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Why You Should Consider Raising Your Minimum Order Quantities Today

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Why You Should Consider Raising Your Minimum Order Quantities Today

or a few years, print shops and distributors have offered very low minimum order quantities, even just one custom t-shirt or hoodie, to attract clients. Today, more and more companies are trending away from small orders, saying they don’t help their bottom line. Just like more industry businesses have started taking 100% upfront payment, experts say it’s time to transition over to requiring higher minimums for the apparel and promo products orders you accept.

“Have the confidence to raise your minimums, knowing it won’t negatively affect your business long term. Ultimately, you’ll have more time to service larger orders and be more profitable.”
Tom Rauen, CEO at Envision Tees

We’ve got some great tips for rethinking your minimum order size and how to tell your clients about your new, profitable policy.

The Benefits of Raising Your Minimum Order Size

The biggest advantage of raising your minimum order size is improving your profit margin. Think of it this way: When you increase your order sizes, you print more shirts all day. “It takes about the same amount of time to set up and take down a 12-piece screen-printing job as it does for a 72-piece order,” says Shawn LaFave, president and chief branding officer at NGA Promotions.  

Consider this: In an eight-hour shift, how many minutes do you actually spend decorating t-shirts? Marshall Atkinson, business consultant at Atkinson Consulting and Shirt Lab Tribe, conducted shop studies that show many printers only spend 30% to 40% of their time printing. In other words, out of 480 minutes, they’re only printing for 168 minutes, or 2.5 hours out of eight.

“We only make money when we’re decorating, not when we’re ordering shirts, digitizing, preparing art files or burning screens. Ask yourself how much your press is worth an hour: $300? $1,000? More? You’ll make more an hour with bigger orders. If you’re ready to level up, raise your minimums so you spend more time decorating.”
Marshall Atkinson, business consultant at Atkinson Consulting and Shirt Lab Tribe

Pro tip: When you raise your minimums, it doesn’t just have to be in product quantities. “It could also be a minimum dollar amount,” Rauen says. “Dramatically increasing pricing on lower quantities of hoodies, for example, results in a much higher profit margin. That can make smaller orders worthwhile in some cases.”

The other benefit of raising your minimum order size: You’ll find new customers happy to spend more with your shop. When you stop accepting tiny orders, you’ll eliminate price shoppers and make room for customers who’ll place larger, repeat orders with you. Statistics show that loyal, repeat customers become worth 10 times more than their first purchase.

How to Set Your Minimum Order Quantity

Many companies use shop management software to track and review inventory, order quantities, costs, profit margins and more. That’s a great starting place. “Your minimum order quantity should be rooted in your shop’s actual numbers,” Atkinson says.

“Too many printers don’t have the data, so they don’t know their profitability. Their minimums and pricing aren’t based on their actual costs. Remember, you can’t manage what you don’t measure.”
- Marshall Atkinson, business consultant at Atkinson Consulting and Shirt Lab Tribe

Here are six basic steps to consider as you’re figuring out your new order minimums. You’ll find the process that works best for your shop, since it’s not one-size-fits-all.

1. Understand your costs to produce an order.

This starts with knowing your shop’s full financial picture.

“You need to know your monthly operating expenses, including rent, utilities, internet, payroll and so on. Then, total up production costs like current garment inventory, machine payments, and supplies like screens and inks. Then, divide your monthly costs by the number of hours you’re open in a week. Add that with the cost to run an order. Subtract all of that from the money you’ve charged for the order.”
Shawn LaFave, president and chief branding officer at NGA Promotions

If you aren’t breaking even or hitting the profitability percentage of profitability you need to stay in business, you can do several things:

  • Lower your overhead.
  • Lower your cost to produce the order.
  • Increase your margins or markup on orders.
  • Increase minimums.

2. Look at your historical product sales to understand demand.

If a certain t-shirt SKU regularly gets you 500-piece orders, increasing your minimum to 1,000 won’t make sense. In this part of the process, identify the products that regularly bring in healthy order volumes. When you’re making your list, take into account if certain products sell well in certain months or seasons. Profitable products can include those with high order volumes as well as those higher profit margins. You can make a second list of products that don’t sell as well.

3. Determine your break-even number.

Determine how many items you need to sell and decorate to make a profit, as you consider your overall costs. Compare the revenue that different quantities will bring your shop, including different decorating methods. Identify the minimum order quantity (for different products) that would cover your costs so that you “break even.” That’s considered your break-even number.

4. Dive deeper into your numbers.

Now, you know your break-even minimum order quantity number. Work your numbers until you figure out what minimum order quantities make sense so that you can hit your desired profit numbers. Take into account how much you want to make on your press each hour it’s operating. These numbers will be different for every shop. Take into account if you get more orders at different times of the year. Consider what incentives your clients may need to order at your new minimums.

5. Set your general minimum order quantities.

Once you’ve compiled all of your data, set minimum order quantities that make sense for each product or product group. Decide if you want to offer incentives to customers to increase your average order size, like free shipping or tiered pricing.

6. Record and monitor the profitability of each order.

Do this whether you produce it in-house or get it from a promotional products supplier. LaFave uses a spreadsheet with preset formulas to price out NGA’s embroidery and screen-printing jobs.

“As the cost of the garment, supplies or labor goes up, we adjust the formula on the spreadsheet to calculate the prices. This gives us consistent profitability.”
- Shawn LaFave, president and chief branding officer at NGA Promotions

Understand It’s a Careful Balancing Act

Your goal should be to ensure every sale is profitable. Remember, it’s not a problem to tell a client that you no longer screen print five-color designs on 24 pieces. However, you should give them an alternative to bridge the gap. “You could do heat transfer vinyl, DTF, DTG or a four-color screen print on 24-piece orders,” La Fave says.

Your shop could  set lower minimums on your most profitable products, which result in the most sales overall.  You might also decide to set your price per unit based on the purchase quantity. For example, you can offer:

  • Tiered pricing: Here, the first items purchased cost more than the last items. The first 25 shirts might cost $14 each. If a customer orders between 26 and 50 shirts, the first 25 shirts will still cost $13 each; then they reduce to $11 each. Once the customer hits 50 shirts, any quantity above that costs $11. This way, your client has to place a minimum order to receive the discounts.

  • Volume pricing: Using this model, you change your rate based on the order quantity. For orders of 25 shirts or less, you charge $14 per shirt. For orders between 26 and 50 shirts, you charge $13 per shirt. For orders of more than 50 shirts, maybe you charge $11 per item.

Pro tip: A good inventory management system can help you maintain stock levels for quick order turnarounds and set reorder points. You’ll save money by knowing exactly what inventory to have on hand to fulfill your orders.

Have Those ‘Hard’ Conversations With Your Customers Today

Many decorators and distributors fear losing customers who place smaller orders. “But it’s not personal, it’s business,” LaFave says. “Simply explain your new minimums policy. Yes, everyone knows another shop that has lower minimums or a lower price. But don’t be tempted to make it a race to the bottom.”

Once you’ve carefully figured out the minimum order quantity for different decorated products, here are a couple of tips to communicate your new policy:

1. Tell your existing customers about your new policies.

Give them enough advance notice so they can consider the budget and ordering plans on their end. Let them know why you’re implementing the new minimums. Share with them the ways they can continue working with you. For example, if a client usually places larger orders, you might accommodate smaller orders from them on certain products. Some shops also will opt to let a new customer place an introductory smaller order to see what it’s like to work with your shop.

“Ultimately, your new policies will start eliminating smaller-order customers and start attracting larger, more profitable customers.”
Tom Rauen, CEO at Envision Tees

2. Enforce your new policies.

Make sure your staff understands your new policies and is on board with the new model. Sometimes, you’ll negotiate with certain clients, but your team should know how you make profits on each order. Offer incentives to clients to spend more, such as discounts for higher spends or free shipping on certain order volumes.

Ultimately, you’ve got the power to dictate who your customers are.

“Are you comfortable talking with the 24-piece order person? Or do you want the 240, 2,400 or 24,000-piece order? If you want to make a change, start going after larger customers. It’s 100% up to you. Find customers who are the right fit. Yes, you might lose a customer here and there, but you’ll be financially stronger in the long run.”
- Marshall Atkinson, business consultant at Atkinson Consulting and Shirt Lab Tribe

Jul 3, 2022