Sewing workshop: turnover costs 35% of profit

“In one year eighteen seamstresses out of thirty walked out on me. And in the costs, the whole story comes to five thousand seven hundred hryvnias a month — adverts and interviews. I used to look at that line and was certain that turnover was my cheapest problem” — that is how Natalia Ishchenko, owner of a contract sewing workshop in Chernivtsi, opened the conversation.

Recognise your own workshop? The machines are sound, the client is not going anywhere, the norms are worked out. People leave and new ones come — unpleasant, but in money a trifle: 3 800 ₴ to find one person.

The arithmetic breaks somewhere other than where it is looked for. A workshop sells a garment, not a person. When a newcomer is standing at a workstation, the garment does not appear — and that is in no line of costs, because nobody paid anybody anything. The money is lost in revenue that never happened.

Below we break the workshop down into two units — the workstation and the garment it yields in a month — and get to why replacing one seamstress costs 24 390 ₴.

Natalia's path: from two machines to thirty seamstresses

Natalia started with her sister on two domestic machines: they sewed aprons for a coffee shop, then workwear. When there are two of you, nobody has to be brought up to speed — both could do everything, and do it the same way.

Over eight years there appeared a workshop with 30 workstations, a cutter, a production technologist and two mentors. The clients turned contract: they need volume, not individual beautiful garments. That is when the feel for the figures disappeared: the stations became thirty, revenue grew, and profit froze at the level of the fourth year.

“When there were two of us, I knew about every seam. Now they bring me a summary for the month. It says how much the workshop delivered, and it does not say how much it could have delivered.”

Why turnover leaves only 5 700 ₴ in the report

Natalia worked out the hiring costs long ago and honestly — 3 800 ₴ per person: adverts, interviews, paperwork, uniform. Eighteen replacements a year give 5 700 ₴ a month in the “recruitment” line.

There is no error in that figure. There is a limit in it: it measures only what the workshop paid out in money to somebody outside. And the main thing a replacement takes away is paid to nobody outside — it simply never arises.

Life before ramp-up became a line

The bookkeeping the workshop lived with through those eight years will be recognised by any sewing business that grew out of two machines.

• A workstation was counted as filled or empty. A third state did not exist, although at some of the stations sat people who had not yet reached the norm.
• The plan was set by the number of machines. Thirty stations at 400 garments each — so the workshop can do 12 000, and after that it is only a question of discipline.
• A newcomer's output was never converted into money. The foreman knew the person was “still learning”, but how many garments that equals nobody counted.
• Defects were one overall percentage for the workshop. A single figure for everybody — for those in their second year and for those in their second week.
• Mentoring was treated as free. An experienced seamstress sat down beside the new one and sewed less, and that showed up nowhere.
• The reasons for leaving stayed hearsay. “She went where they pay more” — and the conversation ended there.

Not a single word here about cutting or about technology. Six points, and all of them accounting ones — which is exactly why neither the technologist, nor the foreman, nor Natalia herself saw them.

The main unit: not a resignation, but the garment left unsewn

A resignation is an event, and that is why turnover is measured as a percentage: 18 people out of 30 in a year, that is 60%. The percentage shows the scale of the movement, but it has no price.

The garment has a price. The workshop charges 86 ₴ for the sewing, of which the seamstress gets 52 ₴ of piece rate. Everything else — rent, electricity, the mentors, the technologist, profit — lives off the difference: 86 − 52 = 34 ₴ per garment. That is the contribution every sewn garment brings the workshop.

From there the arithmetic is unpleasant. A garment that was not sewn brings none of its 34 ₴. No piece rate is paid for it, so 52 ₴ stay in the till. And the 34 ₴ stay nowhere.

The output curve: 170, 270 and 340 against 400

An experienced seamstress yields 400 garments a month. That is not a record but the working norm on which every shift target rests. A newcomer reaches it in three months: she learns the particular client's assemblies, memorises the sequence of operations, gets used to the machine. The curve is the same for everybody.

Month of work	Garments	Shortfall against the norm	Contribution that is not there
First	170	230	7 820 ₴
Second	270	130	4 420 ₴
Third	340	60	2 040 ₴
From the fourth	400	0	0 ₴
Total over the ramp-up	780	420	14 280 ₴

In three months the newcomer sewed 780 garments, while an experienced seamstress at the same station would have held 400 every month. The difference is 420 garments at 34 ₴ of contribution each, that is 14 280 ₴ the workshop did not earn on one person.

400 and 420 are different things

Two similar numbers stand side by side, and they are easy to merge into one. 400 is the norm of one seamstress for one month. 420 is how many garments the workshop did not get across all three months of one newcomer's ramp-up.

“I did not believe in fourteen thousand per person. I went to the foreman and asked how much the new girl gave in her first month. A hundred and seventy. In the second? Two hundred and seventy. He knew those figures by heart and never once told me, because nobody ever asked him.”

What one replacement costs

The output curve is not the whole price. The workshop loses on two more things: on the mentor, who sews less, and on defects, which are higher in a newcomer. Plus those same 3 800 ₴ from the report.

Component of a replacement	Amount	A cost or forgone
Newcomer's shortfall over three months (420 × 34 ₴)	14 280 ₴	forgone
The mentor sews 60 garments fewer (60 × 34 ₴)	2 040 ₴	forgone
A newcomer's excess defects (35 garments × 122 ₴)	4 270 ₴	a cost
Search, interviews, paperwork	3 800 ₴	a cost
Total for one replacement	24 390 ₴	—

24 390 ₴ for one person against the 3 800 ₴ that stood in the report. And the main thing in this table is not the total but the third column: two rows out of four are not a cost.

Where the 4.5% of excess defects comes from

A newcomer's defect rate is 6%, an experienced seamstress's 1.5%. The excess defects are the difference between them, that is 4.5%. Take the 780 garments the newcomer sewed in three months and you get 35 garments rejected above the level the workshop is used to. Reworking one costs 122 ₴, thirty-five at 122 ₴ — 4 270 ₴. And this one is already a real cost: the fabric is cut, the time is paid for.

This figure needs labelling, because it is ambiguous. 4.5% is a newcomer's excess defects. Further down the article there will be 4.5 — the number of newcomers in the workshop. Different things, identical figures.

Sixty per cent and sixty garments

The replacement table says “60 garments”, and that has nothing in common with turnover of 60%.

60% is the share of the workshop's staff that changed over the year: 18 people out of 30. And 60 garments is how many fewer the mentor sewed during the newcomer's first month, because instead of sewing she sat beside her and showed her. Her 60 garments are also at 34 ₴ of contribution each, hence 2 040 ₴.

Why most of a replacement is not a cost but under-production

Here is the place where turnover becomes invisible. Of the 24 390 ₴ of one replacement, only 4 270 ₴ and 3 800 ₴ are money the workshop handed to somebody, and they are visible in the bank statement.

But 14 280 ₴ and 2 040 ₴ nobody handed to anybody. It is contribution that never was, because the garments never were: no such payments exist, no such invoices arrive. That is why these amounts are not in the workshop's table of costs — and they must not be added there.

A cost is visible in the till — even the simplest bookkeeping catches it. What was forgone is visible nowhere: it lives only in the comparison of fact with what could have been.

No piece rate was paid for these garments either

The objection goes like this: the garments were not there, the workshop paid no wages for them, so it lost nothing. Half of that is right — 52 ₴ for each of the 420 garments really did stay in the till. That is exactly why the calculation uses not 86 ₴ per garment but 34 ₴ of contribution: the price minus the piece rate, with the saved wages already taken into account.

And the rest of the costs saved nothing. The rent for a station is paid the same whether it yielded 400 garments or 170. Electricity, the technologist, the mentors, machine servicing — all of it the workshop keeps for thirty workstations, not for actual output.

“I argued for an hour and a half that this is not a loss. So we did not sew four hundred and twenty garments — well, we did not pay for them either. And then they asked me: did you pay the rent for that station? I did. Did you pay the technologist? I did. So the station was standing on your money and giving a hundred and seventy instead of four hundred.”

Eighteen replacements a year — 439 020 ₴

After that it only remains to multiply. One replacement is 24 390 ₴, replacements in a year 18. Together 439 020 ₴.

Of that, 257 040 ₴ is 18 × 14 280 ₴, the newcomers' pure under-production, 58.5% of the whole sum. The larger part of the price of turnover is not what the workshop paid but what it did not sew.

The workshop's month in figures

To understand the weight of 439 020 ₴, let us lay it beside the workshop's economics. Output for the month is 11 370 garments, revenue 11 370 × 86 ₴, that is 977 820 ₴. The costs look like this.

• Piece-rate pay for the seamstresses — 591 240 ₴, that is 11 370 garments at 52 ₴.
• Mentors, technologist, cutter — 118 000 ₴, salaries regardless of output.
• Workshop rent — 64 000 ₴, the same at any output.
• Electricity and machine servicing — 38 000 ₴.
• Consumables — 26 000 ₴: thread, needles, labelling, packaging.
• Recruitment — 5 700 ₴, that is 18 replacements at 3 800 ₴ spread over twelve months.
• Other — 31 000 ₴.

Together 873 940 ₴. Profit is 977 820 − 873 940 = 103 880 ₴ a month, a margin of 10.62%. Over a year that is 1 246 560 ₴, and for contract sewing the figure is normal. And now the comparison Natalia was not happy with: the 439 020 ₴ of turnover is 35.2% of the workshop's annual profit.

Why 439 020 ₴ cannot be subtracted from profit

The first reaction to such a figure is always the same: write it into the costs or take it off the profit. That must not be done — on paper the workshop would become loss-making, which it is not.

Let us take the sum apart by its components. The 3 800 ₴ per replacement already sit in the costs, in the “recruitment” line of 5 700 ₴. The 4 270 ₴ of defect rework is also already inside the costs: the fabric was bought under “consumables”, the time was paid for in the piece-rate pay. These two parts are not a new hole but the part of the existing 873 940 ₴ that did not turn into product.

But 14 280 ₴ and 2 040 ₴ are from the opposite side of the account. They are not in the costs, because nobody paid them. They sit in revenue that never arose: the 977 820 ₴ is already counted on fact, on 11 370 garments. To subtract these amounts from profit means subtracting them a second time.

What is the figure for, then? It measures not a cost but the price of a phenomenon: how much the workshop gives up every year for the fact that the larger part of its staff changes. It is of use for as long as nobody tries to write it into the report as a line.

35 garments and 35.2% — labelling each of them

Thirty-five appears twice in this article, and it is about different things. 35 garments is one newcomer's excess defects over three months, the one that gives 4 270 ₴ of rework. 35.2% is the share of the whole annual price of turnover in the workshop's annual profit, that is 439 020 ₴ against 1 246 560 ₴. The first is pieces for one person, the second a percentage for the whole workshop over a year. There is no arithmetical link between them.

There are always newcomers in the workshop: 4.5 stations out of thirty

Everything so far counted one replacement and multiplied it by 18. But there is a second turn, more important than the first.

A newcomer stays in ramp-up for three months, and there are eighteen replacements a year. Multiply 18 by 3 and divide by 12 months — you get 4.5. That is how many workstations out of thirty are at any moment occupied by people who have not yet reached the norm.

This is not an event that happens and passes but the workshop's permanent state: at 25.5 stations sit seamstresses with a norm of 400 garments, at 4.5 — people who on average yield 260.

“That finished me off more than the sum did. I thought newcomers were a problem that comes and goes. And they showed me: you have four and a half machines running at half strength all the time, just with different people at them each time.”

The workshop's ceiling is 11 370 garments, not 12 000

That is where the output is counted from. 25.5 stations at 400 garments plus 4.5 stations at 260 — that is 11 370 garments a month, and it is precisely this figure that sits in the revenue of 977 820 ₴.

But for eight years Natalia set the plan from thirty machines: 30 × 400 = 12 000. The figure looked like a norm that for some reason was never reached, and the conversation each time went back to discipline.

12 000 is unreachable not because of discipline but arithmetically: all thirty stations would have to be at the norm at the same time, and with turnover of 60% that never happens. 11 370 is not a plan but a ceiling. Setting a target above it means looking for the guilty where there are none.

“For eight years I demanded twelve thousand and for eight years I did not get it. It felt as if everybody was quietly sabotaging me. And the one doing the sabotaging was me, when I set on thirty machines a figure that is not there.”

7 560 garments — the same number from the other side

Let us check everything above by a completely different route. A workshop without turnover would yield 30 × 400 × 12 = 144 000 garments a year. In fact it yields 136 440. The difference is 7 560 garments. Multiply them by 34 ₴ of contribution: 257 040 ₴. That is exactly the sum we got by multiplying the 14 280 ₴ of under-production by 18 replacements.

Two independent calculations — through one person and through the whole workshop over a year — give one number. Under-production is visible either in the garments that are not in the client's warehouse or in the contribution that is not in the till. It is the same money from two sides.

What turnover of 20% instead of 60% gives

Zero is unreachable and not needed: people move away, change trade. But 60% is not a given of the market. Natalia costed the workshop with turnover of 20%.

Indicator	Turnover 60%	Turnover 20%
Resignations a year	18	6
Newcomers in the workshop at once	4.5	1.5
Output a month, garments	11 370	11 790
Price of turnover for a year	439 020 ₴	146 340 ₴

Six replacements instead of eighteen — and in the workshop 1.5 newcomers at once instead of 4.5. Output rises from 11 370 to 11 790 garments.

292 680 ₴ without a new machine and without a new client

The difference between 439 020 ₴ and 146 340 ₴ is 292 680 ₴ a year, that is 23.5% of the workshop's annual profit.

It is worth seeing how this money differs from any other way of earning the same amount. To add garments, one usually buys a machine, puts a person at it, looks for orders. Here nothing of the sort is needed: the stations already stand, the rent is already paid, the client already wants more.

What changed when ramp-up became a line

Natalia did three technical things. A workstation got a third state — “in ramp-up”, with the number of the month. Output began to be totted up not only in pieces but also in contribution at 34 ₴. And the plan stopped being set from the number of machines.

• The plan stopped lying. The client is promised volume from 11 370, not from 12 000, and for the first time the workshop closes its own shift target.
• Mentoring became paid work. The 60 garments the mentor did not sew are 2 040 ₴ of contribution, and a bonus for bringing a person up turned out to be cheaper.
• Defects were split by length of service. 6% in a newcomer and 1.5% in an experienced seamstress are two different figures, and now it is visible which part of the rework belongs to ramp-up and which to technology.
• The reasons for leaving stopped being hearsay. While a replacement cost 3 800 ₴, there was no point in looking into it. At 24 390 ₴ the point appeared.

None of this took new equipment, a new client or a rise in the sewing price. What it took was seeing ramp-up as a line in the cost of production, not as a human circumstance.

The takeaway for business owners. Where a person does not reach the norm straight away, turnover costs not what you paid for the hiring. It costs what your workstations did not produce while people were learning at them. The first sum is visible in the bank statement, the second nowhere — and that is exactly why it is usually the bigger one. Work out a newcomer's output curve and multiply the shortfall by the contribution of one unit — you will see how many workstations you are permanently paying the full price for at partial return. The same works in any production with learning on the job: a machine tool, a line, an installation crew, a restaurant kitchen.

Advice to finish with

• Draw a newcomer's output curve in pieces. 170, 270 and 340 against a norm of 400 — figures your foreman already knows and your report does not.
• Work out the contribution of one unit, not the price. 86 ₴ minus 52 ₴ of piece rate gives 34 ₴ — only this number may be used to multiply the shortfall.
• Multiply the shortfall across the whole ramp-up, not across the first month. 420 garments over three months give 14 280 ₴ from one person.
• Put a price on mentoring. The 60 garments the mentor did not sew are 2 040 ₴, and they disappear without a trace.
• Split defects by length of service. The difference between 6% and 1.5% on 780 garments is 35 garments of rework at 122 ₴.
• Work out how many stations in your workshop are permanently in ramp-up. 18 replacements at three months each give 4.5 stations out of 30, occupied always.
• Set the plan from the stations at the norm, not from the machines. Thirty machines and 11 370 garments are not a contradiction but a consequence of turnover of 60%.

The money does not disappear — you simply do not see it

People think that in a sewing workshop everything is decided by the seamstresses' hands and by the sewing price. In fact they decide whether the workshop works at all, not how much it earns. The earnings are decided by something else: how many workstations you pay the full price for at partial return.

This hole will not grow over on its own, and it will not show up in the bottom line — that line shows 103 880 ₴ of profit, and it shows the truth. But the moment ramp-up becomes a line with a price of its own, the main thing becomes visible: 11 370 garments is not what the workshop managed, but what it managed with 4.5 stations learning all the time. The difference between that figure and 11 790 does not require a single new machine.

How to see this in your own workshop

Everything described above rests on one kind of bookkeeping: not the payroll as a single sum, but output — by person and by month of work. While the report shows only wages and deliveries, you see neither that four and a half workstations are always in ramp-up, nor how much the workshop did not sew because of it. When the same data is collected automatically, the true price of a replacement becomes visible — which is exactly why small and medium business owners use Finmap: to see the financial picture instead of reconstructing it from memory.

Read also

• Garment Atelier: Where the Profit Hides in Every Custom Order
• The shop hour in custom furniture: the price of rework

Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It