Impressions - March 2016 - 39

Most business owners don't consider
the time and cost it takes to produce
a custom order.
Why Matthew Lost Money
Let's take a recent conversation I had with
a client about his business; we'll call this
client Matthew. He has a new direct-togarment printer in a home-based business
that has some pretty decent accounts. Since
he works from home, his overhead is low. He
hired one person to help with production
so that he can focus on sales and growing
the business.
Matthew negotiated good pricing for
his garments from a supplier. Recently, he
got a call from a local spa that wanted five
shirts for an event. Since he doesn't work
in a traditional office and didn't want the
client to come to his home, he went to the
spa to talk to the owner and get the order
together. During their meeting, they browsed
supplier catalogs, found the perfect shirt
and discussed artwork.
He was in and out in two hours, and quoted
the spa owner $20 per shirt for a total of
$100 for the order. A quick calculation in
his head seemed to indicate he priced it
well above his cost, considering the shirts
would only cost $2.50 per shirt and another
$6 for ink. So his total cost was $26.25 (he
had to pay for the shipping), but he quoted
the spa owner $100, so he should expect a
profit, right?
It turns out Matthew actually lost money
on this deal but he couldn't understand why.
He thought he charged enough money; in

fact, he was afraid that if the price was any
higher, he would not have secured the deal.
So where's the problem?
Let's start with Matthew's business model.
Since he works from home and doesn't necessarily want his clients to visit him there,
he has to go to them; there is a cost for
that. He never factored his fuel and transportation costs, and time spent driving to
and from the client's place of business. The
current mileage rate in the United States is
57.5 cents per mile. If the spa is 12 miles
from Matthew's home, that means $13.80
should be accounted for in his expense
estimates, not including his time.
Once he got there, Matthew spent two
hours with the owner trying to decide on
the perfect shirt and design. If he expects to
make $20 per hour, that means $40 should
have been added to his $13.80 in mileage
and $10 travel time, which totals $63.80
before he even touches the order. Once
you consider all the steps that typically
are required to produce a garment (see "Respect
the Process"), it's clear why Matthew is left
scratching his head regarding not making
any money on this deal.
Le s so n s L earn ed
Most business owners don't consider the
time and cost it takes to produce a custom
order. This can be the difference between
turning a profit and logging a loss. There

Respect the Process
For many small companies, these are the steps involved in taking an order from conception to delivery:
*
Client selects product(s)
*
Client selects the design
*
Business owner delivers quote
*
Business owner creates visual mockup
*
Business owner converts mockup to PDF
*
Business owner sends quote to client via email
*
Business owner follows up for order approval and deposit
*
Business owner orders and receives product(s)
*
Production begins
*
Production completed, business owner follows up with client
*
Business owner collects balance due
*
Business owner adds order to accounting software and files away for another day
MARCH 2016

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Impressions - March 2016

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