Pricing projects for customers

[Zack Snowy]

I am making a project that the design calls for one and a half sheets of plywood. Now, plywood being around $80 a sheet what do you charge the customer for 1.5 sheets because that's what the customer is getting or 2 sheets because thats how much it costs you. It could be the difference between a $200 dollar price or a $240. I am doing small projects for friends and family so I don't use plywood that often, so there are very few chances to use the left over plywood. So what do you guys do?

[..Kev]

Tough call!  If you have use for the other half, then just charge for what's needed for the project.  If you don't have use for the other half, then charge for both sheets but, offer them the extra half sheet at delivery.  They will probably refuse the extra half sheet but, at least they know that you're honest and offering them what they paid for. 

[rodger.]

This is a popular topic, and is always difficult to answer.

If the item is a gift, then it solves all the pricing problems!

[TRBaker]

Don't sweat the small stuff. Your family and friends don't want you to take a bath on the project. Charge them the extra forty and leave it at that.

[Freddie]

Your price point should always cover materials. If you can't purchase just a half sheet of ply, then you can't charge only half, you get stuck with the balance. If you try to be a nice guy, it will be bad for your business. 

[T-astragal]

Don't charge for either sheet. Just give a price that covers all of your costs, some overhead and profit. Your time is a cost too. Your customers don't need to see behind the curtain.

In my business I charge about double the COGS which includes labor. By the time overhead, note payments, and taxes are paid there is very little left over. So don't try to have a razor thin margin. It's just too easy to lose money anyway.

Steve

[jimmykx250]

I have the same problem in the steel industry but we charge them for what ever we have to by at a marked up rate. Depending on who it is you may want to include transportation to/from the wood store.

[Eric.]

I'd charge them for more than the cost of the two sheets.  You also have to go pick it up, which costs you in gas and time.  Costs are passed to the buyer.  When you buy a box of screws at Home Depot, you're paying for more than the screws...you're also paying for the cost that HD pays for getting the screws shipped to them, the cost of the HD employee who helps you find the screws, the cost that HD factors into the price for theft, loss, damage, etc.  The point is, YOUR cost for two sheets of plywood is NOT your customer's price for two sheets of plywood.  Costs are passed to the buyer...that's econ 101.  Follow the rule or your margins suffer and you go out of business, or you work yourself to death just to break even.

 

That said, I think what you charge for the materials is secondary to what you charge for your labor.  This is where you make your money.  Building one-off custom furniture is very time-consuming and requires skill.  Charge for it!  I don't commission pieces because I know it would ruin my hobby.  But if I did, I wouldn't even consider a job that paid less than what I could make per hour doing anything else that I'm capable of doing.  If you make $50 an hour at work, charge at least $50.  If you make $25, charge at least $25.  Otherwise, it's not worth your time.  Tell them thanks but no thanks...if you don't want to pay for my top-quality craftsmanship, I suggest you take a look at IKEA.  You could be building something for yourself, or at worst, sitting at work and making $50 an hour.

 

Take this economics fact as an example: Say you're in retail, and you're making 30% margin on a particular product.  If you drop your prices by 10%, you have to do TWICE the volume to make up for that loss.  But if you RAISE your prices by 10%, you can LOSE a FOURTH of your sales and still make the SAME amount.  It's not a perfect analogy because numbers are different when most of the cost of a product is in labor.  But it's a good thing to remember when giving estimates.  Price higher and you may not get as many jobs...but you can still make the same amount of money with a LOT less work.

[Ozwald]

the cost of the HD employee who helps you find the screws

 

Don't you mean the HD employee who ... can't find the screws, can't find the screw aisle, isn't sure what a screw is, gets lost taking you to the screws, or is just plain screwy (take your pick)

 

All in all I couldn't have said it better myself.  I have to remind myself all the time that the customer isn't a wood geek.  Give them too much info & you overwhelm them.  Tell them the basics & answer any subsequent questions.  We're not car mechanics; it's highly unlikely they're going to want to see (or care) how the price breaks down.  It's something you should know, obviously, but it's not information I pass along with the product.

[PeteJr]

Charge for the full 2 sheets and get into the habit of covering all material costs all the time.

[pghmyn]

When I charge for friends and family, I always charge just a little more than cost of materials. Or if you want to look at it this way, every bit of money I spent on the project. Including wood, gas to get the wood, finish, hardware, etc. If I buy a full sheet of plywood and only use half I charge for the whole thing and have the left overs for another project that I probably use on them anyway (and no later cost, of course). I explain where the money goes, and they fully understand.

I have saved about a few hundred or possibly even thousands of dollars for my friends and family by building things for them. I use it as a free learning experience for new processes and joinery techniques since I don't pay for any of the wood myself. We both win!

[Beechwood Chip]

+1 on all of the above.

 

Then there's my ask enough so that you'll be really happy that you got the job, but not so much that if you don't get the job, you'll think, "Doh!  I should have asked less."

[Eric.]

I got the impression from Zack's post that he is building the piece in question for a customer, not friends or family.  I think he was saying that the projects he usually builds for friends and family don't require plywood, so he's afraid the half sheet may go to waste.  So I'm addressing his question as if he's building for average Joe customer.  If he's building for friends or family then it doesn't really matter...you're doing a favor either way so it's just a matter of how nice you're going to be.

 

I have to add that the thought of a half sheet of ply going to waste is pretty much unfathomable.  I'm ALWAYS wishing I had a half sheet for this or that, instead of having to go buy a full sheet to just build a jig or the bottom for this box or the back of that cabinet, etc.  If you have no immediate use for it, store it flat somewhere with the rest of your lumber...you'll need it eventually.

[CessnaPilotBarry]

When doing anything where I'm paid time and materials, I always round up to a full unit available for purchase.  The customer is more than welcome to keep the scraps, but I'm not interested in storing or keeping track of a scrap inventory.

 

This is common in most any business working via T&M.   Try ordering 1/2 a bundle of roofing shingles or siding, or 1/2 a box or floor tile, or 1/2 a box of hardwood flooring...

 

This wouldn't apply to something like a custom piece of furniture, small box, etc...   I don't price those based on material, but to what I think the market value of the item should be, not time and materials.  If the market value doesn't make me happy, I don't build it to offer for sale.

[dwacker]

I am making a project that the design calls for one and a half sheets of plywood. Now, plywood being around $80 a sheet what do you charge the customer for 1.5 sheets because that's what the customer is getting or 2 sheets because thats how much it costs you. It could be the difference between a $200 dollar price or a $240. I am doing small projects for friends and family so I don't use plywood that often, so there are very few chances to use the left over plywood. So what do you guys do?

Zack,

The left over half sheet is waste which is part of your total COGS for the current project. It does not matter what happens to the waste. It could go into the burn pile or get used on another project. It never gets calculated again even if used in another project boosting profit in that project. The customer pays for all waste.

[Zack Snowy]

Thanks for the responses guys, seems like you are all generally on the same page. 

[krtwood]

Well, I'm not on that page.  If I make a jewelry box and I use a 6"x10" piece of plywood for the bottom am I going to go around charging as if it used a full sheet?  I cut 2' off a 14' tiger maple board and I charge for the entire board?  That's insane.  When you've got as much leftover as what you used in the project you can hardly call it waste.

[Tpt life]

Krt, you are really talking apples and oranges here. I get your point and it is valid, but the replies here were based off an OP project of a 1.5 sheets of plywood size. Standard practice in pro shops is to charge as recommended. This is just like a builder who does not credit for the half sticks of framing that are unused at the end of a build. They are calculated as waste. If your commissioned piece is a tiny box that requires minimal product you may "buy back" the waste, but without another commission you are eating that cost or building on spec. Lots of guys will build on spec but no business will last eating that amount of waste cost. This is the tricky part of business and many of us just happen to have enough material for a jewelry box leftover from other projects making the situation you propose a touch on the unique side and oriented toward beginning shops. It is also important to distinguish between a half sheet of ply and a 12 foot board of curly maple. Certainly credit the 12 foot value because when you get hungry, it will sell even just as a board.

[wtnhighlander]

You guys get paid?!?!?

[krtwood]

We all have different definitions of waste.  A builder who buys a truckload of lumber to build a whole house or the guy building a whole kitchen's worth of cabinets is going to see things differently than the guy building one bookcase.  I almost exclusively make smaller stuff that I can ship UPS so I'm basically never going to the yard to buy the materials for one item, but it might be a full load of my truck going into many copies of that one item.  The materials I buy go into inventory and the materials I use come out of inventory.  When I get plywood I usually have them cut it in half for me so I can get it in the basement shop by myself without having to cut it in the driveway myself, so I'd be happy to take any waste half sheets of plywood people need to get rid of

[dwacker]

We all have different definitions of waste.  A builder who buys a truckload of lumber to build a whole house or the guy building a whole kitchen's worth of cabinets is going to see things differently than the guy building one bookcase.  I almost exclusively make smaller stuff that I can ship UPS so I'm basically never going to the yard to buy the materials for one item, but it might be a full load of my truck going into many copies of that one item.  The materials I buy go into inventory and the materials I use come out of inventory.  When I get plywood I usually have them cut it in half for me so I can get it in the basement shop by myself without having to cut it in the driveway myself, so I'd be happy to take any waste half sheets of plywood people need to get rid of

 

If you're not calculating it you're throwing money away. With case work generally you have a 20-25% waste calculation. So as far as the OP goes his 1/2 sheet goes would be calculated as waste out of 2 sheets irregardless and is nearly on the money industry standard. Even with your methodology if I wanted 100 BF of 4/4 maple inventory I would have to buy 125 BF to net 100 BF. It doesn't matter if its wood, glue or finish its going to have a waste factor. 

Industry standard for your example of cutting 2ft off a 14ft stick would be to add .5 ft which would be 25% waste to their share of the the stick whether you actually use it or not. Reason being is there may be a knot half way up that forces you to make a cut that causes you to take that loss.

Customers always pay for waste even if there is none. It will balance out in the long run and trust me it won't be in your favor.

[mikem]

Along the same lines you pay for a 2"x4" board, but only get 1.5"x3.5" of it.

[krtwood]

I don't generally use a cost-plus pricing model so I'm not very hung up on the exact about of materials going into a given project.

 

I would feel differently if the project was going to require 5 sheets of plywood and the cutoffs left over would total up to a half sheet or whatever if you pieced them together.  That's my idea of factoring in for waste.  When you have a completely usable half sheet that's just not waste to me.

[Ozwald]

For the OP, I completely agree with what's been said before, in this particular case the customer pays for the waste.  When you're talking smaller projects it's a whole different ball game.  As a turner who sells things that fit in one of the 3 USPS flat rate boxes I too look at things completely different.  I buy my stock to keep in house, long 1 1/2" turning blanks for the most part.  I calculate the cost per inch & multiply it by 5 or 7 (the two sized blanks I start with).  Now the end product from a 5" blank is not going to be 5" long/tall, but when I calculate wood cost, along with glue, sandpaper, hardware, shop fee, etc, they pay for the 5 inch blank.  Conveniently I can quarter that same stock into pen blanks when I'm making those.  I calculated out 1/4 of a 7" blank, found the most expensive of any of the woods & charge the same across the board.  If a pen actually took 7" of quartered stock, I'd be breaking even, but since most are just under 5" (& some less) they're paying for waste.  It'd be ridiculous to make 3 of the same pen kits in 3 different woods & charge 12.37, 12.49 & 11.93 for them.  They're $13.  Done.

 

Small items are a completely different type of work.  One major difference is that most people making small items aren't doing quotes & buying the stock for a specific project - you'd get killed on shipping/gas money.  If I was making boxes from plywood, like your example, I'd have a couple sheets in stock.  I'd calculate the cost per square inch, figure out what the project needs, add ~25% for the unknown & add that as the wood cost with all the other costs.  It's not practical to quote small projects & then buy, just as it's not practical to buy several thousand b.f. just to have any wood in stock that the customer might ask for, for large projects.  We're talking the difference between a McDonald's & a hotdog cart.

 

Quick edit:  All in all, regardless of size you still have to know what's going into your projects.  If the customer isn't paying for that, you are.  I may not be holding a business degree, but it's not hard to see you're not staying in business that way.  If the project is larger than a piece of stock, you just have to know the price of that stock.  If you're getting multiple pieces out of a piece of stock, you'd better know how to break down the total price into a workable figure & know that price.

[Beechwood Chip]

I don't think anyone has mentioned "opportunity cost".  I haven't studied business, but as I understand it "opportunity cost" is the cost of missed opportunities, usually from not having enough cash to take advantage of them.  If you buy a sheet of plywood and use half immediately, and later use the other half, then you've had cash tied up in that half sheet of plywood for the time that it has spent in your shop waiting to be used.  That was cash that couldn't be used for something else during that time, so there's an opportunity cost. 

 

One half sheet of plywood isn't going to kill you, but if you have too much money tied up in stuff you can't immediately sell, you may end up not being able to pay your bills.