Forgetting the Sandpaper

[WoodlandRenovations]

Hello,

Me and my wife are starting to do some commission jobs on the side on the last few we have sat down and really crunched the numbers or so we thought. What we have been forgetting to add is the small things glue, brads, sandpaper, or even putting those hours on the tools that wear them down so on and so on. Just wanted to know how everyone else is going about it? Thanks in advanced.

David

[Pete Staehling]

I usually don't try to hard to get my costs documented down to a precise number on individual jobs.  I figure that if my pricing is tight enough for that to be critical I am working on too small of a mark up.

I don't ignore those costs.  I just don't try to keep track of what they are for each project with any level of precision.  On the other hand I occasionally roughly do the math to have an idea of how much of a factor all of the incidental stuff is in general.  I then keep that in mind when pricing.

If I was keeping itemized cost lists for each project, all of that stuff would be just one line item, and probably a percentage of the whole job.

[Chuck Melton]

While I've never made a dollar woodworking (and I'm unlikely to ever do so), I do spend a fair bit of time talking to people about business process. First, decide whether you want to be a businessman or an artist. Your pricing structure is going to vary greatly based upon that decision.

If you're an artist, ask yourself how much it's worth to you. Find a number that makes you happy and write it in beautiful flowing script on a hand made price tag.

If it's a business you're going to have to think in terms of how this stuff would show up on a P&L. You obviously have the Cost of Goods Sold (labor and materials), the tricky part is the Expenses (consumables, tools, rent, electricity, insurance...)

Typically you'd deduct all of your COGS from your accrued revenue for a period to determine a gross profit, and then deduct your expenses to get to net profit. Your margins may vary, but a professional services business (which I think is a good analog for woodworking) that's putting out a 45% gross profit is going to be doing ok if they net around 15% (note that his assumes you are paying yourself a fair wage under COGS).

You'll need to scale some of your expenses for the amount of work you are doing, but I think it's fairly reasonable to count the entire cost of consumables into the expenses of your mini P&L.

Oversimplified Example :

In a month you produce 2 shaker end tables for which you spend $180 on materials, and you put in 12 hours of shop time. If you are paying yourself $25/hours (which is probably too low) you've sunk $480 into just being able to sell the table. At this point you aren't keeping the lights on and the rent paid. $50 is probably a token payment to yourself for rent and electricity. Maybe you spend another $50 on Titebond, sandpaper, etc. You're now at 480 for your COGS and $100 for expenses.

In our oversimplified example, you will need to put $670 ($335 per table) in to the top line in order to net out a 15% profit. Realistically, your expenses are going to be greater so you should be selling the tables for $400 each to get to a 40% gross profit.

If you're not paying yourself, you're cheating yourself.

If you're absorbing all the costs, you're cheating yourself.

If you're underpricing something for a friend, it's a gift and make sure they understand that.

 

 

Edited October 22, 2015 by Chuck Melton

[Llama]

I am not a pro as I do not do this as my sole source of income... I do take on commissions, and this is how I do things...

I have a simple pricing structure.

Material cost + (hourly rate x hours) = Base Price

Base price x shop rate = Client price (shop rate is a percentage, and is the same on all builds)

For an example, small numbers it's early

MC $100 + (hr $25x2 hours) = $150 bp

$150 bp x 120% sr = $180 client price 

These are not my numbers, but an example to keep the math simple.

There are certain things that are charged differently.

Also, a common sense check is always in order. If your formula has you selling a piece at let's say $500, and you find out that others are selling it for $200 something is off. If you are asking for $500 and others are selling for $1200, then something is also off.

I do not have a cost associated with marketing and such, if you do adjust accordingly.

The things people mess up on the most is hourly rate and how long it will take them to make it. 

 

[Coop]

Ok, then for me to build a small box:

MC - $20 + ( hr. $25 x 16 hrs.) = $420 bp.

Looks like I need to find a source for cheaper material ?

[rodger.]

I keep it simple as well - i simply charge an hourly rate plus materials.  My rate includes consumables, clean up, etc

I do like mels approach though.

Edited October 25, 2015 by Pug