Doin’ the T-shirt Math
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 out of bed for an hour now and the laptop is just rolling around to show the same 3AM that our clock was projecting 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 from the bed at the same time, and they’re no more expensive than other inexpensive bedside clocks. We didn’t find one with good sound, but, we use our phones to play audio and alarms).
What had me not sleeping this morning was doing the math on advertising for our T-shirts. Increases in the bite that advertising and shipping took from my sales put me out of business with 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, but now, 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 day one 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, and, of course, I need to earn something. Those Youtube videos are so promising. That is, they promise a lot!
My first impression was that I could have a modest mark up and still make a worthwhile profit. I still want to do that, 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 . That’s all they are responsible for. And, it’s up to the small business owner know what their other expenses are.
Those exciting Youtube videos showing how to go into T-shirt business show you gross revenue information that is available for the top sellers. That’s not a complete picture either. You can’t just look at those impressive gross numbers and subtract the T-shirt cost and arrive at net profit. There are other expenses. My job is to take into account all of the costs and consider all the unsaid things.
You have to Ship the Product to the Customer. What’s That Gonna Cost?
Let’s just say that the answer to this question is complicated, variable, and doesn’t favor the little guy. It puts us firmly into outsourcing the shipping to the same people who will produce the shirts to take advantage of their infrastructure and discounts.
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. That’s what got me out of bed this morning thinking about it.
Phrased another way, advertising with Google will cost 25% of my gross. 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. The cost and necessity of advertising didn’t just get me up. It’s what kept me from going back to sleep. 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.
Shirts come at many price points and we plan to offer more than one, but 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 (that’s a WAG, it will vary), now we’re at $28. Gross numbers include all costs, but’s too hard to address sales tax or VAT in this simple model, so it’s not going to be perfect, but models never are. The cost of the shirt has to cover advertising too, 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, there is no allowance for pay or profit yet, and no reimbursement for equipment expenses like the tablet we bought to create the designs, business expenses like incorporating, and others. There could be unexpected expenses to come and response to advertising could be below average. No guarantees means that I could pay for advertising and still get nothing.
With all that uncertainty, allowing less than $5 per shirt for us and the unexpected seems risky. So, at this sample price point, we have to double the advertised cost of the shirt to be viable, but now we’re up to a $40 gross, so we have to refigure the advertising expense because it is based on a gross number (really gross 😉 ). 25% of that number is $10 instead of $7. That $5 allowance for profit, expenses and the unexpected just became $3. I didn’t do the math on how many shirts we’ll have to sell to break even. I’ll do that sometime before April 15.
It looks like we’re at 100% mark-up. That’s when you buy something for a price and sell it for twice that price. In a brick and mortar business, part of the revenue, or gross goes to pay for buildings and employees, I realize that a 100% mark up is a common standard since the dawn of time, but for a low overhead internet based enterprise, I didn’t expect to need that. I thought we were going to be able to take a smaller markup.
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?
We’ll see.
