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Pricing Strategies for Digitally Printed Garments

Brian Walker started in the screen printing industry in the mid-1980s while still in high school and has since been involved extensively with the direct-to-garment printing market. Currently, he is the CEO and owner of RTP Apparel and Image Armor. RTP Apparel provides pretreated T-shirts to the DTG industry. Image Armor is a DTG solutions provider that manufactures inks and pretreatments.

As garment decorators, we are all faced with a big challenge: pricing. In our minds swim questions such as what do I charge for this shirt? Is it too much? Too little? If I charge what I think it is worth, will I lose my customers to a competitor offering the same product for less?

Pricing to make a profit isn't as difficult as it may seem. With some basic concepts and by taking out the emotional aspect of pricing, it is possible to ensure that money is being made every time the print button on the direct-to-garment printer is pressed.

One of the biggest challenges is in assessing and determining the actual costs in creating that beautifully-printed shirt. There are a variety of ways to do this and we could even get into the technicalities of how much a specific D2 printer consumes in expenses, how much space it takes up and how many hours per day it is actually printing. However, for the sake of getting to the basics, we will build a point from which to start and the model can be adapted for individual businesses.

Immobile costs

The costs associated with operating a direct-to-garment printer are basically fixed. They might include a lease payment on the machine and the printer might also calculate how much ink it is consuming on a print, making it easy to figure out the ink costs per print and know how long it should take to print an average shirt. With this information it makes it easy to determine operating costs.

We are going to assume some sample costs to help us understand pricing a little bit better:

• Monthly Machine Lease: $450

• Average Production Rate per Hour: 20 shirts

• Average Ink Cost per Print: $1 (assuming a CMYK only print)

• Average Cost of a White 100 Percent Cotton T-Shirt: $1.50

• Hourly Labor Rate (Employee): $12

We could also throw into these fixed costs all overhead, such as rent, electricity, phone, etc. If printing dark shirts with white ink, it’s also necessary to incorporate the pre-treatment costs and time associated with proper preparation of the garment as well as the increased costs of the white ink consumed. 

Once all of the fixed costs are determined, we will now estimate the variable costs. These costs will obviously vary from season to season, but if averaged out over the entire year, it will make our pricing much easier to achieve. One of these variables is the total number of shirts you would print in an average month. 

For many shops this will vary wildly from just a few shirts to several thousand depending on what the month. For our example, we are going to calculate based on 500 shirts a month. 

We can now start figuring out what our “base” costs are on a per shirt basis:

LEASE: $450 month lease / 500 shirts $0.90 per shirt

LABOR: $12 wage / 20 shirts per hour $0.60 per shirt

SHIRT COST: $1.50 each

INK COST PER SHIRT: $1 per print

Total Base Cost per Printed Shirt: $4 

Some would argue that we should calculate the total production ability of a machine for the month. I would agree with this approach except for the fact that most shops are not going to be 100 percent efficient in production capabilities, keeping the printer running eight hours a day. If you are able to keep your machine running that much, kudos to you! In such a case, determine an hourly rate of costs by dividing overall production hours per month into overall fixed costs. On average, this balances to about 168 hours a month of production capacity during an eight hour shift. 

In this case we would have the following:

LEASE: $450 month lease / 168 hours per month $0.135 per shirt

LABOR: $12 wage / 20 shirts per hour $0.60 per shirt

SHIRT COST: $1.50 each

INK COST PER SHIRT: $1 per print

Total Base Cost per Printed Shirt: $3.24 per shirt

There is about a $0.75 difference between the two methods of calculation. One assumes the printer will be running eight hours a day, every day of the month. The other is calculated based on an estimate of the number of shirts that actually can be printed per month. This is where the stress of pricing comes into play and what can cause many sleepless nights. You may not know how many shirts per month you will be printing, but if you think you can get enough work to keep the printer running about three hours per day (or about $0.36 per shirt cost), one can assume the cost per shirt would be $3.46. 

The safer bet would be with the first calculation, as it is a higher end cost to the customer. In this case you would end up with more money in your pocket if you actually did print the full three hours a day—that's a total of an additional $19.44 per day. 

You are your employee

What is your time worth? No one can answer that for you. Just remember that your time as the owner of the business is worth a lot more than that of your average employee. You are the one taking the risks and putting yourself, your house, on the line to try and make a profit. This should be a consideration when figuring out a pricing structure.

I always recommend figuring in cost for labor whether you are printing the shirts or having an employee do it—you have to pay whomever is doing the printing and then the business also needs to get paid. 

The big question here is what the business is worth on an hourly basis. No matter what size of business, remember there is a lot invested in printing equipment and time. Direct-to-substrate printers are not exactly an inexpensive proposition considering the upfront costs of getting into the business. Hence, what the business makes should also be reflected in the cost of getting set up to be able to print shirts on demand. Most people will have at least $15,000 or more invested in their D2 printing business.  So, the next question becomes, what kind of return on investment (ROI) do you want to achieve from this equipment?

The obvious answer is to see the ROI as quickly as possible. However, that all depends on how busy you are from our earlier assumptions. We will use some round numbers of $20,000 for a basic D2 setup with printer, computer and software. If printing 500 shirts per month, this equates a production rate of 6,000 shirts per year. If you wanted an ROI of one year we'd divide the $20,000 investment by the 6,000 per year quantity, which is a cost of $3.33 per shirt. 

We can run this backward through our hourly production rate for our printer at 20 shirts per hour which gives us an hourly rate of $66.67 per hour we need to charge to allow the business to make money. You might be saying that we've already figured in the cost of the lease into the shirt cost, which is true. However, the business still needs to make money. Eventually the machine will get old, break down, and you will have to replace it. Let the business make the money. Let the lease payment pay for the machine.

Normally, figure on having a machine running cost of at least $100 per hour. This may seem high for some shops, low for others, but I think it helps us fall into some general pricing structures for this business model. 

Back to our example, we would be looking at a $3.33 per shirt additional cost to the customer. This means:

LEASE: $450 month lease / 500 shirts $0.90 per shirt

LABOR: $12 wage / 20 shirts per hour $0.60 per shirt

SHIRT COST: $1.50 each

INK COST PER SHIRT: $1 per print

HOURLY CHARGE FOR BUSINESS PROFIT $3.33 per shirt

Final End Customer Cost per Shirt: $7.33 per shirt

You would need to charge $7.33 per shirt to cover all costs and make a profit for the business. 

Economy of scale

The classic definition of economy of scale is a decrease in unit cost of a product or service resulting from large-scale operations, as in mass production. This means the more shirts a customer orders, the less they expect to pay for the same item.  What does this mean to us as digital garment decorators? 

Due to the way the shirts are produced, direct-to-substrate printing does not offer much in the way of economy of scale. Traditional setup times, ink changeovers and associated costs can be spread out over more shirts in screen printing, thus reducing the per-unit cost. However, digital printing is unique in that there are no real setup costs and we can only produce a shirt at a specific speed, which is limited by the print size and equipment’s capabilities. There is a sweet spot in production with D2 printing, though, where users can make an optimal amount of money based on the number of shirts being printed.

As a general rule, the most optimal profit margin will be in the three to 24 quantity range. If printing all single shirts, a good margin can be made. If printing several shirts at a time, you save the time spent spooling artwork to the printer and can reap a little bit of the economy of scale as far as a profit margin is concerned. 

On larger quantities of shirts, the customer can’t be charged as much, which results in an hourly rate that is also decreased; thus many shops set a lower limit on their hourly rate. This bottom hourly rate can vary widely and is the floor of what business is allowed to make on an hourly basis. 

In this scenario, let's say our hourly minimum is $50 per hour. Based on our previous calculations of 20 shirts per hour that works out to $2.50 per shirt. Taking into account we know we have $4 in cost in each shirt, the lowest selling price on a quantity basis would be $6.50 per finished garment. The biggest point to remember here is that your time and the time of the business is worth something—there is no shame in making a profit.  

There is a wide price range for garments all across the country. It can vary depending on a business’s location, the local economy, competition and most importantly, the overall costs for producing a garment. Keep in mind that if costs for producing a garment are higher than the going rate for decorated shirts in any given locale, all signs point to a very short life span for businesses trying to succeed in such a market. Pricing garments is one of the most important things to establish before any investment is made in a startup.

Ancillary costs

No matter what pricing structure is ultimately used to calculate pricing, make sure all bases are covered. There are a lot of other costs that people forget about and often do not include into their pricing structures—salaries for ancillary employees not directly involved in the printing, phones, electricity, taxes and more. For multifaceted businesses, it is possible to spread these other costs over other goods and services. 

The pricing of products can be very much like a maze. In order to make it through, it’s imperative to know your costs. Only then can you truly know your profit.