to evaluate the usage on each piece.

Costing:

If you have a miscellaneous tub where you do not recall what you paid for each piece, I would set a price for them that is as close as you can remember if you do not have receipts and set a price for yardage for both ribbons and fabric. And you then of course must take a compete inventory so you can start with what you have on hand. Probably price averaging would work in this case. Then as you make future purchases you can track those as then come in. Be sure to keep all of your receipts.

Please note that pricing is not necessarily determined by your costs - it is the perceived value of the items you are making. Sometimes it may cost very little to make something - and yet you can charge a great deal of money making a huge profit. Other times what you put into an item still does not raise the perceived value and you have lost money if you are competitive. Make sure you look at other similar items in the marketplace and see how your products stack up to the competition.

I do hope this helps. You may want to read some of the articles on my site and sign up for my free report.

Love & Success - you CAN do it!

Jane Button
www.design2marketsuccess.com