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When many sublimators look at the cost of making their products, they only take into account how much they spend on ink, paper, substrate and shipping. This approach impacts their businesses negatively, as overhead and labor 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
Alternatively, you 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.
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 of time by the number of units produced during the same time period. Operational costs – or overhead - includes ALL of 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 labor 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 your all of your anticipated costs for the year, including desired paycheck. 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 of 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.
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 actually impacting their bottom line.
We 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 have to spend more money on a replacement) instead of printing, that $0.22 in ink you saved actually cost you so much more.
That doesn’t even take into consideration time, paper, substrates and ink spent trying to get colors 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. Sawgrass offers all of these vital products and services to our customers, to ensure they’re building their business with every print.
How do you increase your efficiency? 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 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 in reality, 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 of your operational costs, which have to be accounted for in your production numbers. Next month, we will talk about setting your prices to ensure a profit, based on evaluating true costs.
To learn more, check out this webcast video which goes into a lot of detail.
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