Pricelist FAQ
(Frequently Asked Questions)
What is Pricelist?
How does Pricelist know what to charge my customers for my
work?
How difficult is it to configure Pricelist to my operation?
Where do I put my markups?
How should I be pricing my screen printing or
embroidery?
I'd like to know more about the theory behind this kind
of pricing. . .
How do I get Pricelist?
Can I get a demonstration first?
What if I buy Pricelist for embroidery today, and I start
screen printing later (or vise-versa) can I upgrade?
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What is Pricelist?
Pricelist is a computer software for screen printers and embroiderers to price the
goods that they sell. Pricelist is also probably one of the most invaluable financial
management tools available to these two industries. If you have noticed that it is
difficult to ascertain what to charge for these services, you are not alone. (If you
haven't noticed this, exit now, as there is no hope for you.) Most screen printers and
embroiderers spend hours each week struggling with what to charge for each job. Some
merely pull the figures out of the air, which they know is foolish, but they haven't found
a truly useable means for pricing.
Pricelist was created to end these problems. First, Pricelist helps show you what to
charge for your services. Pricelist allows you to enter the amount of money you want to
make this year, then Pricelist creates quotations and price tables that will achieve your
profit goal. Second, Pricelist allows you to make professional written quotations for your
customers in minutes - not hours. You save hours each week and appear more professional in
your customers eye, while gaining piece of mind that every quote you write guides you to
your profit goal.
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How does Pricelist know what to charge my customers for my work?
Pricelist knows what to charge your customers because Pricelist is configured to
your shop. You give Pricelist an insight as to what you do in your shop to make
money. You also tell Pricelist how much money you want to make this year. Using this
information, Pricelist can consistently price goods for your shop using industry
accepted accounting practices that guide you to your profit goal through every job you
perform each year.
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Scott M. Ritter Software main screen
There are easier ways of pricing your product, but there is nothing available to you
that is as easy and viable as Pricelist. Any pricing / financial management
system demands some of your time if the system is to work. You could just borrow a
competitors price table to price your product, and undercut your competitor by a nickel
per item. That is easy, but it is about as viable as a dartboard. Pricelist is - without a
doubt - the fastest, easiest way to create viable pricing.
Have you ever wondered: "What if my competitor isn't making much money?" If
you are pricing your product by undercutting him, you are making even less. And how do you
know that he has any idea how to manage his money any better than you do? What if he
created his prices by undercutting somebody else?
The practice of allowing your competitor to manage your business is all to prevalent in
our industry. It is good to be competitive with your rivals, but unless you know what it
takes financially to make a profit at the prices you offer, you probably won't
make a profit at the prices you maintain. That is where Pricelist comes in. When you
configure Pricelist, you give the software financial information in the easiest possible
terms. You enter information based on your last balance sheet, press or embroidery machine
logs (we include log sheets with the kit), and an estimate as to what you would like to
make this year. The whole process rarely takes more than a couple hours the first time
around, and gets easier any time you decide to change things. (Like next year.)
As soon as you finish configuring Pricelist, you are ready to create prices and custom
quotes that work toward your profit goal. The prices that Pricelist gives you are not
pulled out of the air, but based on industry accepted accounting principles that connect
prices charged to your companies' expenses and profit goal.
Better still, if your prices appear too high or too low for your market, you can go
into Pricelist and re-configure with new expense and profit estimates until you create
budget figures that can realistically give you the prices you need to compete and the
profit you need to earn.
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Where do I put my markups?
You don't. Pricelist is considerably more sophisticated than that.
Pricelist does not use percentage markups or any other retailing techniques. Why? Well,
suffice it to say that you are not a retailer when you are engaged in this
business. Even if you are a retailer engaged in doing monograms on the side, this portion
of your business is NOT retail. From an accounting view, everything you ever
learned about retailing goes straight out the window when you become a manufacturer, and
you are a manufacturer. (Technically, you are a finisher - which is a special
subgroup of manufacturers)
If you have tried to create pricing for your business using retail markups, you have no
doubt been frustrated trying to evaluate percentages to quantities and numbers of colors
or stitches per design. Don't feel bad. Almost every printer or embroiderer trys that
first. Why? Because retailing practice is so prevailent in our society, that manufacturing
processes are barely taught. How important is it to use manufacturing accounting price
practices instead of retail? Ask yourself this question:
Does Chrysler Corporation price their automobiles by marking up the steel?
If so, go buy a new Viper. It doesn't have much more steel than a Neon. Pricelist uses
the industry accepted method of "hourly rate theory" to price your goods. It is
a viable method of charging for the value that you add to an existing product. And while
it is difficult to get used to the idea that you can make money without markups, it is
easier if you think of the process as marking up your time (which is relevant to what you
manufacture) instead of the raw materials (which is not relevant.)
For complete information on how manufacturing companies price their product
(specifically our industry) go to: "I'd like to know
more about the theory behind this kind of pricing. . ." in the Pricelist FAQ.
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How should I be pricing my screen printing or embroidery?
Experts in the industry agree that pricing has to reflect the amount of work that goes
into each and every job. Doing this is tricky, however. While "Standard Cost
Accounting" is the method of choice for most manufacturers, it is an unworkable
system for screen printers and embroiderers. Most experts agree that "Hourly Rate
Theory" is the most valid method of pricing in these two industries.
Unfortunately, hourly rate theory does not lend itself to guaging the bottom line. Many
printers and embroiderers who use hourly rate theory still guess as to what hourly rate
will be right for them. Just a few years ago, Scott Ritter offered the industry a theory
that coupled Hourly Rate theory with Standard Cost Accounting. People who use this married
theory gain the ability to consistently and meaningfully price product from the hourly
theory - while being able to forcast income and expenses using Standard Cost Accounting.
Almost every consultant and expert in the industry currently endorses this theory or
concurs that the theory is valid.
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I'd like to know more about the theory behind this kind of
pricing. . .
The following document is called "Theory.txt" This document comes with the
Pricelist demonstration program for Windows, should you decide to download it. It is also
available from our FTP site.
Pricing Theory
There are easily as many theories on pricing as there are ways to skin a cat. One
popular, and meritorious theory states only "Charge as much as the market will
bear." Let's not forget that it behooves you to get as much money for your services
as you can. I know of no person who left this trade because he or she felt his or her
income was too high.
Unfortunately, instead of trying to charge better rates for our efforts by showing a
product differentiation, or an additional value in our services, many printers just try to
offer the lowest price. The old adage about "If Charlie jumped off a bridge would you
jump too?" comes to mind every time I hear a printer say: "I can't charge more
than the guy down the block!"
I feel it's important to note that almost no business has ever survived, let alone
thrived with a "lowest price" perspective on marketing. Also, efficiency is
almost never gained without tremendous gains in production numbers. So unless you think
you can capture an amount of sales equal to approximately five to ten times as much
as your competitor is currently selling, the odds are you can't recognize a greater
efficiency over him.
This program utilizes two theories of pricing derived by Scott M. Ritter. The first is
referred to as "the marriage of cost accounting and hourly income," the second
is called "Past History Price Theory." Hourly-rate pricing has long been
accepted by most trade experts as the proper way to price garment screen printing, but how
to set your hourly rate has always been the Achilles heel of the system. Both of these
theories deal with setting that hourly rate for a shop.
Most people's experience with business pricing stems from the retailing industry. In
most retailing situations, a percentage markup is added to the selling price of an item.
For example, an average retail store will receive an item, and use a 50% markup to arrive
at selling price. Let's say that a retail store purchases an item costing $2.00 from a
wholesaler. The shopkeeper will divide the cost ($2.00) by the reciprocal of his
markup (50%) to arrive at a selling price of $4.00. ($2.00 / (1-.50) = $4.00) In this way,
the shopkeeper knows that 50% of the selling price is the cost of the goods.
(Incidentally, when goods are marked up by the common figure of 50%, the practice is
called "Keystone")
However, the use of a percentage markup is virtually unheard of in any manufacturing
situation. Why? Proper business planning. A wise entrepreneur will attempt to control as
many of the variables in his business as possible. Using a percentage of something that
fluctuates, like costs of goods, tears gaping holes in the fabric of such plans. For a
retailer, percentages of costs are semi-manageable. By estimating annual sales and costs
of doing business, a retailer can estimate his/her profit.
For a manufacturer, this plan is unacceptable. A manufacturer has control over many
more aspects of his financial plans than a retailer does. Primarily, a manufacturer has a
greater degree of control over costs of raw materials, and direct control of production
flow. Let's look at the case of a toy manufacturer who makes rubber ducks. This
manufacturer could observe the assembly line of his/her factory, and determine that the
average flow is 500 ducks per hour.
Knowing this, if the manufacturer feels comfortable that he can sell 20,000 ducks to
his customers weekly, then he can set up his factory to work exactly 40 hours each week,
thereby supplying 20,000 ducks weekly (500 per hour x 40 hours.) By using a simple
equation, this manufacturer can plan for his profit.
By adding all the costs of running the factory for one week (labor, electric, etc.) to
the costs of raw materials for producing 20,000 ducks, the manufacturer can determine the
total cost of one weeks operation, and divide that figure by 20,000 ducks to determine
costs per duck.
Next, the owner of the factory can determine how much money he wants to make this year.
Let's say that he wishes to make $52,000 this year, and divide that $52,000 by the 52
weeks in one year. The owner discovers that he/she wants to make $1,000 every week.
Now a week's production creates 20,000 ducks. That means that if we divide $1,000 by
20,000 ducks, we discover that we want to make five cents per duck produced. By adding
profit (5 cents) to the cost of producing each duck, we arrive at the basic selling price.
Everything is planned, and as little as possible is left to chance. You could say that if
pricing was a house, this house has a solid foundation. If this same manufacturer decided
to price his goods by using a markup on raw materials, his "house" would
obviously have no foundation at all.
This process is called standard cost accounting, and it is one of the most
accepted methods of pricing for manufacturers. However, screen printers are not like most
manufacturers. (Actually, the category we fall into would be "finishers") If our
screen shops were compared to the toy factory above, we would start by making 4,000 rubber
ducks on Monday. Tuesday we would make 3,000 toy soldiers. Wednesday would begin making
200 wagons, and finish by manufacturing 4,500 dolls. The fact is, our product and rate of
production change continually. Usually, no two days are alike.
Here is where the marriage of cost accounting and hourly rate theory saves the day.
This theory looks for some constant we can substitute for units produced per week. We find
that we can't rely on the number of units produced per day or the cost of raw materials to
stay the same. We can, however, rely on the cost per hour of running the factory and the
number of hours worked per day to remain relatively stable.
Our formula changes slightly. Now, by adding up all the costs of running the factory
for one week (labor, electric, etc.) and dividing it by the number of hours the factory
runs per week, we can establish a cost per hour of running the factory. Cost of raw
materials becomes external to the equation - that is, we add them at the time we price
each item. We must then account for profit on an hourly basis, instead of a per item
basis. For instance, if our costs of operation are $40 per hour, and we wish to make a
profit of $20 per hour, our hourly rate becomes $60 per hour.
To relate our hourly rate to the products we produce, we must establish time parameters
for the different products we manufacture. If we discover that we produce 100 wagons per
hour, 800 dolls per hour, and 400 toy soldiers per hour, and we know the raw material
costs of each, we can easily price each item.
Past History
The marriage of cost accounting and hourly theory works great. . . in theory. But in a
true-to-life setting like our own screen shop, determining costs per hour can be most
difficult. Our shops experience tremendous seasonal fluctuations in production. These
fluctuations, combined with other factors make our costs per hour fluctuate wildly. If our
overhead remains the same on a day to day basis, but our presses (Our "assembly
line") operate for six hours one day, but only three the next, obviously our cost per
hour are doubled on the latter day because there were only half as many working hours.
Past History theory is a device we use to smooth out the peaks and valleys in our
production, and create a meaningful average. With Past History theory, we examine a long
period of time - a full year - and draw averages from it. If you will, imagine the edge of
a razor blade - perfectly straight, very smooth. The edge is so fine, you can split a
human hair. Yet, examine that same edge under a powerful microscope, and you see peaks and
valleys in that sharpened edge - it's not very smooth at all!
Looking at a full year of production is much like looking at the razor blade with the
naked eye - nice and smooth. Looking at a weeks production is like looking in the
microscope - rough and jagged. If we photographed both views, you would easily identify
the razor blade from the naked-eye-view. You might never figure out what you are looking
at if all you ever saw was the microscope image. Both are images of the same object, but
it's easier to work with "the big picture."
So what we want to do is to determine what our financial obligations will be for a year
instead of a smaller period. How can we easily and accurately do that? By looking at the
past! If you wish to determine how much money you will spend on advertising this year, the
logical first step you should take is to see what you spent last year. With last year's
figure in mind, you could logically determine if that figure should be larger or smaller
this year, and approximately by how much.
But Past history theory asks us to see much further than that. Past History theory
states that everything we need to know about the financial/production status of your
business can be derived by looking at the relationship between your past financial
statements and your past press time (Hopefully recorded in your press logs.)
What can we tell from the relationship between costs and production hours? For
starters, efficiency of your shop. If your pressmen produce at a slower rate than the
identically sized shop down the street, your expense per hour will probably be higher.
Why? because you paid for more hours of labor to produce the same goods. What about that
large job that was done wrong last year, and the client refused to pay? - It showed up in
last years costs as labor for which you didn't receive a profit!
Realistically, you can determine everything you need to know about a shop, for pricing
purposes, by examining the cost breakdowns and press records. You don't need to know the
cost of ink per shirt - it's included in the cost of ink you bought! You don't need to
know how many shirts you printed - that number is reflected by the costs of producing the
shirts. (In fact, because no two jobs are alike, the number of shirts produced per year
only serves to add confusion.)
To some extent, Past History theory states that "What you did last year, you will
do this year." For the most part, this is true. But managerial intervention
is the key to fine-tuning the past history pricing technique. If you attempt to estimate
advertising costs by relying on previous costs, your mind may state something like this:
"Last year I spent $1,500 on advertising. I remember that I spent $500 of that
amount on one campaign alone - a full page ad in a state wide magazine. It sure didn't pay
off. Those small newspaper ads proved worthwhile though. I think this year I'll try some
radio too. . ."
After some reflection, you'll arrive at a budget figure for your advertising
this year. You'll have eliminated mistakes that you can correct, and adjust for trying new
things. You'll continue doing what works ("What you did last year, you'll do this
year") and account for trying new remedies for what didn't work.
Putting it together
Using the marriage of cost accounting to hourly theory and Past History theory
together, we create a model for the time/financial flow of our business. Simplified, the
equation looks like this:
Annual Costs + Annual Profit
Total Annual press Hours = Hourly Rate
In this equation, there is only one variable we have not discussed in detail - Press
time. The need for accuracy in estimating press time in this equation is critical, and
very often, neglected. Yet, this figure is usually the easiest to estimate correctly. All
you need to do is keep a press log.
A press log gives us most of the information we use in estimating, yet most companies
who yearn for pricing information have failed to perform the simple task of keeping a
press log. A press log can provide detailed information about production rates of all the
various types of jobs we do on an on-going basis. It can also tell us the total number
of hours our presses ran last year. Given the total number of hours our presses ran
last year, we can set about estimating press hours for the coming year in the same manner
as we estimated expenses.
For example, let's say that an established printer knows that his business has grown,
needing 7% more press time each year over the past five years. Unless this printer has
reason to believe that this year will be different (the managerial intervention factor) he
can plan on needing 7% more press time this year.
Let's pretend that this same printer only started keeping press logs recently.
Obviously he would not know by what factor his press times have risen each year. While
this situation does hamper our efforts to estimate press times for the coming year, it
does not present an insurmountable problem. Let's say that this printer has only kept
press logs for one year. What other factors might help us predict a tress-usage trend?
This printer may have noticed an increase of 7% in his gross sales (after accounting
for inflation) over the past several years. While it's not as precise a method by which to
estimate, gross sales are a fairly good indicator of press time usage. The printer can
guess he'll need 7% more press time this year to accommodate the 7% growth.
But let us suppose that the printer has just now begun to keep a press log, and is
anxious to start accurately pricing his product. Well, any quick-start campaign at pricing
is bound to show flaws, but rough estimates are usually better than no estimates. A first
step for this printer would be to start a press log immediately. After an absolute minimum
of one week's work, the printer could estimate how this documented week would compare to
an average week for this season, and from there, how the current season compares to the
annual average press load. By looking at monthly financial comparisons from previous
years, a person could create some meaningful comparisons by examining monthly gross sales and
expenses.
Let's not forget how crude an estimate a one-week press record would result in. This
printer would definitely want to review his estimates after a couple more weeks, then
again in a month or two, and continue periodic reviewing from there. Many factors that
affect the relationship between gross sales and press time, such as seasonal fluctuations
in the relative costs of goods, (for example: a printer may sell primarily T-shirts in
summer, and mostly jackets in winter. The press may actually operate 75% fewer hours per
$1000 of gross sales due to the dramatically higher cost of goods during jacket season.)
Odds are, a printer using a one-week estimate will re-define his annual press-time many
times, showing dramatic changes in his printing prices, before the first year is over.
Summary
Using Past History theory to accommodate relatively accurate forecasting, and using a
marriage of cost accounting and Hourly rate theory, we can build a foundation for our
pricing that we can use to plan for our business' profit. Unfortunately, a foundation is
only as good as the mason who laid the bricks - similarly, our pricing foundation can only
be as good as the commitment and patience you put into properly arriving at each estimate.
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How do I get Pricelist?
To Order, Click Here, or Call Scott M. Ritter Software at:
(218) 326-0890
Prices Are:
Screen Print Version 2 - IBM or Mac $249.95
Embroidery Version 2 - IBM $249.95
Combined (S.P. & Emb.) Version - IBM $349.95
Your copy will be shipped within 24 hours via U.P.S. with C.O.D. terms (except Fridays
- we ship same day or Monday). To avoid C.O.D. fees, we cheerfully accept Visa and
Mastercard.
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Ritter Software main screen
Can I Get a Demonstration First?
You bet. Scott M. Ritter Software currently has a 30-day working evaluation version for
Windows 95/98! You can download a copy of this fully-functional 30-day duration software
by clicking here.
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Ritter Software main screen
What if I buy Pricelist for embroidery today, and I start screen
printing later (or vise-versa) can I upgrade?
Yes, and without penalty. If you buy the screen print version or embroidery version
now, and later decide to upgrade to a combined version, you pay only the difference in
price between the versions. (Currently $100)
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Ritter Software main screen
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