Determining your true costs in sublimation can be a huge challenge to put your finger on due to a number of factors. The first reason is getting at what things like ink and paper cost you by relying on the supplier or manufacturers, can lead you down the wrong path. Let’s face it if you were the manufacturer of ink that was very expensive you would work to diminish those factors and point people at other areas. They are not lying or being deceitful they are pointing out other factors to look at which are very relevant. Typically the other reason they point to is the time which is the other issue people have when putting their finger on their true cost. We have a tendency to not factor in our time as part of the expense especially as small businesses or in some cases over valuing our time based on models from manufacturers. So what I suggest is, take all of that info you received and use that as a starting point to get a true value of cost.
With that being said, we need a formula and you have come to the right place. As I said we need to factor in true costs of consumables and labor, plus a few other factors like the waste, inventory costs, and overhead. If you have been in business for some time and have done a really great job of tracking everything to this is no problem to figure out. For example, take what you paid for ink and paper over a set amount of time, then take the total square inches of jobs you produced during that time (square Inch of the size of product produced, times number of times produced) and you have your paper and ink cost. What? You didn’t track that because you have a business to run or you are new to this? Well, that is where most of us fall, and honestly, I don’t suggest going to those lengths. We need a more round figure for figuring out pricing and at the end of the day and desktop printers on the market are going to run about $1.00 per job and 44” printer and about are going to run about $0.05 per job.
So what is a good way to determining your true costs of production if you don’t have the time or the data to track every single thing that goes on in your business? Here is an example of the true cost of a standard rectangular mouse pad for someone using desktop equipment and is buying small quantities of the blanks. We will error on the high side as you want to alway make sure the efficiencies you can gain improve your bottom line, not help you break even. Plus I have added notes for factors in each area that you should be aware or while making this calculation.
Blank Mouse Pad = $1.75 (Do not forget to factor in the inbound freight into this figure and realize that can drastically change the cost of the blank. You want to try to buy in enough quantity to gain price breaks, but not so much that you would not be able to sell that inventory in the course of 6 months to a year. There are costs to carry inventory for extended periods of time.)
Paper and Ink = $.75 (As mentioned the printer you use can make a world of difference in this area, but in general you are looking at about .0095 per square inch with small format and .065 per square foot with wide format)
Pressing Labor = $.50 (To calculate this you want to take the cost of an employee you would trust to do production as your base for this figure. This should not be what you think you should make an hour for your time, even if you are the only employee. You have to look ahead on this one or you will price yourself out of the market. You also should assume that you are going to be pressing one at a time especially at the beginning because again you want efficiencies like pressing multiple at a time to improve your bottom line.)
Packaging = $.30 (Even if you are going to hand deliver your finished product to the customer, a legitimate business is going to put the finished goods in some sort of a package. In this case, a poly mailer bag works great, but remember for other items that are breakable, this cost might be much higher)
Additional Labor = $.75 (Many small businesses, especially 1 man operations totally miss on this and when you do you will never be able to grow. Just like pressing labor you need to factor this based on the cost of an employee. This should factor in the time it took someone to take the order, prep and print the job, and then the time to package and handle the job before delivery.)
Scrap and Other = $.20 (This is a tricky one for sure, but it must be included in some form otherwise you might come to find 6 months down the road you are nearly losing money on every job because of these difficult to measure factors. With sublimation, the permanency of the ink is its draw, but for the producer, it is also a challenge. If something is messed up in production, there is not fixing it, you must make a new one. Even the most efficient production facilities should factor in about a 5% defect rate. This cost should also factor in inventory that you can’t sell. Let’s say you bought a case of iPhone 4 cell phone cover right before the iPhone 5 came out. Lastly, this cost should account for in the trial and error that comes along with perfecting your production of a new product.)
Outbound Shipping = $2.75 (I always recommend adding this cost in and then you can use it as a profit center when dealing with bulk purchases or the need to give free freight to compete with online retailers. If your business is only walk in then you could remove this, but make sure you will never have to eat the cost of shipping something before taking this off your cost calculation)
TOTAL Cost to produce = $7.00
What do you do differently? How do you take this figure and find your selling price? See part 2 of this blog for those details.