Over the last few years of running this website and doing my show, I have been asked one question repeatedly: “Why don’t you ever shave?” And a close second to that question is: “How do you price your work?” I am more than happy to share my method with everyone, with the understanding that I am NOT a business consultant. I don’t claim to know what’s best. I only know what worked for me. And like all things in woodworking, there are many “correct” ways to get the job done. So after reading this, I hope you’ll share your own pricing strategies in the comments section below.
Pricing can be done in many ways. And no, taking 2X or 3X the material cost is not good enough. Wood can vary in price from $1/bf to $50/bf, so you can see how that system falls apart quickly. But for many hobbyists who are selling pieces to family and friends, with no real concern for profit, that system is better than nothing. But as a business, pricing based solely on material cost is incredibly inaccurate and it isn’t really fair to you or your clients. My pricing strategy, like many things in my life, is based on the K.I.S.S theory: Keep It Simple Stupid! As a one man shop, a simple and flexible system is just what I need. But if you are pricing jobs as a full-scale cabinet shop, you will need to streamline things and come up with some sort of linear foot pricing strategy that includes all of your overhead (something I know nothing about).
If you are a hobbyist selling projects on the side, I still recommend learning how to price accurately, and then making the “common sense adjustment”, as I like to call it. If you are building for family, friends, or the church, you are probably not going for maximum profit. But you will at least have an idea of how much of a “discount” you are giving these folks. Plus, you’d be surprised at how helpful pricing the job can be in keeping the project organized on the whole.
Every bid starts with materials, and I have two methods for estimating how much wood I will need for a given project. The quick and dirty method involves getting an approximate total board foot count for the entire project and adding 20% as a buffer for waste, error and selectivity. Then I head to the lumber yard and pick up the material based on that calculation. The risks you run here are being stuck with less than ideal stock and possibly having to make a second trip to get more wood. So this one could very well bite you in the butt!
The second, and more accurate method is to sketch out the project completely and generate a rough cut list ahead of time. Realistically, you need to do this to build the project anyway. So why not use it to estimate your materials? Now you’ll know exactly how many board you need and you can even pick out specific boards for specific parts when you are at the lumber yard. This is by far the better method and your projects will look better as a result. But it does take more time and effort. I may also buy one or two extra boards, just in case I screw something up. But for the most part, there is no reason to purchase an additional 20% stock, because you are buying exactly what you need. One thing to keep in mind is that this method also requires patient lumber yard workers. Some yards will NOT let you dig through a pile to pick the perfect boards.
Regardless of which method you choose, both will yield a materials cost. I usually take that number and add 10% to cover any miscellaneous costs: extra boards, gas money, your time at the lumber yard, etc.
Now comes the hard (and most important) part: estimating your time. I suggest breaking the project down into separate parts to create a workflow. For example, a simple cabinet could be broken down into 8 sections: cutting carcass and door parts, joinery for the case, assembly of the case, joinery for the door, assembly of the door, edge treatments, finishing, and hardware installation. Now look at those tasks and estimate how much time you expect each activity to take (being honest with yourself). You’ll get better at this over time, but if you are anything like me, you will always underestimate. Clearly, I am under the illusion that I am much faster than I truly am!
The final thing to consider is your hourly rate. How much money do you want to make? Alas…..if it were only that simple! I used to have a stated shop rate of $50/hr. But every time I would price out a job, I would get to that final number and realize there was no way the client would accept the bid, so I would make “the common sense adjustment”. Eventually, I realized that one of two things had to happen: I either needed to work faster, or I had to lower my hourly rate. $35-$40/hr turned out to be a much more appropriate number. With the pace I work, $50/hr was just wishful thinking. One other thing to keep in mind is that this number is also where the overhead costs live. Electricity, rags, and sharpening services have to be paid for somehow. But since these are part of every job, I factor them into my hourly rate.
To sum up, here is my simple formula: materials cost (+10%) + (hourly rate x project hours)
56 Responses to “Pricing Your Work”
When quoting a job, how much of the detail is specified first? Does a customer ever refuse to pay for a finished project?
For me, the amount of detail varied depending on the project and the client. Essentially, more detail = less chance of a miscommunication. But I don’t really go all out in terms of full sketches and renderings before I have a signed agreement and a check. That stuff is just way too time consuming to do for a simple estimate. So its important to figure out a system that gives the client all the info they need to make an informed decision about you and your work, without sinking too much time into the process. Now once a check is in hand, its all about eliminating areas for miscommunication. So before I ever cut any wood, I make sure all the details are ironed out and signed off. And I will even send the client an occasional “in-process” photo so they can alert me to any issues as the project progresses.
In general, I would take 50% up front, and 50% upon delivery. That would give me enough to cover my materials and at least part of my labor. And I can say that fortunately, I never had a customer refuse the finished product. But if they ever did, at least I had the 50% initial payment AND the piece of furniture. :)
At this point in my “career” as a woodworker, I’m just looking to pay for material costs, period. My thinking is that if my stuff is “priced to sell” then I’ve been able to practice the craft, learning and improving along the way (hopefully) without going broke in the process. I cover my costs and, essentially, get to practice “for free”. Not a great long-term business model, but what the heck, I’m retired… carpe diem and all that…
rgdaniel,
I would say it is the perfect long term business model if you measure your profit in skill and knowlege gains.
Those of us that are not feeding our families with our skill need to be careful that we don’t undercut those who need the job to live. This is something I have struggled with over the years as it was just a hobby after the full time job. Now that I am laid off and old it is taking on a different issue. I hope to be able to make enough money to pay for my efforts. Do I have a final answer no, but I as I look at http://www.ETSY.com I see people way underpriced.
My thoughts
Jim
That is a nice write up.
What worked for getting your business started? Did you run adds, did you get any financial backing from any investors to help with the start up coasts, Or did you just start out small and let word of mouth help you and slowly build up from there.
Word of mouth, local networking, business cards and a website. That’s all I ever did. I don’t think we ever dropped a dime on “real” advertising. Oh yeah, I also had nice lettering put on my truck. You’d be surprised how much business that brought in.
Word of mouth, local networking, business cards and a website also helped me alot. My site is simply a showcase of the kind of work that I do and helps to describe my stuff. Explaining what a woodburn is or what a scoll is is kind of hard. I tried lettering on my car, but has not help in a huge way, but it does make me look more professional as does my “Project Woodworks Staff” t-shirt.
nice article. One of the hardest things to do is price your work, not matter what product you sell. I always like hearing how people price there work. I think even if we are not selling our stuff, being able to put a value on whatever we make helps us grow. It is a practice that we should all use.
Yeah yeah yeah, but why don’t you ever shave? :)
Just kiddin’. This is enlightening, thank you!
Maybe Marc should bump that hourly rate up just a tad to account for razors. :)
Thanks for sharing the business side of things with us Marc. It is truly insightful to me.
I ended up building a giant LED stopwatch/timer for my shop. Everything gets timed (pulling lumber, cutting, stacking, assembly, etc). Since my stuff is repeatable (I make the same door over and over, for example), I only need to do the timings once.
This super-detailed method allowed me to accurately price products. As a side effect, it also clearly highlighted the bottlenecks. I end up buying tools that will save me time, since time is my biggest variable. I might love to get that new table saw, but I’ll save more time if I buy that HVLP sprayer.
My materials markup is higher (in the 30% range). It takes a surprising amount of time to drive to the lumber yard, pick good boards, load up the car, bring it home, stack it, etc. The larger markup also gives me a bigger buffer before I have to raise prices (my lumber costs recently went up 5%).
Ron,
do you have plans for that stop watch you built?… would you be willing to email/share them/
Happy New Year
Regards,
Patrick Melchior
pmelchman@gmail.com
At this point, I am not selling any of my work for profit. I usually just keep track of materials cost and then get reimbursed in the end. Then again, I am only doing this as a hobby. It usually comes down to somebody (friend or family member) seeing something that I have made for my wife or for myself, and then asking if I can do something similar for them. I enjoy the craft, so I am willing to do it as long as I have the skills to complete the project and they are willing to cover the cost of materials.
I have this feeling that if I started doing this for profit, I would lose a wonderful hobby. I could be wrong.
Marc – thanks, perfectly timed article as usual.
I would add that it’s important to then track your hours as you go through the project to start building a database of actual times. By comparing your initial estimate to actuals, you will quickly get better at estimating.
You talked about the “common sense adjustment†from the client’s point of view (“there was no way the client would accept the bid”). I find it useful to also apply a common sense adjustment from my own point of view.
Sometimes, a “fair price” for the work isn’t worth it for me, and as rgdaniel said, sometimes I’m happy to do the work for less than the “fair price”. Depends on what the work is and what else is going on.
I picture doing the work, whether it will be frustrating or fun (or both!), and what I’ll have to give up to do the work (other jobs, missed events, time away from family, etc). Then I imagine making a lot of money for the job, so my reaction is “I really hope I get that job – that would be great!” Then I imagine a lower amount, where I think, “I don’t want to do that, it’s just not worth it.” I go back and forth until I find my own “break-even” point – any lower than that and I’d rather not have the job. That’s my lower limit, regardless of what the equation says.
Another way to find the lower limit, is to think… If I said X and I lost the bid because someone came in lower, would I think, “I should have bid lower” or would I think “if they can make it for that price, more power to them. I can’t do it at that price.”
again, move X around until you discover your bottom price.
I have found that charging more for family then friends is easier, because friends don’t come and say hey can you do this for me and expect a dirt cheap price. I too am doing this as a hobby and am not to concerned about it as a business. I have had family say that I should do it as a business since I have been laid off. If I did that it would take all the fun out of it for me, plus my wife say’s that I’m to slow. I have always wondered how some people come up with the price for their product. It is nice to hear how succesful people do things so the average person can get an idea of what all goes into the final number.
Thanks
I know what you mean Tex. I was forced to leave an engineering job I enjoyed due to lack of work, but was able to land a gig with a construction company. I enjoy woodworking and toy with the notion of pursuing that, but the fear of not making enough money (because I’m slow or is it cautious) prevents me.
I use a very similar method, I typically charge time and materials. At the yard where I buy my lumber, most of the hardwoods comes in 10 ft lengths. I calculate my materials based on this 10ft length and a sketch of my cut sheet laid out on 10 ft sections. At the yard I can be sure that the boards I select will fit my design with no questions.
I always leave the stacked lumber in better shape than when I begin picking through it. This has afforded me the opportunity to dig through 500 bd ft of walnut when I only need 50. I always add 20% to allow for the cost of gas, taxes and my time picking through the lumber. You could also include this process in your hourly quote.
-Sam
This method makes a lot of sense, but I find that a lot of people are shocked at how much a project can cost. I am going to go through this method with my students, I teach High School Woodshop, and maybe this will give them the motivation to account for the time they’ve spent on projects as well as price the ones they choose to sell. Chip makes a good point in that some jobs are simply not worth what people are willing to pay for the finished items.
What do you think is a fair hourly rate for a student in a class to charge?
Nice post Marc. This is roughly in the neighborhood of where my limited amount of projects have fallen and it seems to work well.
I will say that keeping very detailed records of time spent helps to keep you focused as well. When I first started, I tended to blow a lot of time doing non-productive things, but that has changed now that I keep up with time spent better.
Thanks again.
I am a pyrographic (wood burner) and scroll artist. I have to admit that pricing is one of the most difficult aspects of running my business, Project Woodworks. When I first started, I often compared my woodwork to “box-store†pieces. I mainly do award type plaques that I would price closely to bolt-together plaques that a company could make in an hour or so. They would use premade emblems and brass plates and simply attach to a fancy piece of MDF painted and edged to mimic wood. It finally dawned on me that my time, skill and artistry ware worth value and I actually doubled my prices. Ironically, my sales doubled too. This boosted my confidence and I now I don’t worry about charging higher prices for my work. Adding cost added value. I still get a gasp response to my prices on occasion, and I have actually denied work due to price restrictions on their end. It is really empowering to deny work because I know that my skill and my work are worth more than some are willing to pay.
Thanks Christopher. I was just wondering how one would compete with “box store” products and prices, but you nailed it. The prices are different because the products are different, even if they look similar. Glad to hear that your higher prices didn’t drive customers away.
Actually, I did lose some of my customers, but honestly, it wasn’t a huge loss. I realized that some of the ones who walked away didn’t value my work. They just wanted a quick fix for their problem. I just happened to the the sucker who stepped in to help. A little older and now, much wiser, I have changed how I view my time and work.
I have a custom shop. I build mostly one ups, even thought they might look similar to another project, They’re all different because they’re built to fit. I’ll get people who need a cabinet door replace, one door. But they can’t find it anywhere, because they don’t make it anymore. Then they explode when I say it may cost up to $250 for one door. They ask why. I may need to get a specific piece of wood, or I don’t have the type of cutter that I need, or I might need to buy a gallon of stain or finish to match the door. They want a custom job for a box store price. Oh yeah, and they want it today. If you have to match something, it could take a lot of time and money to do.
Even as a custom shop I cannot make the same exact cabinet as a box store for the same price. They make hundreds of them on a production line, in a foreign country. I tell people I will make it better, but it will be more. This will weed out the people who are just looking for something cheaper. The ones who want quality will put you to the challenge.
I too am a hobbyist and get people asking what I would charge to make them a similar piece. It did with the end grain cutting boards.
I bought Cutlist Plus and it helps a lot to figure out how to charge and it also helps with layout.
Your system is very much like the one I use. I do most of my woodworking on the side but have been fortunate to sell quite a bit of it. A couple of things I would add are that over time as my skills and quality have improved I have been able increase my hourly rate. Just as in any profession where experience and productivity reflect compensation, you should do the same for yourself. This obviously would have it’s limits (your common sense factor) since there are limits to what people will accept. The other thing is, don’t sell yourself short. I used to barely break even on some projects because I was worried I was charging too much. I started realizing this mistake when the client would be surprised at what a good deal they were getting. Be fair to your customer but also to yourself.
+1. Well said!
I’ve heard of dealers that won’t let customers look through stacks of wood. They won’t be getting any of my business, that’s for sure. No way am I buying wood I can’t select myself. If most customers maintain the same attitude, they’ll change their tune or go belly-up.
I’m willing to compromise for mail order hardwood. But I would quickly cease dealing with a company who sent me lousy product.
Well, usually those dealers are the ones that deal with big ticket clients and they just “tolerate” the hobbyists and small-shop pros. They probably wouldn’t miss us if we never went back, :).
I disagree on that Marc. The small operation of today could be a much larger customer tomorrow. Besides, if they annoy someone who they consider “small potatoes” and not worth the effort, who’s to say they didn’t just do that to some major contractor’s kid or brother or sister? I know of such instances and the businesses in question either went out of business or just about did because some big contract was cancelled.
A customer is a customer and they should all be treated with respect no matter how much volume they generate.
‘nough said. Thanks for letting me rant ;^)
John
Oh I totally agree with you John. By no means was that me expressing an opinion. More like me sharing an observation of what I’ve seen out there. The kind of place I’m talking about has big flat beds in the yard getting loaded up with the big orders, and then I come along asking for 15 board feet of walnut. Feeling “tolerated” is about the best way I can describe the feeling. It could very well be to their detriment. I guess they feel comfortable because they have the big contracts. But like you said, that may not last forever.
Check out this website for Pricing your work. Works great.
http://bridgewooddesign.com/estimator/index.htm
That is pretty slick! Great tool.
Really neat tool.
Marc,
By day I estimate and project manage commercial roofing projects. While we are a big enough firm with a total of about 40 employees, here is our formula. I realize that it’s probably overkill for a one man work shop, but knowing what I do about our estimating, I suspect you’re underestimating your overhead. Here’s our formula:
Materials + Labor + Overhead = Subtotal + Profit = Price
Materials is pretty straight forward. It is the actual cost of all the things will need for the job plus the GOK (God Only Knows), which we usually make 5%.
Labor is the number of hours x the hourly rate(in our case, this is each man’s take home hourly rate + the cost of their benefits and other compensation).
Overhead is the total annual cost of our overhead expenses divided my the number of man hours our crews work in a year. We then take that hourly overhead cost and multiply it by the estimated number of man hours in a job.
While our overhead is certainly much more than yours, our company operated for almost 10 years before we finally broke down and calculated it. We were shocked by how high it was and how much we were underestimating it before. Now we re-calculate it every year.
Finally, don’t forget that these costs are real. You deserve them and don’t need to give them back to your client, even if they ask nicely. If you give them back, you lose money on the job.
Now, remember that projects take a long time to make and go price something! Then go build it!
I completely agree with this method. I have a 2-3 man shop and we have to keep time of each operation in order to stop “guestimating” and start estimating! Knowing how much time you’ll be spending on a job is one of the hardest thing to figure out and keeping a record of your shop hours on different tasks is the key. Also, knowing what your overhead is will assure you that you can be profitable and not undecharging just to have work come trough your doors. If you’re going to loose money, don’t bother. Stick to your guns on your price and be convincing about your quality, that’s what I’ve learned the hard way.
Thanks for the post Marc
Well, I don’t sell my woodworking (not yet, maybe never) but I do sell my “time” as a marketing consultant. Here’s a few thought about pricing your work.
1. You can start from costs (your time x some hourly rate + all hard costs like lumber and hardware) and add a profit margin. This is how aerospace does it, as well as lots of construction projects.
2. You can base the price on “value” which for Krenov or Nakashima was more than for J. Browne . Art is often priced this way.
3. You can compare to the competition. In WWing, compare to factory-made pieces for the low end and similar custom pieces (maybe at a gallery) for the high end. Decide where in-between the two you fit.
In my (non-woodworking) work, I price things mostly just two ways, assuming that there are no hard costs (usually it’s just my time)l. For “squishy” projects like web sites–where it’s hard to build a realistic statement of work on the front end (I know, it shouldn’t be but trust me, it is)–I’ll pick an amount that answers the following question positively: “Would I be satisfied getting that much money for that project?” At that point, I sort of have a feel for how much work it is but not precisely. so I know it can vary a bit. The point is, I think it’s an ok fee to get paid for the end result.
The client knows up front what the cost is, so there’s no problem with overruns. This style works really well with repetitive projects that are all unique. ok that sounds weird. For example, creating a print ad. some of them will go fast, some of them I’ll spend a lot of time on. Charging the client different amounts for essentially the same thing (from their viewpoint) doesn’t make sense. So I pick a number that I’m happy with, hope they’re happy with it, and use it every time.
The second way is just an hourly rate, usually with some kind of estimate or cap for the client. This model probably doesn’t map well to woodworking.
One last thought about pricing. I learned this from someone else. “The price is the price.” If someone doesn’t want to pay it, don’t just immediately offer them a discount. Instead, offer to change the scope of theproject to reduce the overall cost, maybe by substituting less expensive wood, making the project smaller, cheaper hardware, etc.
Ok, one more thought: unless you’re occasionally losing a sale because your price is too high, you’re probably leaving money on the table. You want a little pushback by some customers or it could be you’re undervaluing your work, a common scenario I see in service businesses.
I’m not a professional woodworker but I’ll offer this approach.
1) Determine your desired annual income say $80K.
2) Divide by the number of weeks you plan to work say 50=$1600 per week.
3) Divide by 40 hours per week= $40 per hour.
Now you know what you have to realize on each of the 40 hours you spend in the shop each week. Each job you accept will consume some of the 40 hours and that must factor into your estimate for that job. Include the time for driving and picking the lumber but not the gas.
The job estimate will now include the time for the project times $40/Hr + materials x 1.2 + shop expense (glue, finish, rags, saw blades, sharpening, electricity, insurance, rent, filters, etc.) + equipment replacement cost (at the rate of a whole new shop every 5 years). The shop expense and equipment replacement need to be attached to projects in a way that you will certainly recover those expenses in full after five years – maybe labor hours, maybe absolute number of projects per year, maybe just eyeballing each project.
Any single project can be priced at below your standard rate if you have no other project to work on because you will still capture more than the material cost. If you have less than 40 hours of work per week, you could also choose to speculate on a popular project like an entertainment center. That way the time is put in before a customer is found but the time is not lost forever.
Two cents with one cent left over,
Jim
Good points Jim. Especially, accounting for new tools/shop every 5 years. Anything that may break or loses productivity over time should be added. I know a CPA that has a client that depreciates dairy cows over the course of 10 years! It wouldn’t hurt to get a good CPA either.
Only one commission under my belt. Not interested in making a business of this. BUT I would like to take on projects for special people if their “needs” suit my interest in creative and technique exploration and expression. Been doing this for three years so every project has big learning curve for me.
In my graphics life pricing was a big deal and also a big mystery and as Marc points out. In any seminar situation that is the #1 question asked. Flat rates per brochure or logo don’t work as each is a custom item (and custom customer, some easy to please, some impossible).
Talked to my 2nd potential commission person today. Not to price talk yet. As a serious hobbyist, I’d expect to do materials cost plus some fee high enough to make me excited to do the project. I mean I can think of all kinds of cool things on my own. So I’d not want to price it so low that I resent not being able to play on my projects.
I’ll price it as an artist rather than alternative to IKEA or Ethan Allen. Setting a high enough price then makes me want to give ‘em more than they expected. Be it quality, features, special attention.
If one plans to do fair amount of FOR HIRE work even as working hobby it is not a bad idea to keep a log of your time even when doing fixed price. That gives you good feedback to know how you work. Of course you will be disappointed when you realize that you made $2/hour and ruined an expensive saw blade in the process.
When estimating time for work consider how you work. Not how quickly you should do something. Never happens that way. Another way to be realistic is not to decide how long it takes you to mark and make three cuts. Consider when you stopped working on project A and when you took up project C. That five-minute project B in between really took 30 minutes out of your work day. Amazing. Don’t give it away.
My other big tip is the very ancient wisdom. The price you get establishes the value of your work in others mind. I like people to value my work. Doing a good job and charging $20 for a small job will get you more $20 work. Charging $100 will get you more $100 jobs. As graphics person I did lots of pro bono work for my designer clients’ favorite charities as long as they valued (and paid for) my work. Charities approaching me directly I would charge something (even if highly discounted) just to establish that my work had value and I tried to tightly define what they got for that price. When totally free it is difficult to charge for beyond the call work after the fact. And doing beyond the call work free did not make me feel good.
Many approaches to pricing. Select what feels good to you. If you are trying to grow a business and especially if you have employees and overhead then you have to get serious about it. You want to win bids, but be willing to let some go. As someone posted above, if you are winning all the bids you are probably working yourself into the poor house.
rock on
I started as a home remodeler (inside and out) which has led into cabinet making, furniture refrinishing etc. Before that all started I was in the corporate world designing interactive databases.
I have written a database – using FileMaker Pro – which allows me to quicking assemble a proposal pulling from a material list (capturing pricing – including markup). It also allows me to set up a task procedure (entering the time for each part of the process) factoring the hrly rate for each task – if it be the same or different. In the end it allows me to enter actual numbers for the material costs and the time for each task.
In the beginning a proposal that was based on $40/hr could come out at $30. This allowed me to make changes to my process or my hrly rate. As I use this for a business it also allows me to be consistant – customers will talk.
I’m a hobbiest with a small shop,sold a few pieces and can’t justify charging 40 dollars or more per hour,(not that I’m not worth it)But when it takes me twice as long to say plane a board as someone with an industrial planer.So I think I should price my work compared to someone else and eat the labor loss untill I can purchase better equipment.I do have good hobby equipment,Delta,dewalt,ridgid,porta cable and a 12′ Oliver jointer,my only true industrial piece.So I guess I’ll put in more hours and be happy if I make a profit and put away $ for future upgrades.
Thanks for the great write-up Marc. As a freelance consultant, I’ll throw in my 2 cents on this one also. This online tool is useful for determining what your hourly rate should be, though it’s not set up specifically for woodworkers.
http://freelanceswitch.com/rates/
It’s not really set up for materials cost, but at least it will provide another point of view.
Good article. The only change to the formula that I have is (materials + 15%) + (Hourly Rate).
For those of you who are iPhone users, I use a great app at work to track my time. It’s call Hours Tracker. I assign my hourly rate to each job I do. In this case, I might assign different values to each different process, i.e., finish work, roughing, etc. The main thing is it’s easy to clock in and out and you can export a cvg file directly to your email and convert to an excel file for easy billing.
Hi Big M!
I’m just starting my own business (that’s only an alias ;) and I’ve put my business phrase in my card: “Common sense applied”.
Totally agree with your aproach! Thank U for this guideline!
The bottom line is*: After doing this fast evaluation (before SketchUpping your work) do you use the APIP method (Adjust price in progress)?
In my experience on software development ALWAYS there’s an error on calculation, ALWAYS You are on-sale (at least You are Michael Hurwitz or Microsoft)
Thank You for being THE one-man-band on woodworking and show me there’s a success story on that aproach! Thank You for taking the Norm legacy and put the reality on it! U are the fraking Master Shifu!
*: That’s your “…there is no more important safety rule than to wear these — safety glasses.” ^_^
Hi Marc and everyone. Love all the points of view especially since I’ll be going full time in my woodworking in about 4 years. For now I’m accumulating EVERYTHING needed to make a go of it when I switch to full time. The main thing though that I feel is missing in all of the comments(but it was mentioned a bit) is that when you are making a project for someone the end thing they are buying most of all is YOU! They are not so much buying a piece of furniture as they are buying YOU! I’m a LC-MS pastor who is doing woodworking (for now) on the side. Back in the mid 1990′s I quit being a pastor for a while and sold Thrivant insurance for a while–It’s for Lutherans. I quickly sold much more insurance than people that had been in the business for 20 years, because my clients knew I was a pastor and they could trust me. The insurance I sold was not any different from anyone else’s. They wouldn’t buying the insurance they were buying me.
So I think that should be a big factor in selling your projects. When they look at the piece of furniture you made them sitting in their house what they bought wasn’t a piece a furniture it was their trust in you, it was a relationship with you, and not the price. With that in mind don’t be afraid to charge what you know your worth–not what you think the furniture is worth.
Hi Thomas,
Thank You for your contribution! Only a couple of disambiguations:
Buy vs. Have: I always think as a client and I buy regardless the seller; I think all your selling tecniques and experience make a start, a base for personal research and evaluation before buying anything. I put my possible errors in the equation, but I count on them in my SECOND BUY (if there’s any). And I can ‘buy’ someone but I have a piece of furniture, only that (with features and errors)…
I know there’s a lot of effort, I+D, sensibility, synthesis ability that could be charge on the piece of furniture or project that You are selling, but that’s precisely the hour ratio!
Maybe it’s ONLY about hour ratio. I mean: You can use any method suitable for You about material cost and deviations, and the hours-of-project (my personal and shared weakness, but mainly a GTD problem to solve dividing into meaningful units); but the hour ratio indicates the overall skills and vision of the worker!
Mine is maybe 15-25 $/hour at this time as Marks is 35-40 $/hour (50 in a perfect world :)
As an apprentice in woodworking I prefer to call it “The Brainful Surviving Equation”, the minimum to keep on working with passion solving all your collateral spend.
Thank You!
Nice article! I’ll add a couple comments from years of (non-woodworking) pricing experience:
For work like woodworking, where you are essentially selling TIME, then it’s a huge benefit to you to have a full schedule. That means two things: A) you would ideally have work scheduled far out into the future s(o that you could move immediately from project, you can buy materials in bulk, perform work in bulk, and you can better schedule key tools and assets) and B) you’d have a mix of projects sufficient to fill up your day (e.g. while the finish is drying on project x, you could work on project y)
There are a couple other ideas which you also need to assume are “true” to understand my suggestions below. The first idea is that “people buy more of things that are cheaper.” I think we all understand this intuitively, but sometimes we forget it when pricing.
The second idea is a little more complicated. Basically, it stems from the idea that we’re all paying for heat, lights, tool costs, etc, but what we really sell is TIME. Now, what that means is that if there’s time available that no one buys, it is simply 100% lost money–and you never get it back. So.. if you have nothing to do, then working for even $1/hour increases your profits. Read that last sentence again: it’s certainly true, but a lot of people have trouble accepting it.
Take these two ideas together, and what this essentially means is that you should NOT stick to your standard pricing formulae if work is slow. Don’t stick to your rates on principle if you’ve got open time on your schedule.
What I’ve learned over the years is that you can influence a lot of client behavior through pricing. For example, a customer that is price sensitive can “earn” a discount by allowing you to schedule the project into the future–during your slowest time. Similarly, a small project which dovetails nicely with what’s currently in process might also “earn” a discount by allowing you to best use your tools, space, and materials.
As you get busier, your rates rise OR you start to schedule work further and further out into the future because clients want the discount. The result? A steady stream of work at good solid rates. It’s self throttling; as you get busier and busier, clients will either need to pay higher rates or wait longer for their work. Some will walk away (sales go down), slowing your work down or shortening your scheduling horizon so that the next customers who walk in will see lower rates or shorter turnaround (sales go up).
I know this all sounds a little weird, but it’s the real deal.
Note that you probably ALREADY believe that the reverse is true: rushed jobs get a surcharge, as do jobs which bring the rest of your shop to a standstill. My suggestion is that you apply those same incentives in reverse, as outlined above, to ensure that you always have a full schedule of work….
So… in the system I’m proposing, how do you set your prices? Easy: calculate your cost plus some basic margin for risk (say 15%); that’s as low as you can go—it’s your “floor.” Now, mark the price up as high as you can, and push the schedule as far into the future as you can. That might be $1 above cost, delivered tomorrow, if your shop is slow. That might be 3000% markup and yearlong wait if you’re busy. Or you might be Maloof, with 10 years of orders on wait for prices many times material cost. Customers who can’t wait or can’t pay will go elsewhere, but your shop will be left with a steady stream of work with good margins. It depends entirely on how much TIME you have available to sell.
Make sense?
–Thiel
OK, folks, this (David Thiel’s comment) is the real deal. We can determine hourly expenses, but the reality is that the largest chunk of our expenses are monthly (fixed). We just calculate an hourly expense to enable us to do the math. [If you have many employees this shifts, but many woodworkers are solo enterprises.] Even for larger enterprises, David offers some solid food for thought. The closer your product is standardized the more you risk undercutting your price, but much of our product is custom or semi-custom.
The charged hourly rates also have to assume full (or an assumed) work load. Often it is better to look at it as Contribution to Break Even then beyond that, your Profit. If your monthly expenses are $5,000 then a $3,000 project gets you 60% of the way there. If that project takes you the full month you have problems. But if you aren’t working, maybe losing less if preferable to being $5,000 in the hole.
If I have my $5,000 covered for the month, then a $1,000 project is gravy (or cushion for slow months) if I can do it in the allocated month. You don’t have to make full “hourly” rate for it to pay off.
Many variations to this way of pricing, but think about it. Sometimes we get caught up in the detail numbers, budgets and all that and forget the big picture or strategy to success.
Hey, David, by any chance do you have Santa Barbara connections? Name seems familiar.
rock on everyone
tom buhl
Tom,
Thanks for the comment. I probably should have mentioned that when you go about calculating cost, it should be fully “loaded” with the fixed costs of your business. I think that’s probably intuitive, but if you have a larger shop/staff it’s also helpful if you load it proportionately according to the people/resources applied to the projects you do; this helps you optimize utilization of people and equipment that much more effectively. I used to load it all the way down to the specifics of vacation time and health benefits costs for each individual employee.
Also, if you have brokers or sales reps out there, this model allows you to really hone in on incentive compensation. You can now commission your reps based on “how high above floor” or “how far forward” they sell/schedule the work. This also gives them a lot more clarify to negotiate since they know what the floor cost is…
If you want a crash course in this sort of thing, there’s a book I’d recommend:
http://www.amazon.com/Goal-Pro.....038;sr=8-1
It’s an easy read even if you have no business experience at all. (It’s actually written like a novel).
–David
PS: There are quite a few “David Thiel”s out there, but I’m none of the ones you’ve heard of. There’s also a very famous silicon valley venture guy named Thiel, and I’m not him either :-)
Very helpful comments on many of the posts. I’m also a hobbiest mostly selling to friends and family. I usually do a cost plus small profit; however, I’ve discovered that when quoting a final price that giving a range variable not to exceed a certain dollar amount works very well. I think I can make this for between $400 and $500. My customer is usually happy with anything less than the $500. This stragedy allows for me to make some mistakes in my calculations but assures the product will be delivered for not more than the $500.
- Dave
No matter what method you use to price a job it all comes down to two questions.
1. Will I make a reasonable profit after expenses that compensates my labor and capital investment?
2. Will the customer pay that price?
The biggest problem we face is finding items in that the market pays a price that answers yes to question #1.
Our material, overhead and labor costs in the USA just about prices us out of the global market. You have to find a niche in order to make a living.
I haven’t sold anything yet, but I often wondered how I would price something. I am just starting out and really only made one thing. A cabinet for a non profit special needs daycare. They bought the wood and I donated my time. One thing I realized though is that customer service will go a long long way in improving a business. No matter the product. You gotta love a business that makes you feel important or good about being there in the first place.
David Thiel is correct that we are selling time and as a residential and commercial contractor what he says is going in the right direction. We have to remember though that the vast majority of our business without question will be repeat or from referrals. That means our clients must be happy with the price, time-line, quality, and communication throughout the project. Happy customers = more customers. Now as far as pricing strategy goes you have to remember repeat and referrals. Lets say you price yourself low and that person refers you or wants something else what kind of price do you think is expected? You have to watch and make sure you don’t categorize yourself as being the person who does great work for cheap or you’ll end up with clients who expect exactly that. Now that’s not to say I don’t keep a sharp pencil when times are slow and I’m bidding against other contractors, but it’s a small margin. I find when you under price yourself you will resent what your doing. The factors that I find play the biggest part in your pricing will be your customer base, your quality, your work load, and your efficiency.