Pricing

[jtpryan]

I am thinking of supplementing my income a bit with my woodworking, if it seems to work out it might prove to be a source of income in retirement (if THAT ever happens...). Anyway, how do you guys figure your pricing on things? For example, I just finished making the end grain cutting board which is figured to be a 4 hour project with material cost of $42. I realize I will never get what my time gets me in my profession (IT), but I figured about $150 is a fair price. After making it I can see ways to cut down my time considerably if I make more then one at once, but it wouldn't be as interesting.

On a larger scale I just finished a kitchen island recently:

http://jtpryan.smugmug.com/Woodworking/Kitchen-Island/14555892_Tk27gd

The cost to me was in the $2000 range (top was $1000, concrete) and I have no idea the hours.

Anyway, your thoughts are appreciated.

-Jim

[CessnaPilotBarry]

Simple... You need to know your true cost to produce something. This is total hourly costs + materials + profit.

Costs include your fixed overhead per hour, labor, and variable costs.

Fixed overhead = workspace costs ((rent / mortgage), utilities, taxes, fees, insurance, etc... / by hours available to work), equipment payments, and anything else that you need to to business and is paid on a regular schedule. I include things like heat and electricity as "fixed" costs, as they usually don't vary as much as people guess. These are the bills you will pay even if you produce nothing. The space may still need basic heat, alarm coverage, utility service, the property taxes need to be paid, etc...

Labor = Everyone needs to be paid, even the solo warrior. This category includes hourly salaries, employment taxes, benefits (sick / vacation / insurance / retirement plan) Include setup and cleanup time, as well as design and estimating time, in your labor calculations. It has to be done, right?

Variable hourly costs = costs that only exist when you are making widgets. This is all consumables, glues, basic finishing needs, disposable items, paper towels, tape, abrasives, biscuits... You can also put a stipend in here to cover monthly machine maintenance, professional sharpening, etc... This will vary from tool to tool, but will also usually average out to a relatively constant cost per hour of work.

Materials = all project specific materials, INCLUDING WASTE. If you're making a lot of one item, you can go all beancounter and add many of the consumables to this are, instead of under variable costs. From the start, all related waste must be costed into an item. As you get better at making a specific item, depending on materials, waste may or may not reduce. If it does, you have the choice of higher profit or a lower selling price. Either way, it's there at the beginning and needs to be paid for. The bottom line is that you will never use 100% of a hardwood board, and some species can have a staggering waste percentage.

Profit = This is NOT salary. This is what's gained over and above all costs, and can be rolled back into the business or paid to the owner as a dividend.

All that said... Here's the hard part...

Once you know what all of your costs are, and add a decent profit... Can you sell the item at a price someone is willing to pay? If not, go back and find every opportunity to reduce costs in all categories. Look again, can you sell it? If you are including a minimum salary, as well as a minimal profit, and all unneccesary costs are removed, you need to find something else to make.

If you can sell it, and it sells well, raise the price until demand falls.

From a pure business perspective, the best time to raise prices is when you have too much work. If you don't have enough work, and the costs / profits have been lowered to minimums, it isn't worth making.

The bottom line is that you cannot decide what is the minimum amount an item can sell for unless you have a clear vision of what it really costs to make.

In closing, don't forget taxes. Lots of folks screw themselves by thinking they're making more money by working under the table. Remember, you only pay taxes on profit removed from the business and salary, not on what the customer actually pays for the item. If you're TRYING to make a profit, and deducting legitmately, you are entitled to take a loss. Situation dependent, this can even reduce what you owe on your day job, or married spouse's income taxes.

[CessnaPilotBarry]

One more thought... Different, so I'll add another message.

Anyone who is planning to charge for work should keep a basic time log. Mine is simply a printable page made in Excel, with a header and a few columns.

Header:

Project Name / Customer Name / Page __ of __

Misc Notes

Columns:

Date / Work Description / Hours / Proj Total

I log times in 1/4 hour increments, including set up, sharpening touch ups, and clean up time. Typical entries might look like this:

11/30/10 / Select and purchase materials at CWG / 2.00 / 2.00

12/01/10 / Select and rough out all parts / 2.50 / 4.50

12/01/10 / Mill stock and glue up (6) door panels / 2.00 / 6.50

It comes in handy in the future. I do it on paper, because I kept forgetting to keep spreadsheets up to date. The "TIME BOOK" is a loose leaf binder, right on top of my hand tool cabinet. When a project is finished, I staple the pages and move the lot to the back of the book.

[jimmykx250]

I agree with Barry 100% but my labor number includes fixed overhead and variable costs as well. I mark up my materials 15 to 20% and that does not include time and lobor to pick them up. You will soon find it's tough to fit in that profit number or atleast a decent one and still be able to sell a product. One of the wood talk online episodes Mark stated that he could only sell a cutting board for 75 bucks tops so you can do the math from there. It's really a tough market to sell custom furniture- it's one thing to do it and make the occasional sell and nice buck on the side but full time I dont know how some of these guys stay in business. People (atleast the majority) just dont seem to want to pay for custom stuff anymore. I know the econmy has alot to do with it.

[dwacker]

Pricing is difficult and there is so much competition. If you are working on stuff after your day job and on weekends your not going to be able to recover your time. A weekend business is a disorganized business. You get right in the middle of something and your on a roll and you have to go back to your real job on Monday. This really slows a job down to well below acceptable productivity. Secondly when you do custom furniture its a whole different world than custom cabinets and casework. People that order a custom end table expect to pay big money and if they dont there are plenty of stores that will sell for less. Your competition is not furniture stores, with respect to custom furniture you dont have any competition and the price is the price so take it or leave it. One off's cost more they require prototyping and development. Your customer needs to pay for the fact that they want a one of a kind piece. Having a line of custom furniture that you can build quickly and that you have already prototyped and made templates for is where the profit comes in. For example I do Maloof type end tables on a regular basis and demand $1400 each for most domestic woods costing me less than $5bf. I can do a pair of these in two days 4 hours each day which includes hand picking the materials. I tell the customer 14 days this gives me 5 days to apply the finish and 7 days for them to cure fully most of the time its just sitting but the customer doesn't need to know that. Right now I'm doing a pair of Honduran Mahogany and while im at it a pair for my daughter and a pair in walnut for inventory. Doing six at one time doesn't take alot more time than doing two so the walnut ones will just have more profit. The Honduran mahogany ones cost quite abit more to make so the price jumps way up for the customer nearly $300 each higher. Why, well because its Honduran mahogany plain and simple and the customer should expect to pay alot more than say african which really isnt even mahogany. Even though $300 is way more than the cost difference its just the fact that if you want something special you should expect to have to pay for it.

Case work that is a different story. You have loads of competition and you need to watch every penny and Kw of electricity. When it comes to stuff like cutting boards thats more arts and crafts than custom woodworking. Id say build as many as you want and get what you can but dont expect to make any real money, just have fun with it.

Don

[Southwood]

I will say this much on cutting boards. A hard maple and cherry, I can't get $30 for around my area. I can go to the next bigger town and sell them all day long for 45 and up. Location is a lot of it. Any more I just give cutting boards away as gifts. I made a shaker style cabinet awhile back and threw in a cutting board.

[schu777]

For this next year to raise funds for MS Bike Ride, I'm thinking of building Marc's Cutting board as in Video 7 - yet I also don't know the pricing amount.

One point should be in consideration is the size of the cutting board. Southwood mentions price, but didn't mention the size of the board. Of course I could assume the same size as what Marc created.

Michael

[Southwood]

Mine is real close to Marc's in size. Cutting board, that is.