The economics of do it yourself versus outsourcing for selling employee apparel programs

Posted by SmartBuy|TK on Jul 11, 2019 8:15:00 AM
SmartBuy|TK

calculating profits

At first glance it may seem like selling and managing an in-house, do it yourself uniform program is the way to go for your linen rental laundry, uniform laundry or promotional products company. However, when you start digging into the economic realities of such a program, a different picture begins to emerge. Many times the perceived net corporate profit realized from such programs is a lot less than you may think. Let's take a closer look at the time and cost expenses that such a program entails, and compare that with the simplicity and ease of an outsourced plan. When you are handling all of your clients' needs you may not reach optimum profit levels.

Are you capturing all of your DIY program expenses?

Your net corporate profit on a direct sale employee apparel program is often not always what you think it is. In fact, with all that goes into an in-house, do it all yourself program, it can be difficult to calculate the actual costs. You will need to consider the time spent sourcing, picking, packing, and shipping along with your inventory costs. Then there are the website fees, the credit card processing fees, time spent invoicing, collections and warehousing costs.

You will also need to allow for customer service and staffing costs for returns and support services. These opportunity costs are often left out of any profitability calculation when it comes to valuing an in-house program.

There may be capital costs as well. If you plan to hold any inventory for the program then you must include the cost of your money being tied to this asset. If you are not sitting on the inventory and place orders for goods as you need them, then factor time spent on these activities. And include the fact that the largest employee apparel programs want to place a thousand small orders per year, not a handful of bulk orders. Why? They want employees to order their own apparel.

At the end of the day, the industry standard for net profits on any employee apparel program to the laundry or promotional products company is a max of 20% to 30%. and to realize this amount requires great attention to details.

Comparing apples to oranges

Because you don't always see the costs associated with the program broken out in specific line items, you may imagine that your profits are larger than they actually are. Side by side, the cost, and profit comparison between an internal and outsourced program is night and day. We have crunched the numbers.

For example, in its first year of operation, when you are internally handling a program with orders equal to $100,000 your potential expenses will run about $46,000. Combine that number with the cost of your inventory. Let's just say you have a keystone price on the goods, so cost of goods here are $50,000. But, as anyone in this business knows, the larger the employee apparel program the higher the likelihood the apparel is offered at a discount.

Now we have $100,000 in sales, less $50,000 in cost of goods, and $46,000 in expenses. These amounts generate a modest or razor thin 4% profit margin in that first year of operation. You may improve this the next year as initial expenses of starting up the program drop off, but even if you quadruple these numbers you are at 16%. 

Contrast that with an outsourced program where you are guaranteed a 10% to 15% profit for that $100,000 account. In the example above a guaranteed profit of $10,000 to $15,000 would be realized immediately, and every year in operation. Comparing that to the potential $4,000 that could be made from an in-house program, the decision-making process becomes a lot easier! When you consider the amount of extra time that is spent with errors and returns, those do it yourself margins can shrink even more. When you outsource your program you know that ordering, customer service, an all other relevant tasks are handled.

Handling the ordering and inventory tasks of in-house programs is time-consuming and inefficient

When you provide in-house services for your clients you have to make a cash investment. If you order their items on a piecemeal basis, as they are needed, you can lose money because of the increase in labor costs. Whether you choose an on-demand, order only when you need something approach or choose to invest in keeping inventory on hand, there are costs associated with both. When you opt for an outsourced program you no longer need to worry about meeting your clients' linen, uniform, and apparel needs.

Even with the most streamlined and budget-friendly do it yourself program, the opportunity cost will be substantial. Selling employee apparel to companies can be a profitable business venture, and when you outsource the services your profit margin is guaranteed. Don't let excess expenses and inefficient practices eat into your bottom line, find out more about how outsourcing can give your corporate net profits a healthy boost! 

Come talk to SmartBuy|TK today and let us simplify your business model.

 

 

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Tags: employee apparel program, promotional products, uniform orders, linen and laundry companies, retail uniforms