MADMAX22, I used the cutout for the plug, but dumb me, I turned everything upside down to fit the inlay over the plug in the cutout and kept trimming. Too Much! Beast of a knife is correct......it is a Case Commemorative, 9 1/4 inch blade, 2 inches tall.
I just got my machine a couple of weeks ago (Cobra Class 4). The only change I have made from the factory settings was backing off the upper tension 5 complete revolutions. I get some impressions in the surface of the leather from the presser foot, so I think I need to back off some on it too. I'll have to experiment with that. This is my first machine and was my first try at sewing a project with it.
katsass, I did the same procedure as you described, but added another backing same size as the front (top piece) to keep the blade from cutting the stitches holding the inlay and it's backing to the front (top piece). I stitched the inlay with plug and backing to the front (top piece) first, then added the full size backing which is stitched with the front, welt and back. Hope this explanation makes sense.
I have been hand stitching, but finally bit the bullet as they say! I have wanted a machine for years (I started leatherworking in 1965 while in the USAF). Most of the stuff I used to do was laced. See old photo of an archery target quiver below.