Cost Control

Define your shop and ideal customers before giving in to price demands.

The scenario plays out every day in screen-printing shops across the country. A potential customer says he can get T-shirts printed elsewhere for cheaper. An ultimatum is issued: Can you match the price or go lower?

It’s a recurring situation that speaks to two major dynamics of the T-shirt game: the stress that customers put on price, and the willingness of so many T-shirt printers to slash margins to win business. The moment may be small but the consequences are clear. Hold your ground, and a potential customer walks right out the door. Give in, and you’ve established a bad precedent that is not easily rectified.

So what to do? The answer depends on the major parties that define the price issue: your shop, your customers and your competitors. Clarifying each offers a blueprint for responding.

Your Competitors

There are “discounters” who do have their finger on the pulse of their business [see sidebar]. And there is viability to a model that relies on razor-thin margins and significant volume. But in the world of T-shirt printing, a majority of competing shops that are price cutting are setting themselves up for failure. They might be what Tom Davenport of contract decorator Motion Textile (asi/72662) calls “dart throwers” – those who don’t have any true sense of what their costs are from job to job. And even if they know where they are cutting corners, the customer will get burned by poor quality or unacceptable service. “If you see somebody offering ridiculously low pricing,” says Davenport, “they’re compromising somewhere.”

Your Clients

Prices matter to clients – but it’s not the sole criteria for many, as evidenced by thousands of shops that succeed by being something more than the lowest-cost provider. Clients willing to walk out over a few pennies aren’t people you want to do business with, says Chris Vanderzyden, a sales expert and author of 7 Steps to Entrepreneurial Victory! They will have no loyalty the next time there is a price gap, she says, adding that low-margin customers tend to be the most difficult and eat up a company’s time that can be better served elsewhere.

“It’s very hard for businesses, because they’re thinking some money is better than no money,” Vanderzyden says. “But when you fill your book of business with these low-margin customers, it blocks up your ability to develop those customers who provide higher margins and value you as a consultant, as opposed to a commoditized distributor of a product.”

How can decorators suss out the price hawks? A simple discussion can elicit telling signs. “The customers who are price-driven,” says Vanderzyden, “one of the first questions they’re going to ask is ’What is the price?’ The earlier in the conversation they bring up price, the higher the sensitivity they have.” Be prepared to offer creative concepts and products with robust ROI, since today’s customers in the digital age come “pre-loaded” with certain items and pricing in mind.

Your Company

Are you a businessperson or a craftsman? The answer, says Marshall Atkinson, decoration shop consultant and COO of Visual Impressions, can inform a company’s attitude about pricing. Those with business backgrounds often have a concrete plan in place and just hire the creative talent around them. By contrast, says Atkinson, the craftsmen “who love to print but don’t know much about business” simply struggle more with pricing. “They have no intestinal fortitude and they give in because they just really want to do the job,” he says. If these creative types can’t do it themselves, a cracker-jack salesperson or operations manager can be brought on to help.

Regardless of background, all shops need to write a business plan that addresses their direct and indirect costs, and then rigorously track every expense down to the job. From there, a pricing list is created to ensure that your orders are profitable. (Note that lots of shops have multiple price lists, and even free services and rebates for different tiers of clients, depending on how much they regularly spend.)

Finding customers who are willing to pay your prices depends on the perception of your company. “You can be Ritz Carlton,” says Atkinson, “or you can be Motel 6.” His point is that if you want transcend the bargain-basement reputation, you have to bring value that will attract customers beyond solely being the cheapest. That could be any number of things – top-notch customer service, high-quality work, stalwart reliability. Even being a local provider, where customers can talk to you face-to-face, has its appeal in this digital world.

For Greg Gaardbo, owner of Shockwaves Promotional Apparel (asi/87144), his major selling point is the innovative designs he brings to life with any number of multimedia decoration techniques. That’s why he’s comfortable standing his ground when customers try to negotiate on price. “When you have a unique product that they can’t find anywhere else,” he says, “there’s not much to negotiate. But if you’re Joe Blow screen printer, [customers] can negotiate all they want.”

Owner Bret Bonnet and the staff at Quality Logo Products assure you that their company is not a faceless online discounter.

Bret Bonnet doesn’t pull his prices out of thin air. The owner of Quality Logo Products (QLP) has digital systems in place that regularly calculate costs for labor and touch points, and then sets the prices to cover the company overhead and make it profitable. He’s not a “discounter,” just efficient, and that’s why it bothers Bonnet when assumptions are made if his company is selling a product cheaper than another distributor. “It’s not so much that the guy who is selling for 15 cents less is undercutting you,” he says. “Chances are he or she is running his business a little bit better or smarter than you.”

QLP was started a decade ago, and the online-based distributor has swelled to 100 employees. In that time, Bonnet has learned that prices matter to customers, but it’s not everything. “I can’t make up for a high price with great customer service, and I can’t make up for poor customer service with a low price,” Bonnet says. “In that regard, I do think customers primarily shop on price, but in this day and age, that’s just step one of a five-step program. The immediate second step is to deliver amazing customer service.”

If customers want to negotiate a lower price, Bonnet isn’t fazed: “It’s a great question because it’s a buying question. … I welcome that question with open arms and I’m willing to birth their children to get the sale.” His point: not every single order will be profitable, but if most are, your company will succeed. “Sometimes you take a loss up front on the first order, and it’s part of doing business,” he adds. To reset the precedent, he suggests quotes on items that aren’t readily available. And if the customer is a price hawk, never start with the best price.

The Plan

With all that in mind, how should the screen printer respond to a price negotiation? If the goal is to maintain your value, many advise to never give in on price – period. “It’s a death spiral into doom when shops start playing the pricing game,” Atkinson says. “I see it all the time.” As the logic goes, kowtowing to someone else’s prices doesn’t make you profitable because it doesn’t address your own expenses. Plus, it can damage the higher-end perception your company has carved out and collectively devalue the screen-printing trade. “People take pride in doing good work, and they should be compensated for it,” says Rich Santo, president of Culture Studio (asi/700559). “Not beating down our creativity with price wars is a key attribute.”

Other experts suggest room for flexibility, acknowledging that a price drop could be the factor that persuades a key new client or helps a shop break into a new industry. Davenport suggests first offering added services at no additional cost. If a price break must be given, he lets the customer know up front that his company is doing it as a courtesy – banking on the fact that Motion Textile’s high-quality prints will keep the customer when the prices return to their normal level next time.
Or, Vanderzyden suggests offering the price break, but only if the customer will guarantee a reorder. “You never want to give on price,” she says, “without getting something in return.”

C.J. Mittica is the editor of Wearables. Contact him at cmittica@asicentral.com and follow him on Twitter at @CJ_Wearables.

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