Saturday, March 3, 2012

Start your own Embroidery Business?

I have been getting lots of questions asked recently about how much these patches cost to make, and that folks want to start selling their own.  Sometimes MLP, sometimes not.  I am more than happy to see folks start up their own businesses, that's awesome!  The only thing I ask is that you don't sell the same things I do, as I would like to break even at some point. Anyway, on to a business explanation!

For the first 6 months or so doing this, I was selling embroidered stuff for less than they cost me to make, and now I sell them for slightly more.  I used to sell towels, washcloths, and the like that was embroidered with MLP designs.  I stopped doing that when I was homebound due to a medical issue, and was unable to get to the store to buy blank towels.  Now, I pretty much only do patches, but I will do other things if asked.  The business model and expenses I have below are for the patch process at 100mm by 100mm maximum size. You will need to modify it if you have a different item that you want to sell.

I used to get thread from Linda Z's sewing and Joann fabrics, one spool at a time. A 500M (550 yard) spool of thread was $5, not including the gas to go get it and such.  On average, the patches I make use 400 to 500 yards of thread between the top and bottom.  The thread is spread out between several different colors, so you won't use a whole spool of the same color at once, but since all thread was the same cost, it doesn't matter when determining cost.  So the cost of thread was $5, nice and simple.

The thread was the biggest single expense, but a lot of folks seem to think that is the only expense. There's also a whole host of other stuff. I keep meticulous records, so I know every last cost that goes into making a patch, and I know that there is so much more that can be easily overlooked.  Here's a breakdown of my current costs. The biggest way I reduced expenses was that I changed suppliers and the quantity of supplies that I bought at once.  Thread, stabilizer, needles, etc.  For example: instead of paying $5 for one 550 yard spool of thread, I now pay $2, but I had to buy ten 5500 yard spools of the same color (same as 110 regular spools) to get that price instead of just one previously.

 Then you have the cost of stabilizer (about $2) needles (about $1), and other misc stuff (about $1).

Before I changed suppliers and started ordering in bulk, it cost $9 to make a patch or design I sold for $5.  Now, it costs about $3.80 in materials (thread for $2 & the different stabilizers for $1.80) for me to make a patch that I sell for $5.40.  That's raw materials, but that isn't all it costs.

The additional costs on top of that $3.80 are electricity to run the machine (28 cents, measured with a kill-a-watt meter), Paypal/google checkouot fees (63 cents), waste of ruined patches (8%, 32 cents), and misc costs like propane, hobby knife blades, cutting boards, embroidery machine repair and maintenance ($150 minimum to get a tech to fix a machine plus $18 in gas), other minor things (about 28 cents per patch), and sales tax (44 cents for those sold to residents in my state, but only 4 cents per overall patch).  If you add all that up, it costs $5.35 to make and sell a patch, which does not include the time spent doing it, or one time costs (An embroidery machine, a table, storage, etc).  It could be about $2 cheaper (less waste, less materials, less electricity per patch) if I could afford to outlay about $20,000 for a professional embroidery machine with a hot knife, but that is too much to bet on making patches.  I would need to sell at least ten thousand patches to pay for the machine by itself.  Also, those machines can't handle the number of colors I have in all the designs.  Some MLP designs have more than 20 colors, even the most expensive commercial machines only support 15.

There is the shipping cost as well.  The $2.18 in shipping covers the envelope, postage, paper, printer toner, the cost of replacing patches that get lost in the mail, and labels. Overall, it works out to me making about 9 cents on shipping. Therefore, if you sum the money made on shipping and on the patch itself, I make about 14 cents per patch.  This amount is in constant flux, but now that I have made quite a few patches, I can say with pretty good certainty what my expense & profit is. If I use 3 machines at once, I can average 1 patch per hour, so I make about 14 cents per hour profit.  Definitely not a good business model if you want to make a profit.

Remember, this 14 cents doesn't include the cost of an embroidery machine, storage, or any other one time costs.  I have spent more than 4 grand on machines and hoops, which I am not including in the costs I have above. (8 hoops, 2 PE770's, 1 6800PRW, 1 ULT2001, $700 for a desk and thread feeders, and other mic stuff)

Here's the reason I ask you don't make and sell the same designs I do: In order to break exactly even with what I already spent (use up all the thread I have, stabilizer, etc) assuming the same waste and materials I use per patch now, I need to sell 1,579 patches.  I sell about 4 a week, though recently, that has gone up to somewhere around 8.  Assuming the same growth that I have seen since I started, it will take between 120 and 158 weeks to sell those 1579 patches.

I know several people that run their own embroidery businesses, and they all think I am crazy when I tell them what I sell stuff for.  Believe it or not, each of them has the same price for doing embroidery, which is one dollar for a thousand stitches.  That doesn't sound too bad, and a thousand stitches sounds like a lot.  But it isn't.  Guess how many stitches Rainbow Dash has?

If you guessed 19,186 stitches, you are correct.  A 4 inch patch of Rainbow Dash would cost $19.18. I sell Rainbow Dash for $5.40.  That is a much better business model, but still not going to make you retirement money.  Assuming the same speed, that means they can make about $14 an hour doing embroidery.  Much better than my 14 cents.  The $19.18 cost doesn't include digitizing, which is turning a design into stitches.  The people that I know that do it charge either a flate rate by hour, or by how many stitches.  The person who does it hourly charges $34 an hour (it takes me between 1 and 4 hours to do a design) and the others charge $5, $6, or $9 per thousand stiches.  It is a one time cost though, so the cost is less per patch if you get more patches.  But that would still add between $68 and $171 dollars to the cost of doing a patch.  At an hourly rate, that is much better from a business standpoint.

So there's my business model with some examples from 3 other folks who do this for a living.  Hopefully that will answer the questions I have gotten, and help you start your own business.