#28: How do you price your work?

Many woodworkers dream of making the jump from hobbyist to professional, but they have no idea of how to price their work. Others just want to build an occasional piece for sale and not lose their shirts in the bargain. And, of course, professionals had better have their pricing formulas figured out, because their livelihood is at stake. The topic recently was recently raised on WoodCentral.com when a visitor asked for advice, and he got plenty of it…

“It’s best to not reveal your labor rate and materials charges to clients. Nor should you ever tell them what you charge per hour or how many hours it will take to do a job. If you give them too much information, they can nitpick and make your life difficult. As to how long a job will take, I’ll say that my current work schedule indicates a deposit now will ensure delivery by such and such a date, and that I operate on a first-come, first-served basis. Don’t forget to factor in vehicle costs and your time sourcing materials on the phone and picking them up. You need to charge a markup on your cost that covers your workshop overhead. I find it best to reveal as little as possible and sell the whole package: you, your reputation, your business acumen, and the end product. Also don’t be surprised if your time estimate is 30% or 50% less than is really required to do the job. People new to estimating furniture tend to be too optimistic about their abilities.”

*99% of the time, you will not be selling to lower income people, as they will buy manufactured and mass-produced products for far less than you can sell the same items and make ANY profit.”

“Most people equate the price with the quality that they think they will receive. This is usually true, since the craftsman does not have to cut corners or rush the job to make an honest living. Underbidding may actually lose you jobs for the type of clientele you desire. I was one of the highest priced contractors in my area and had all the work I could schedule. I did not, and would not, cut corners or price, on material or labor. I gave honest lead times and completed 95% or more of the jobs on time. I have gone back to a job-three years after it was done-when customers had problems (at no charge), even if it wasn’t my work at fault. This way, anyone that wanted to talk to any of my former clients, or look at any of my jobs, were welcome to do so. People will complain once about price, but forever about quality. If you do top-quality work, they may even brag about what it cost, as well as your high quality.”

“Price, quality, service. You can only have two! If you’ve gone to the trouble of making a model, the service is there. So, you have to ask yourself if you want a reputation for quality or price.”

“Most hobbyists, who turn professional, undercharge, because they are not thinking of overhead cost.”

“Your shop rate per hour is probably at least three times what you need to take home. Use the real rate multiplied by a realistic estimate of the hours involved. Don’t forget to include your cardboard mock-up, design time, freight, time spent picking up those materials, and delivery and installation. True, you may find that the price sounds high, but that’s okay: it is the real price. If you consistently fail to get the price you need, you will be out of business in very short order.”

“It takes years to build (literally) a body of work. Without a portfolio that proves you’re capable of what you say you’re worth, you have to discount your pay. It’s a long row to hoe, and you’ll need to develop your own style. You are competing with Walmart and such, when you’re building low-priced furniture, and the sooner you get out of that league, the sooner you can make some money. But to July-August, 2004 get out of that league, you have to develop the skills and knowledge. Offer a firm price and contract, not an estimate; you’re supposed to bloody well know how much it will cost to build something. Offer two or three materials options to give them cheaper alternatives, if you feel it’s necessary. Commit to a price, stick to it, and deliver it on time. Communicate often with the client.”

“Custom work is all about convincing the client that they should spend your price. They need to know what makes your work better than the other guy who proposes to do it for half the price. Of course, you’d better really know why! Then, all you have to do is communicate it.”

“If you want to make a living wage, you need to learn to be efficient enough to earn it. Someone with a good deal of experience can likely produce work several times faster than someone just starting out.”

“It all comes down to one thing: charge enough to cover your labor, your overhead, and your profit. Profit isn’t a dirty word. It’s really a scorecard for how well you do your business. If you get everything done on time and budget, there should be a percentage left over. Your profits are what you need to grow your business, add new machines, etc.”

“A lot of people build their indirect overhead (the day-to-day expenses of running the business-utilities, taxes, insurance, depreciation, rent, repairs, general supplies, etc.) into their labor rate. Don’t forget to include income taxes, self-employment taxes and medical insurance. These usually total about 30% over your base labor rate.”

“When you estimate your labor, begin with a detailed analysis of every step so you don’t miss anything, but then cross check your estimate from a different perspective. If you estimate the sum total of the operations at 80 hours and the job ties up your shop for 3 weeks, you’ve just lost a week of labor and overhead.”

“Figure direct overhead items-materials and specific expenses unique to that job-in your estimate, and add a percentage on for your trouble in procuring all that stuff. Be sure you allow for some extra materials in case you run short or screw something up. And, price delivery and installation separately, based on the number of man-days and travel expense it will take to complete the installation. Remember, you can’t win ’em all, but you don’t want to chalk too many of ’em up to experience.”

“I am in a service business, and a simple rule for pricing applies: Charge what the market is willing to pay. How do you know? Keep raising your prices until you start to lose business because of price. Either stay there, or back off a bit.”

*Figure your material costs and add about 15-20% for waste to the lumber, figure full sheets for plywood, even if you only use half, and add a small percent to the final figure for things you forgot to include, such as glue, screws, stain and finish. I hesitate to just double or triple costs.”

“We are custom builders and designers, so don’t forget to mention quality workmanship. Try to find something to offer them the factory will not.”

“I’ve learned to bite my tongue and smile when someone says, “I can buy something similar at the furniture store. If I can’t make them understand that my work will be far superior in design and quality, we are wasting each others time. We have a saying in Oklahoma:”Never argue with a pig; you get dirty, and the pig enjoys it.”

“If you have a reputation for quality, the customer may pay almost anything for your work. If you have made several projects for them before, and are likely to again, it might be worth lowering your price a bit to keep their business.”

“My stuff is impossible to price until it’s done. I can guess pretty closely, but I’m short as often as I’m long on production times. It works out well at the end of the year, so I know it’s working.”

“If they can get it cheaper over there…send em’over there… politely. You have to be willing to let them walk away.”

“When a customer says, ‘I saw this in a catalogue. Can you beat this price?’ my answer is ‘NO! I will not compete with production shops. The customer is essentially requesting that I make a clone of someone else’s production design by hand for less money, and that I cannot do.”

“A craftsman should have a degree of pride, but not to the point that it takes food off of the table.”

“A lot has been said about semi-pros pricing the pros out of business. I counter with the free-market argument. If I am willing to put something together and sell it for a price that does not provide a living wage, so be it. I don’t need that level of income for my hobby. If one were to price their work as some have suggested, only the rich would be able to afford work of any quality.””

“I sell my work to friends and family only. I price it such that my volume stays where I want it to be, and my customers get something they might not otherwise afford. They buy the materials, and I get to play for free!”

“If I don’t want to do it, I figure out a profitable price and then triple it. Then, if they still want it, I will gladly make it.”

“I take my best guess as to how many weeks that it will take to build a piece, multiply by my weekly desired pay, then add in double or triple what the materials will cost, so I have a good selection of stock to select from, total it up, look at my backlog and the desirability of the project, and make adjustments accordingly. If it’s a really exciting project, I’ll discount it (never telling the client); if it’s a drag, I’ll price myself out of the market.

“Mine is an incredibly imprecise pricing formula based upon years of experience, but it requires little time. It’s largely instinctual. I usually work up my prices in my mind as I’m making sawdust on another project.”

“I have many luxuries in pricing that I didn’t have in years past, because of backlogs and reputation. It’s a tough row to hoe, but I’d do it all again is a flash…I’m not fit for anything else.”

“I think the real goal is to identify your own product/service and see where it fits in the market. I need to convince the customer that the value of that service is worth much more than what they would pay for a retail store purchase.”

And finally, Steve Strickland, a professional puzzle maker and regular WoodCentral visitor, described his well thought-out system:

“I started off by charging in the middle of my competition’s price range. I was losing money doing this, so I kept improving productivity and reducing spoilage, until I started making a small profit. Once my reputation was established, I worked towards wholesale at a small profit. For retail, I doubled the wholesale price. I had to make a lot of adjustments, and it took me about two years to get this two-tier pricing right.

I kept careful records of all the work and used the statistics to create an estimating chart. There’s enough history that this actually works pretty well. I know how long it takes to do many common tasks. This allows me to give hard quotes and deadlines.

To determine what hourly rate to use in my quotes, I figure all overhead costs, including taxes, utilities, insurance, supplies, repairs, wages, capital investment, marketing, depreciation and maintenance, etc. I then break it down into cost per square foot and assign a square footage to each work station.

Now, I know what it costs to maintain each work space and that gives me an hourly rate for each task. I use 60% efficiency to get the final number. Any work that exceeds 60% efficiency is pure profit because all overhead is already paid for at 60%.

I call this pricing system Unit Cost Control. It works pretty well. It’s a real pain to get it all set-up and requires a lot of time to gather the statistics you need. However, once it’s in place, it’s extremely easy to maintain using QuickBooks and is very accurate.

I never, ever, tell a client what costs or hourly rates are. I only give ’em the sale price. I’m also at the stage where I completely ignore my competition. I have not done any price comparisons in several years, and I do not compete on price.

My products are all unique originals not available anywhere else. I have global exclusive rights to almost everything I build. This does not apply to all woodworkers, so my system may not be appropriate for other types of woodworker pricing. Hopefully, it might give you some new ideas for calculating sales prices under your circumstances.”

What are your thoughts on this? Add your comments below!

#28: July/August 2004