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The Lighter Side of Pricing (Joke)

flairwoodworks's picture

For over a year, well, since I started my business, I've been burdened with the concept of pricing. I think that this is a good definition, taken from Ambrose Bierce's The Devil's Dictionary

PRICE, n. Value, plus a reasonable sum for the wear and tear of conscience in demanding it.

PS: Better not let our clients see this!

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

Huckleberry's picture

Pricing is always a mystery (post #145226, reply #1 of 24)

Pricing is always a mystery to me. It can be done by formula but usually this is not enough. I figure a price that covers materials and labor then ask a few 'consumers' what they think the price is and what they think a fair price would be.

I am always surprised at what they'll pay. They don't want to pay much for a nice (but relatively standard design) table or cabinet, yet they'll pay plenty for a unique little doodad.
people are crazy. . . .

flairwoodworks's picture

My first question would be, (post #145226, reply #3 of 24)

My first question would be, what formula do you use? I've heard of the following forumlas:
1) Materials x 3
2) Materials + labour
3) Materials + labour + overhead
4) (Materials + labour + overhead) x 2 or more
When using a formula, I most often use #4. Materials + labour + overhead, of course is how you determine cost. Take your cost and add 50-100% for profit and what you have is your wholesale price. Take your wholesale price and add on another 50-200% and you have the retail price.

What I often do is complete the formula to get me in the ballpark. Then I use my discretion to raise or lower the price based on feel.

Some less scientific pricing methods I have heard include to price it based on what everyone else is pricing similar stuff at. I don't like that, because it's not fair to compare my work to anyone elses. We work differently, have different overheads, etc. But still, that concept has given me a pat on the back for reassurance that what I am charginsg is not out of reason.

Another pricing strategy is to price it high enough that the consumer will not immediately buy it, but will have to think about it first. The price should not be so high that they just turn away. I learned that one from Joe Martin of Sherline Tools.

I'm surprised that this joke thread took a serious turn, and I'm glad it did.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

RalphBarker's picture

I like #4, too. Another (post #145226, reply #6 of 24)

I like #4, too.

Another approach is to ask five guys (or gals) who have recently gone out of business what pricing formula they used. And then, use something else. ;-)

A lot depends on the demographic of the market into which one is selling. An approach that works in one area may not work somewhere else.

ring's picture

Chris, I'd actually prefer (post #145226, reply #13 of 24)

Chris,

I'd actually prefer "Materials + Labor + Overhead + Profit Margin". But you need to develop rules of thumb to work with in any case, and that depends a lot on the type of work you typically do. Many small jobs are different than a few big ones. Packaging, delivery, and a hundred other things that can make your business unique. I'd say that after a year you should analyze your actual overhead (telephone, insurance, electric bills, etc etc) and give it a per hour cost. There are other approaches, but I think that for most small shops it's your time that is the critical factor, so I'd tie the overhead to that.

On a few very large commissions I've taken the trouble to track them meticulously - I even opened a separate bank account for one job that lasted a whole year (while other jobs were still going on). If you occasionally do this it will hone your ability to accurately gauge your ordinary expenses.

flairwoodworks's picture

David, Good to see your link (post #145226, reply #18 of 24)

David,

Good to see your link working!

For the few products I have had to ship, I have included a packaging cost in with the shipping. For local deliveries done by myself, I just factor it into the price, though I haven't quite determined what that delivery price is. I will tally up my overhead today, if I get a chance. I'm curious to see how it's changed from last year.

Out of curiousity, and you can ignore this if you wish to, how large is a large commission? I suppose that could be answered in months, $$$, or pieces. My largest that I am still working on, is a three-piece bedroom suite.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

ring's picture

You can't compare...you've (post #145226, reply #19 of 24)

You can't compare...you've just started a one-man shop, and I've got a long established shop with 6 people at work. The large commission I referred to was originally quoted at $200K and ended up at almost $250K. Even so, those are few and far between.

flairwoodworks's picture

David, No, I'm not trying to (post #145226, reply #20 of 24)

David,

No, I'm not trying to compare. Just curious. That's all.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

popawheelie's picture

I've read over at breaktime (post #145226, reply #21 of 24)

I've read over at breaktime that the bottom line you need to pay all the bills and then have profit.
If you aren't making a profit at the end of the day what are in business for?
And the costs you have are pretty high.
Do you have health insurace? Dental? Retirement?
So woodworkers don't get those things?
The only way to calculate what it costs for you to run a company and make a profit is to keep good books.
But most people don't have the discepline or mindset to do that. If you don't you will never know.

"There are three kinds of men: The one that learns by reading, the few who learn by observation and the rest of them have to pee on the electric fence for themselves."
Will Rogers
flairwoodworks's picture

There are lots of reasons to (post #145226, reply #23 of 24)

There are lots of reasons to be in business other than profit. Ever hear of a not-for-profit or non-profit business?

Health insurance and dental - I'm on my own. I may be young, but at this point, I don't anticipate retiring. Maybe cutting back. Maybe not.

Track expenses, time spent, income, taxes collected, taxes paid... and on and on and on...

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

bduffin104's picture

Chris, congratulations on (post #145226, reply #2 of 24)

Chris, congratulations on your first year in business! It's good that you can find humor in your mundane responsibilities, which we all must endure. I first opened my cabinet shop in 1974 and have operated continuously in various forms to this day, so I hope you feel I'm qualified to comment on business matters, specifically the very important issue of pricing. I once was given some sage advice from a very successful businessman "don't confuse productivity with profitability". I've seen many businesses fail because they simply didn't charge enough for their work even though they were booked solid with orders, very busy working on their eventual failure. I would rather loose a job because my price was too high than get the job because I bid it below cost. It might be helpful to do a cost analysis of a project that you've completed taking into consideration all of your expenses including labor, materials, overhead, rent, utilities ad the cost of servicing the client after the sale has been made. Don't leave anything out. You should never feel quilt for making a profit. Most clients are happy to pay for quality so charge plenty, you're worth it.

flairwoodworks's picture

Thank you for the (post #145226, reply #4 of 24)

Thank you for the congratulations and the most excellent post. My first year year flew by. Finding humour in things is something I am good at. However, pricing is anything but mundane to me. Sometimes I would rather just not be involved, but ultimately, I know that I have to do it if I want to continue. I do get wrapped up in it, unfortunately, to the point where it almost becomes all-consuming. Not good.

I have a lot of respect for anyone who has or is running a woodworking business. It ain't easy! I'm learning one thing at a time (first tax filing is creeping up). I do recognize the difference between productivity and profitability, but one thing I do struggle with is: to the consumer, what falls into which category? To answer that question, I need to know my market.

Early on, I realized that I was bidding to get every job - the ones I really wanted, and the ones I didn't want and wasn't going to make money one. I learned, slowly, that losing a job and henceforth making no money on it because I priced it too high is FAR BETTER than pricing it too low and trying to get it done for the quoted price. That means cutting costs and that is not how fine woodwork is produced. That only tarnished my image. I did that once and once only. I've learned to price the jobs that I don't want at much more than I feel they are worth (say for this example twice as much). That works twofold. If I get the job, I am being paid double to do woodwork which doesn't particularly inspire me. If I don't get the job, the client might think, "Wow, this guy's work must be top notch. Too bad we can't afford him". Or they might think that I'm trying to rip them off, but ultimately, they decided whether they go ahead with the job. I don't believe in making compromises.

One of the most usefull tools in my shop is a Count-Up Timer. I push start and it starts counting. When I finish the session, I push stop and record the hours and minutes on a project log. Before, I was just using rough numbers, and often forgetting to log them. Now, my times are very accurate. I believe the timer came from The Source (formerly Radioshack).

I have calculated overhead last year, but not recently. I suppose it's time to recalculate. And I've yet to figure out how to (or if to) charge clients for design and consulatation time.

One thing at a time...

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

oldusty's picture

Chris , Pricing things (post #145226, reply #5 of 24)

Chris ,
Pricing things you make and then try and sell is really not a great comparison to pricing a custom made piece .
My basic belief is you can charge more in general for custom then batch made items .
You hit it on the head about knowing your market be it Internet sales or local sales .Regardless of what we know a piece should fetch , current market value will often dictate the parameters .Be flexible , roll with the market .
For jobs that you don't want to do ,IMHO do not bid high , kindly pass on it , tell them you are covered up and can'meet the time line or simply tell them it is just not your cup of Tea .This will not make you sound like a high bidder , and it's a more honest approach .
regards dusty

Westchester's picture

How many of you love what you (post #145226, reply #7 of 24)

How many of you love what you do and would reflect that attitude toward pricing if you weren't hit in the head every time a bill comes in the mail.

SA

flairwoodworks's picture

Dusty, I was hoping you would (post #145226, reply #8 of 24)

Dusty,

I was hoping you would chime in here. Yes, there are a lot of jobs that I do pass on as well - mostly cabinets. I will Quote high when I know I can do it, but they want it done cheaply.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

oldusty's picture

Chris ,bduffin , All (post #145226, reply #10 of 24)

Chris ,bduffin , All

It's hard to bill separate on smallish jobs for R&D but just factor a line item (hf) hassle factor into your bid .
Me , relying on self employment income to feed my Family has made me take a new look this last year or so at the way we do business .
I had to roll back prices about 30% to try and get anything and even then it was slim . Things are looking up and I have work for a few months for the first time in a year and a half .
Something I just learned from colleagues and am applying as jobs come in .
For repeat and return clients , raise your prices to what they should be , do not discount a client who already Loves you , they are not getting any other bids , when you work for the right people and on the right kind of jobs we need to charge what we are worth `and what the job is worth .
Yes , after 27 years in business I have been humbled beyond a shadow of a doubt the lowest financially and emotionally point in my life .
We hung tight and have done many things to survive , we are still here .
Marketing is more important now then 25 years ago , your web skills are of true value and greatly admired .
got to put my Steak on the grill
d

bduffin104's picture

This is a very interesting (post #145226, reply #9 of 24)

This is a very interesting thread.
.
I agree with not highballing a bid that you don't want. Just tell them you don't want it and why. People respect honesty.
.
I found it interesting that you weren't sure whether to charge for design time. What I've discovered is that people are willing to pay the most for design time. If I have a client that wants design/build then I separate the job into two phases, design and then execution. That way you get paid for your design time whether you build anything or not.
.
I've tried to uncomplicate things at this point in my career. I no longer have any employees, which is a huge weight lifted off my shoulders with the downside being that I have to clean up after myself. The other thing is, I don't bid anything anymore, strictly time and materials.
.
Good, Fast, Cheap. I tell some clients to pick any two, you can't have all three.
.
I worked today installing cabinets in an office. I like working weekends, you can charge more. Not real glamorous work but now I can afford to buy some wood and build something fun.
.
Some people like to specialize. I totally respect and admire craftspeople that are really good at something in particular. I've, on the other hand, have always specialized in versatility which seems to keep me in demand. This has made me really good at a lot of different things, but not nesessarily a superstar at any one particular thing.

flairwoodworks's picture

Regarding pricing for design, (post #145226, reply #11 of 24)

Regarding pricing for design, I guess my dilemma is "how". When designing, I like to let ideas "percolate". I will think about how I will build something while I am laying in bed, eating breakfast, on my way to work... the whole day long. Very little time is spent actually doing just that one task - designing. Maybe a flat rate, if I could come up with a number, would be a better approach.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

bduffin104's picture

I understand. I am not a (post #145226, reply #12 of 24)

I understand. I am not a spontaneous designer. It takes awhile for my ideas to formulate. I've never charged for thinking about a design only for actual time spent drawing plans, meeting with the client discussing design or research time directly related to the project. I usually set the terms of the design fees with the client prior to doing any drawings. I don't always get paid for the design. Sometimes I will present a drawing to a client as a sales tool or to provide a competitive edge.

sapwood's picture

One approach is to allow a (post #145226, reply #14 of 24)

One approach is to allow a certain amount of time per day as your thinking overhead. During this time you are pondering the current design project but also you're working out specific details on the work that is actually on the bench. So, everybody (all clients) benefit and thus all get to pay. This cost gets added into your overhead calculation.

Then, only your actual time spent preparing drawings, making models, researching materials, etc are tallied for the design fee. This fee is charged to the client whether or not you get the job. When you do get the job, the thinking overhead is factored in.

flairwoodworks's picture

Thanks for the idea. I just (post #145226, reply #16 of 24)

Thanks for the idea. I just might try that. Would you suggest a flat design fee, or time how long it takes to draw designs for each product?

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

wotnow's picture

Hi Chris Congrats on your (post #145226, reply #15 of 24)

Hi Chris
Congrats on your first anniversary, hope things keep looking up for you. I know you have to keep body and soul together but when you can combine immense job satisfaction as well, it's a big bonus and helps when things don't pan out sometimes.
Re design, often the client has some pretty definite ideas and the job is half done, just refinement and an explanation occasionally as to why something is technically impossible. I had three basic charges for design depending on the size or difficulty, ie small medium or large and then charged your basic #4.
My father was a builder/cabinet maker and he had a couple of basic tenets, 'A good laborer is always worthy of his hire' and 'that if you want something that's good, for nothing, that's usually what you will get, something that's good for nothing'.
Usually with custom work there is a big labor content for something that you can really be proud of and the customer is pleased with. Don't be afraid to tell them the hours required to give a quality product and ask them what hourly rate they charge for their labor.

wot

I started out with nothing...and I still have most of it left!
flairwoodworks's picture

Wot, Thank you, and things (post #145226, reply #17 of 24)

Wot,

Thank you, and things are looking pretty good right now, work-wise. When I first started my business, a friend of mine who runs a small shop told me that he would be scared s***less if he were starting a business now. From my point of view this was the best time for me because things could only get better. I've learned a lot this past year and realized some things that I need to improve on. I certainly don't have any regrets starting up the business though.

I don't know if it's just my luck or what, but most of my clients have put their trust in me and allowed me a good deal of freedom in the design and construction. Some jobs, I have drawn plans and got them approved, then built the piece. Other times, I have been given the basic dimensions and it's function and built the project from that and delivered the finished product to them without them ever having seen it. Everybody, including myself, has been thrilled with the end results. I have not shied away from telling the client how many hours were required to produce the quality product.

I like those two sayings. I really believe the first one. The second one holds some truth, but is amusing too.

Thanks for making me think about this!

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer

SgianDubh's picture

Chris, quite a number of (post #145226, reply #22 of 24)

Chris, quite a number of people have told me they found this PDF article of mine on estimating useful. It's nearly 4 MB so takes a bit of time downloading if you're on dial up. It may, or may not suit your type of business, but the method I use and describe, which has evolved a bit over time, has suited me for many a long year now.

I have a way of charging for design work as well, but that's not discussed in the article I've pointed you to. Slainte.

flairwoodworks's picture

Richard, I've read your (post #145226, reply #24 of 24)

Richard,

I've read your article before, and I will again. It is excellent, and it gave me a good idea of where to start with estimates. Thank you for writing that.

Chris @ www.flairwoodworks.com
and http://flairwoodworks.wordpress.com

 - Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful. - Albert Schweitzer