Cost Analysis - Small Shop

It is impossible to set any kind of logical prices without understanding what something costs to produce.
So the first big question has to be: what does it cost to run you business and how does that translate into
the cost of generating products?

Calculation Of Yearly Business Expenses

Identify your recurring operational charges some of which are fixed (F) and some of which are variable (V).
Update the data monthly to keep it current. Note that charges such as cost of goods, credit card
processing fees, rush fees, shipping, etc which are attributable to individual jobs, should be charged
specifcally to those jobs rather than incorporated into the calculations for overhead.

TYPE MONTHLY YEARLY

Equipment Financing (loan / lease) F $0.00 $0.00
Rent F $0.00 $0.00
Office Phone V $0.00 $0.00
Cell Phone V $118.00 $1,416.00
Utilities - electrical, water, sewer, etc F $50.00 $600.00
Health Insurance F $0.00 $0.00
Business Insurance F $400.00
Property Tax F $500.00
Bank Service Charges / Fees F $0.00 $0.00
Office Supplies V $0.00 $0.00
Office Equipment V $0.00 $0.00
Embroidery Supplies - backing, thread, etc V $25.00 $300.00
Internet Access F $75.00 $900.00
Advertising / Promotion V $0.00 $0.00
Product Samples V $100.00 $1,200.00
Owners Draw (paycheck) V $500.00 $6,000.00

Estimated Annual Operational Costs = $11,316.00

Calculation Of Weekly, Daily And Hourly Operational Costs

The end goal is to determine the hourly cost of operation, which is very critical for performing several
different cost and pricing calculations. In addition, it becomes a production target goal which makes it
easier to track whether your actual production is on target to meet your goals.

Operational Weeks Per Year (weeks) 48

Weekly Cost of Operations = $235.75

Operational Days Per Week (days) 6

Daily Cost of Operations = $39.29

Operational Hours Per Day (hours) 40

Hourly Cost of Operations = $5.89

Calculation Of The Cost Of Producing Stitches
The cost of a stitch is simply a function of knowing how many average stitches you can produce per hour
versus the hourly cost of operation. However this is not real life pricing as your production capacity and
your actual production will vary depending upon job size, production efficiency and sales volume. In fact, it
doesn't matter how efficient you are, if you don't have the sales to support the numbers, your cost per stitch
is going to go up, because your average stitches per hour is going to drop.

Number of Sewing Heads (heads) 1

Average Sewing Speed Per Minute (spm) 700

Average Acheivable Production Minutes Per Hour (minutes) 30

Total Hourly Stitch Production Capacity (stitches) 25800

Minimum Cost To Produce 1 Stitch (cost) 0.00023

Minimum Cost To Produce 1000 Stitches = $0.23

NOTES
The numbers thus far assume you are making all of your income strictly from sewing which is
not typically true for most shops as they sell garments and embroidery. Plus stitch count pricing
is not the best method in most cases because it tends to work against you as follows:

1. Stitch count pricing doesn't accurately reflect how much time (cost) goes into a job.
2. Stitch count pricing requires the embroiderer to quote a price based on an unknown.
3. Stitch count pricing makes comparative price shopping too easy for customers,
4. Stitch count pricing is complex and confusing to the customer.
 The Cost Of Downtime And Lost Production
In production, time is money - literally. With stitch count pricing, you are equating stitch count to time,
though you many not realize it. More stitches take more time to sew, thus, your production costs increase.
But if you are only charging for stitch count, then you aren't taking into consideration all of the other factors
that affect how long it REALLY takes to produce a design. And if you aren't charging for it, you aren't getting
paid for it! Here are the most common lost production/downtime factors.

What Does A Thread Trim Cost?

Average Machine Speed (spm) 850
Automatic Trim Time (seconds) 5
Number Of Heads (heads) 1
Production Loss In Stitches = 71
Price You Are Charging (per 1000 stitches) (price) $1.00
Production Loss In Dollars = $0.07
Number Of Trims In The Design (total trims) 20
Total Cost Of All Trims In Run = $1.42

What Does A Color Change Cost?

Average Machine Speed (SPM) 850
Automatic Color Change (seconds) 10
Number Of Heads (heads) 1
Production Loss In Stitches (all heads) 142
Price You Are Charging (per 1000 stitches) (price) $1.00
Production Loss In Dollars (all heads) $0.14
Number Of Color Change In The Design (color changes) 5
Total Cost Of All Color Changes In Run (all heads) $0.71

What Does A Hoop Swap Cost?

Average Machine Speed (SPM) 850
Time to Remove And Replace Hoop (seconds) 30
Number Of Heads (heads) 1
Production Loss In Stitches (all heads) 425
Price You Are Charging (per 1000 stitches) (price) $1.00
Production Loss In Dollars (all heads) $0.43

What Does A Thread Break Cost?

Average machine speed (spm) 850
Time to fix thread break (seconds) 60
Number of heads 1
Production Loss in stitches (all heads) 850
Price you are charging (per 1000 stitches) $1.00
Production Loss In Dollars (all heads) $0.85
 The Cost Of Embroidery Production - Basic
To better understand why stitch count pricing doesn't accurately portray the total time (and cost) of a job, its
necessary to collect and compare basic production data. With a single head the numbers aren't all that
significant, but when you move into a multi-head, the data becomes very critical. And over an extended
period of time, such as a large volume order, the result can be a significant loss of revenue.

Production Time Based On Stitch Count Only

Stitch Count Of The Design (stitches) 7500
Average Machine Speed (spm) 850
Expected Run Time (minutes) 8.8

Production Time Based On Stitch Count And Lost Production Factors

Stitch Count Of The Design (stitches) 7500
Average Machine Speed (spm) 850
Trim Time (seconds) 5
Color Change Time (seconds) (seconds) 10
Hoop Swap (minutes) 0.5
Number Of Color Changes In The Design (color changes) 6
Number Of Trims In The Design (trims) 5
Unexpected Downtime - Thread Breaks (percent) 5
Expected Run Time (minutes) 11.2

Comparison of Stitch Count Time VS Real Production Time

Run Time - Stitch Count Only (minutes) 8.8
Run Time - Stitch Count + Production Factors (minutes) 11.2
Time Difference (minutes) 2.4

Comparison of Stitch Count Time VS Real Production Pieces Per Hour

Run Time Using Stitch Count Only (minutes) 8.8
Number Of Sewing Heads On The Job 6
Pieces Per Hour Produced (pieces) 40.8

Run Time Using Stitch Count + Production Factors (minutes) 11.2

Number Of Sewing Heads On The Job 6
Pieces Per Hour Produced (pieces) 32.2

Pieces Per Hour Produced Difference (pieces) 8.6

 The Cost Of A Complete Embroidery Job
Using the information from the Cost Analysis Sheet combined with the information from the Cost
of Production sheet, you can now factor in additional factors in order to get an even more
realistic view of the total costs to produce a job from beginning to end.

Production Time Factors Information

Average Machine Speed (spm) 850
Hoop Swap Time (minutes) 0.5
Trim Time (seconds) 5
Color Change Time (seconds) 10
Number Of Sewing Heads On The Job (heads) 1
Design Information
Stitch Count Of The Design (stitch count) 7500
Number Of Color Changes In The Design (colors) 5
Number Of Trims In The Design (trims) 5
Job Information
Number Of Pieces In The Job (pieces) 12
Estimated Setup & Pre-Production Time (minutes) 15
Estimated Post-Production Time (minutes) 30
Production Time
Calculated Production Time For One Run 10.6
Unexpected Downtime (percentage) (percentage) 5
Realistic Production Time For One Run (minutes) 11.1
Runs per hour (runs) 5.4
Pieces per hour (pieces) 3.0
Time To Sew The Job (minutes) 60.0
Time To Produce The Job (hours) 0.2
Production Costs
Hourly Cost (From cost analysis worksheet) $5.89
Total Cost to produce the job $0.88
Production Cost per piece $0.07
Garment Costs
Garment Cost (wholesale price paid) (item cost) $1.65
Shipping Costs (paid to receive goods) (shipping) $9.95
Total Garment Cost (including shipping) (total item cost) $2.48
Job Pricing
Total Cost per piece $2.55
Desired Markup (percentage) 100 %

Price per piece $5.11

 Efficiencies Of Multiple Piece Runs
As you run larger orders you benefit from considerably less downtime in regards to pre-production and post-production acitivites. The charts below are
simply meant for making some head-to-head comparisions to see the "effect" of increased efficiency. In reality every job is different in terms of stitch
count, trims, color changes, hooping complexity, etc, so this should not be considered an exact calculation, rather a tool to see how its possible to have
lower prices for larger orders. But just as important, you should observe that every machine reaches a point where the cost-savings for increased
volume ends. Thus, you cannot endlessly provide discounts as job size increases.

1 Head Machine - Efficiency Calculations For Different Size Orders

Pieces/Order Pre Time Post Time Sew Time Job Time Minutes/Day Pieces/Day Cost/piece Sts/Day Cost/1000
1 15 30 11.2 56.2 480 8.5 $4.60 64069 $0.61
2 15 30 11.2 67.4 480 14.2 $2.76 106858 $0.37
4 15 30 11.2 89.8 480 21.4 $1.84 160430 $0.24
6 15 30 11.2 112.1 480 25.7 $1.53 192619 $0.20
12 15 30 11.2 179.3 480 32.1 $1.22 240969 $0.16
18 15 30 11.2 246.4 480 35.1 $1.12 262971 $0.15
24 15 30 11.2 313.6 480 36.7 $1.07 275552 $0.14

4 Head Machine - Efficiency Calculations For Different Size Orders

Pieces/Order Pre Time Post Time Sew Time Job Time Minutes/Day Pieces/Day % Increase
12 15 30 11.2 78.6 480 73.3
24 15 30 11.2 112.1 480 102.7 40.13%
36 15 30 11.2 145.7 480 118.6 15.44%
48 15 30 11.2 179.3 480 128.5 8.37%
60 15 30 11.2 212.8 480 135.3 5.29%
72 15 30 11.2 246.4 480 140.3 3.65%
84 15 30 11.2 280.0 480 144.0 2.68%

6 Head Machine - Efficiency Calculations For Different Size Orders

Pieces/Order Pre Time Post Time Sew Time Job Time Minutes/Day Pieces/Day % Increase
12 15 30 11.2 67.4 480 85.5
24 15 30 11.2 89.8 480 128.3 50.13%
36 15 30 11.2 112.1 480 154.1 20.06%
48 15 30 11.2 134.5 480 171.3 11.15%
60 15 30 11.2 156.9 480 183.6 7.17%
72 15 30 11.2 179.3 480 192.8 5.02%
84 15 30 11.2 201.7 480 199.9 3.72%
96 15 30 11.2 224.0 480 205.7 2.87%
108 15 30 11.2 246.4 480 210.4 2.28%
120 15 30 11.2 268.8 480 214.3 1.86%
132 15 30 11.2 291.2 480 217.6 1.55%
144 15 30 11.2 313.6 480 220.4 1.30%
Cost/1000
 Flate Rate Pricing Concept
Flat rate pricing is simply a concept where you use a standard stitch count for every left
chest and/or cap design. The average logo with this size parameter is around 7500
stitches. This of course makes the sales process much simpler as you don't have to
worry about trying to estimate stitch count on the spot, though its is important to
understand that in cases like jacket-backs, this method will NOT work.

1-5 pcs 6-11 pcs 12-17 pcs 18-24 pcs

Charge (per 1000 sts) $0.61 $0.20 $0.16 $0.15
Price (based on 7500 sts) $4.60 $1.53 $1.22 $1.12
 Retail Price Cal
Calculation Of Quantity Price Breaks Fo

Production Time Factors Information 1 to 11

Average Machine Speed (spm) 850 (spm)
Hoop Swap Time (minutes) 0.5 (minutes)
Trim Time (seconds) (seconds) 5 (seconds)
Color Change Time (seconds) (seconds) 10 (seconds)
Number Of Sewing Heads On The Job (heads) 1 (heads)
Design Information
Stitch Count Of The Design (stitch count) 7500 (stitch count)
Number Of Color Changes In The Design (colors) 5 (colors)
Number Of Trims In The Design (trims) 5 (trims)
Job Information
Number Of Pieces In The Job (pieces) 5 (pieces)
Estimated Setup & Pre-Production Time (minutes) 15 (minutes)
Estimated Post-Production Time (minutes) 30 (minutes)
Production Time
Calculated Production Time For One Run 10.6
Unexpected Downtime (percentage) (percentage) 5 (percentage)
Realistic Production Time For One Run (minutes) 11.1 (minutes)
Runs per hour (runs) 5.4 (runs)
Pieces per hour (pieces) 5.4 (pieces)
Time To Sew The Job (minutes) 55.5 (minutes)
Time To Produce The Job (hours) 1.7 (hours)
Production Costs
Hourly Cost (From cost analysis worksheet) $5.89
Total Cost to produce the job $9.87
Production Cost Per Piece = $1.97
Garment Costs
Garment Cost (wholesale price paid) (item cost) $5.00 (item cost)
Shipping Costs (paid to receive goods) (shipping) $1.00 (shipping)
Total Garment Cost (including shipping) = $6.00
Total Garment & Production Costs = $7.97
Final Price Considerations
Markup For Finished Product (M/U %) 100 (M/U %)
Credit Card Processing Fees (CC %) 3.00 (CC %)

Retail Selling Price = $16.43

jlamb@sawgrassink.com
 Retail Price Calculations
Quantity Price Breaks For Development Of Price Sheets

12 to 23 24 to 47 48 to 94 95 to 143 144 to 287

850 (spm) 850 (spm) 850 (spm) 850 (spm) 850
0.5 (minutes) 0.5 (minutes) 0.5 (minutes) 0.5 (minutes) 0.5
5 (seconds) 5 (seconds) 5 (seconds) 5 (seconds) 5
10 (seconds) 10 (seconds) 10 (seconds) 10 (seconds) 10
1 (heads) 1 (heads) 1 (heads) 1 (heads) 1

7500 (stitch count) 7500 (stitch count) 7500 (stitch count) 7500 (stitch count) 7500
5 (colors) 5 (colors) 5 (colors) 5 (colors) 5
5 (trims) 5 (trims) 5 (trims) 5 (trims) 5

23 (pieces) 47 (pieces) 94 (pieces) 143 (pieces) 287

15 (minutes) 15 (minutes) 15 (minutes) 15 (minutes) 15
30 (minutes) 30 (minutes) 30 (minutes) 30 Ret 30

10.6 10.6 10.6 10.6 10.6

5 (percentage) 5 (percentage) 5 (percentage) 5 (percentage) 5
11.1 (minutes) 11.1 (minutes) 11.1 (minutes) 11.1 (minutes) 11.1
5.4 (runs) 5.4 (runs) 5.4 (runs) 5.4 (runs) 5.4
5.4 (pieces) 5.4 (pieces) 5.4 (pieces) 5.4 (pieces) 5.4
255.4 (minutes) 521.8 (minutes) 1043.6 (minutes) 1587.6 (minutes) 3186.3
5.0 (hours) 9.4 (hours) 18.1 (hours) 27.2 (hours) 53.9

$5.89 $5.89 $5.89 $5.89 $5.89

$29.50 $55.68 $106.93 $160.37 $317.41
$1.28 $1.18 $1.14 $1.12 $1.11

$5.00 (item cost) $5.00 (item cost) $5.00 (item cost) $5.00 (item cost) $5.00
$1.00 (shipping) $1.00 (shipping) $1.00 (shipping) $1.00 (shipping) $1.00
$6.00 $6.00 $6.00 $6.00 $6.00
$7.28 $7.18 $7.14 $7.12 $7.11

90 (M/U %) 85 (M/U %) 80 (M/U %) 90 (M/U %) 80

3.00 (CC %) 3.00 (CC %) 3.00 (CC %) 3.00 (CC %) 3.00

$14.25 $13.69 $13.23 $13.94 $13.17

 288 to 500
(spm) 850
(minutes) 0.5
(seconds) 5
(seconds) 10
(heads) 1

(stitch count) 7500

(colors) 5
(trims) 5

(pieces) 500
(minutes) 15
(minutes) 30

10.6
(percentage) 5
(minutes) 11.1
(runs) 5.4
(pieces) 5.4
(minutes) 5551.1
(hours) 93.3

$5.89
$549.70
$1.10

(item cost) $5.00

(shipping) $1.00
$6.00
$7.10

(M/U %) 70
(CC %) 3.00

$12.43