The bulk order that could sink the apron business
A former learner runs a small apron business from home and sells at weekend markets at N$180 each. Her monthly fixed costs are rent N$800, electricity N$250, licence and insurance N$150, and machine depreciation N$100. Each apron uses 1.2 m of cotton at N$50/m, and she allows 10% fabric wastage; thread and trims cost N$8, a woven label N$3 and packaging N$4. She sews 1.5 hours per apron and pays herself N$30/hour. She sells 30 aprons a month, and her own working hours limit her to 56 aprons a month. A lodge approaches her with an order: 40 aprons at N$145 each, delivered in three weeks, paid 30 days after delivery. She has no savings, her fabric supplier wants cash, and a helper would cost N$30/hour.
1. Calculate her variable cost per apron, her contribution per apron at the market price, her break-even point and her current monthly profit.
Read the worked answer
Variable cost per apron:
- Fabric: 1.2 m x N$50 = N$60; wastage 10% of N$60 = N$6; fabric total N$66. Wastage must be included because she buys for the full 1.2 m and cannot sell the offcuts.
- Thread and trims N$8; label N$3; packaging N$4 = N$15.
- Direct labour: 1.5 h x N$30 = N$45. Her own time is a real cost; if the business does not pay it, the profit figure is fiction. Variable cost = 66 + 15 + 45 = N$126.
Contribution at N$180 = 180 - 126 = N$54 per apron.
Fixed costs = 800 + 250 + 150 + 100 = N$1,300 per month.
Break-even = 1,300 / 54 = 24.07, so 25 aprons a month. At 30 aprons: 30 x N$54 = N$1,620 contribution, less N$1,300 fixed = N$320 profit, about N$10.70 per apron. That is thin, and it explains why one bad price on a large order can wipe out the month.
2. Analyse the lodge order on contribution and on capacity. What should she do, and on what conditions?
Read the worked answer
Contribution at N$145 = 145 - 126 = N$19, about a third of her normal N$54. The order is above variable cost, so each apron made with spare capacity adds something, but only if capacity is genuinely spare.
Capacity: 56 - 30 = 26 aprons spare per month. The order is 40, so 14 aprons cannot be made without displacing market sales or hiring help.
- Displacing a market sale loses N$54 and gains N$19, a net loss of N$35 per apron: 14 x N$35 = N$490 lost.
- Hiring a helper at N$30/h for 1.5 h adds N$45 to variable cost, making it N$171 - more than the N$145 price, a loss of N$26 per apron.
So accepting all 40 at N$145 is worse than doing nothing. Options:
- Accept 26 at N$145 with the rest declined: 26 x N$19 = N$494 extra profit, and market customers are protected.
- Counter-offer: 40 at N$160, with the 14 extra sewn by a helper at N$171 cost, gives 14 x (160-171) = -N$154 and 26 x (160-126) = N$884, a net N$730 - but it depends on the helper being reliable.
- Counter at N$160 for all 40 with delivery spread over two months, so no retail sale is lost.
Best practical answer: offer 26 at N$145 now, or 40 at N$160 with staged delivery. Either way she needs a deposit: 40 aprons need about 40 x N$81 = N$3,240 of materials before any money comes back, and 30-day terms mean she funds it for seven weeks with no savings.
3. If she accepts the 26-apron version, what is her new monthly profit, and what risks must she manage?
Read the worked answer
Profit = old contribution (30 x N$54 = N$1,620) + new contribution (26 x N$19 = N$494) - fixed costs N$1,300 = N$814. Her margin per apron falls sharply even though total profit nearly triples, because the low-price work is filling otherwise idle hours.
Risks:
- Customer concentration: one lodge now accounts for 26 of 56 aprons (46%) of output. Losing that customer and its late payment could leave her with stock and no cash.
- Cash flow: she must buy fabric for cash before delivery and be paid 30 days later. Ask for 50% deposit, invoice on delivery and state payment terms in writing; keep a simple record of what is owed.
- Capacity creep: if the lodge reorders monthly, she will be tempted to drop market customers, who pay the better price. Protect the retail channel.
- Hidden costs: the lodge may want custom sizes, embroidery or a logo, adding time and cost not in the N$126; quote extra for any change.
- Quality: the aprons must be inspected before delivery, because a rejected batch is unpaid work.
She should also use the lower price as a bargaining lever: offer the lodge 26 at N$145 as a trial, with the price rising to N$160 on the second order, and put the quote in writing with delivery dates and payment terms.