Some reality set in at 3AM this morning, except that it’s fall back Sunday and we haven’t reset our clocks. I’ve been up for an hour now and the laptop is just rolling around to the 3AM that the clock was showing on the ceiling when I got out of bed. And BTW, if you don’t have a clock that shows time on the ceiling, I really like ours. Honestly, it is the easiest and lowest light way to display the time in a bedroom where two people can see it. We didn’t find one with good sound, but, we use our phones to play audio and alarms, and they’re no more expensive than other inexpensive bedside clocks.
What had me not sleeping this morning was doing the math on advertising. Increases in the bite that advertising and shipping took from my sales put me out of business in my Etsy store, so it should have hit me immediately. I built the Etsy business when those costs were a smaller percentage of sales price. My margins on an average sale no longer cover the cost of being seen. While I haven’t officially announced the death of the Etsy store, I’ve downloaded all my records from the beginning and there are only two products in the shop waiting to expire.
Things look Different When You Look at Them Separately
Like many, my investigation into T-shirts started at T-shirt cost, quality and availability. I want to use a quality product that is socially and environmentally sound. That is, the company that makes the shirts pays a living wage to workers, has good workplace conditions, uses lower impact processes, and cleans up after production.
My first impression was that I could have a modest mark up and still make a good profit. That is still what I want to do, but I’ve adjusted my reality on what a modest mark up is.
T-shirt printing companies that put their prices out there for all to search just quote the cost of the T-shirt. It’s all they can do. Shipping is complex, especially international shipping, and my advertising isn’t part of their picture. On top of that, if you sell more T-shirts, economies of scale comes into play and the production cost of each individual T-shirt becomes lower. For instance, if you sell 1 T-shirt, the set up cost is attributed to that 1 T-shirt. If you sell 10, the set up cost is divided by 10. At different numbers of shirts they even change printing processes because they become more economical. Some producers keep the price break. Some pass it on to us. My job is to take into account all of the costs.
You have to get the Product to the Customer. What’s That Gonna Cost?
It depends, and quickly searched answers on the web ranged from $4 to $49 domestic. There are ways to limit shipping costs, but they don’t go away, whether you show them to the customer of not. One way to reduce costs would be not shipping internationally. We want international availability, so we’ll have to deal with it another way. $4 Doesn’t include delivery confirmation, which is pretty important, so we won’t be assessing feasibility on that rate.
It will matter if Handling is part of the T-shirt cost, or part of the shipping cost, but it will be part of the business cost of the producer, so it will be part of my price to acquire the merchandise.
I have to pick something to allow for shipping cost, so for the purposes of my feasibility assessment, I’m going to allow $8. The current lowest Priority package rate is $9.35. Priority is the USPS level that gets you delivery confirmation and a 2-3 day delivery time. There will be commercial discounts, so I’m taking that down to $8, but I’m afraid to run numbers on a lower average cost at this time.
So, you Need the Advertising to be Seen. What’s that Gonna Cost?
In checking Google Ads, I came across their marketing stating that the average advertiser gets $4 return for every $1 spent on advertising, and it was presented as a bargain. Phrased another way, advertising with Google will cost 25% of an advertisers gross to get them seen. That’s an average, not a guarantee. Why do I say gross? Because Google has no idea what any advertisers net is, or if it’s even positive. It wouldn’t separate shipping cost either because so many sellers hide the cost of shipping in the sales price to prevent sticker shock. The cost and necessity of advertising is what kept me from going back to sleep this morning. The mark up on the T-shirt has to cover all of the costs, including advertising, shipping and unexpected expenses.
What that means is sobering. Here’s an example.
Let’s say I find a socially and environmentally responsible producer who will provide a printed shirt for $20. Now add $8 for shipping to the customer, we’re at $28. The cost of the shirt has to cover advertising, which is 25% (if you’re average). 25% of 28 is $7, so add $7. Now we’re at $35. At $35 cost to the buyer on a $20 shirt, there is no pay or profit for any of the work we put in making the shirt, no reimbursement for expenses like the tablet we got for Russ to create the designs. There could be additional unexpected expenses and response to advertising could be below average. Allowing less than $5 per shirt for us and the unexpected seems risky. So, at this sample price point, we have to double the cost of the shirt to be viable, but now that we’re up to a $40 gross, 25% of that number is $10. That $5 allowance for profit, expenses and the unexpected just became $2.
If a great shirt at lower price point were to be available, shipping would be a higher percentage of that cost, so we’d scale and run the numbers again. We’ll get plenty of detail and specifics when we narrow our options and talk to sales representatives. Hopefully we’ll find some shipping relief, but we still have to look at all the costs at different price points before setting our prices. I realize that a 100% mark up is a standard since the dawn of time, but for a low overhead internet based enterprise, I didn’t expect to need that.
So it’s late for the holiday market. Can this project be a go?
Do I really believe that if anything can go right it will go right and at the best possible time? Of course I do. Can this go right?