A question for you pros out there who charge what your work is worth.
Do you find that you can maintain a customer base that will foot the bill for high margin commisions fairly easily, or do you really have to walk the fine line on the ragged edge of profitability to keep orders coming in?
I’m getting ready go semi-pro, and I’m stressing over what margin to figure into my products. I have another business, and I know how to work it (sometimes), but 400-500 customers per day is a whole different thing then the 1 or 2 I’m aiming for per month with the wood working. I know my product is unique, high quality, and desirable, so I think it is marketable, but I am limited on the production. With those parameters, what profit margin would you guys use? Thanks for the input,
Replies
You're going into very dangerous waters with this.
"Semi-pro" implies to me that you want to make money from the wooodworking, but realize that you need to keep your main income source.
That said, any woodwork you do will either A) detract from your "work" time, or B) detract from your personal time.
If it's A) tyou should think about what impact those hours have on your main income, and make sure you recoup it.
If it's B) you need to value your personal time, and try to come up with an equitable number that you won't resent at 2:30AM trying to finish a project.
A lot of people (amateur/semi-pro) charge the materials costs, plus the price of their next tool....
In my experience, small shop pricing is often calculated at materials costs x 3-3.5. You'd be surprised how many times that formula is proven through other estimating forms. the complexity of the work, related to relative materials costs creates the range.
The older I get, the better I was....
Thanks for the response. Here is a bit more detail on the semi-pro. I had a farm, a restaurant, and did some limited woodworking last year. In December 04, all hell broke loose. My unethical stepfather/landlord backed out of our agreement for the land lease, and I quit farming. In January I opened another restaurant to fill in the gap in income from the lost farm, giving us two restaurants. In March, after running ourselves to the brink of exhuastion, we sold one restaurant. Now, the newer, bigger restaurant, which supports us OK, is functioning without constant supervision by me, and for the first time in my life, I've got spare time. I realistically get into the woodshop about 30-40 hours per week. I don't think there are many pros who work that little.
Of course you are right about the time being taken from someplace. My shop is at home, so my time spent there is in brief spurts when the family is home and awake. I don't think the stopping and starting helps my productivity, but it's what I've got to work with.
I had a $3500 figure in mind for the $800 in materials, that I use for each one of these beds, so using your formula, I'm in the ballpark. If demand outpaces supply, then the price can raise of course, and go down some if I can't get enough customers.
What am I missing?
Steve
Steve,
"What are you missing"?
You are missing 24 people a year who have $3,500 to spend on a bed.
You are going to have to make your product visible to a lot of people to find the few who will make that kind of a purchase. My guesstimate is that your design will have to be seen by 50,000 people per year to generate 24 orders.
Is your only product a single design for a bed or can you take on other commissions? Most shops depend on repeat customers, so you need to be able to make what they want.
John W.
Using material costs x multiplier is only a rough idea and should not be used for estimates. You can lose your shirt that way.
I can't tell you how to run a part-time or side business, but I have run a fulltime woodworking business. In that case, it helps to know what your costs actually are: living expenses, shop and material expenses (est.) and every other cost before you can ponder profit margins.
In other words, know the end before beginning.
Very Well Put; but bear in mind that he stated he doesn't "need" to go through all that.
But, anyone even dreaming about doing this full-time who doesn't do a full cost audit is taking their first steps to insolvency.
There are thousands of examples for perusal....The older I get, the better I was....
I realistically get into the woodshop about 30-40 hours per week. I don't think there are many pros who work that little.
I don't post much here but here goes. 60 hours / 6 day weeks is the most I put in and get one day off to relax, clean up the shop, sharpen the tools and get supplies. The paperwork takes a lot of time but I have that down to a science and can get it done quickly and accurately. I finally got 2 days in row off this coming Monday and Tuesday and it's the first time since Fathers day weekend with the family and grandkids. As for distractions, there is a ton of them but you have to be disciplined and keep working away.
Lots of luck to you, keep the faith and have fun doing it.
Dave in Pa.
I think figuring out how to deal with the distractions has turned out to be a bigger job then I thought it would be. I hate being rude, but sometimes you practically have to sneak into the shop so no one knows you're there. Thanks for the encouraging post as well.
Steve
<What am I missing?>Only a reason to charge what you do from what I hear you say. A sharp pencil and a belief in yourself is good but stick to your guns on pricing as the ones you dont get are the ones you dont need. This is hard when you like people who cant (wont) afford you but you absolutely have to make a living doing what you do. Look at what the average person you work for makes and thats what you need to make also. Dont forget that you have to be saving for later years as well as making your bills and having a life now. Its quite a balancing act. aloha, mike
DS,
Once you have well-defined the type of projects you do, you will arrive at some quick rules of thumb. In my experience it can vary somewhat. Our shop usually deals in kitchens, and we find that the material costs come to 30% of the selling price, so you could figure it from that. Of course, some detail like a very demanding finish could throw that average out of whack on any particular job.
That said, we are involved now in a large project with a lot of potential pitfalls, and the materials are only 20% of the price we took. So it does change with the type of job. You need a lot of reliable information in order to really calculate the total costs of any given job: your overheads, your downtime, your financing costs, and 100 other things that enter into it.
Establishing that customer base takes years of work, and some careful thought about what you want and how to find them. Unfortunately there is no way I know of to get there without paying a lot of dues along the way.
My bottom line advice - take as much as you can get, but dont go below 3 times the material costs. Take notes of everything that actually happens. The info will be very important later on.
DR
Thanks for the input. Record everything is sound advice, and I'm sure there will be a huge learning curve, hopefully not to painful.
Steve
Another generic piece of advice - applies in any enterprise - is to invest what it takes to get the product and the process right (and, implied, the profit will take care of itself). Simplistic, but there's an important insight there ...
... you're in the fortunate position of not needing cash flow or customers straight up, so you can take some time to get product and process spot on. Research how you'll get those thousands of potential customers in front of your product, research process to iron out costs and minimise time ... fine tune while you can.
Take a look at Gary Weeks' web site (Google). He makes rocking chairs and the story of how is quite illuminating.
Good luck and keep us informed!
Malcolm
Malcom, your post makes perfect sense, and I think I may have been rushing this a bit. I do need to fine tune the website for example. I don't want the customers to see an unfinished sight and assume that the furniture is similar. Taking a page from Mr. Weeks book, I need to work on the efficiency of my shop too. Took me all evening last night to get a blasted profiled rail just so. After thinking about it this morning, I have an idea using the shaper and a jig to do the same job in about 10 min.
As a previous poster said, the learning curve appears a bit steep, and I really need to watch myself to keep focused on the productivity of my shop. If a project for my wife takes twice as long as I expected, no big deal, but for a customer, it is the difference between profitibility and a loss.
Steve
Funny you should bring this up!
I broke out of my career rut a few years back and once I got my head screwed back on, I started making a little furniture and cabinets for folks.
What I've found is it's hard to get a 'following' right off. Until then, I charge a nominal price (2X material costs). That isn't toooo bad for simple things, like kitchen cabinets or bookcases, etc. But when you start making custom furniture, your time becomes a HUGE factor. That's when you start ratcheting up to 3, 4, or 5X. Now, I've got the luxury to not have to make a living from this, but I am unfortunately, rather goal oriented and have a tendancy to be an overachiever. So.....I want to make money from this.
I'd say, if you can start off a little on the inexpensive side to learn the traumas you will encounter for the expensive stuff, you can sort of tick off a few customers while you learn. Most likely those customers aren't the one's you are going for.
Once you've got your skills honed a bit, and have bought a few cool tools, showed in a few local shows, and maybe won a few local awards, you can develop a portfolio to justify to yourself as well as potential clients that you're worth what you need to charge them.
I'm lucky in that I have close by, a neighborhood of folks that don't think a lot of paying for good furniture that they can get custom designed, built, and delivered.
Good luck. It's frustrating, but it sure is rewarding.
Thanks for the advice guys. I just got back into town, and haven't had a chance to read all the responses closely. I'll probably have more questions tomorrow.
Steve
Hi Dave, thanks for the response. It sounds like your bisiness path and mine are similar. Mind if I ask how many commisions you aim for per month, and what percentage of those are repeat/local customers? I live in Nebraska, not a huge number of prospective clients here, so I'm going to have to try to attract a customer base of non locals. Denver is not too far away, and I think that is my first target.
Steve
Dirtboy,
(sorry, couldn't resist being originally from Wyoming, I know about the dirt part)
Anyway, how many commissions a month do I aim for? Heck, as many as I can get! I don't actually aim for commissions. What I do set my sights on is work that is fun, challenging, Oak-free (prior post of mine, pet peeve), and typically modern furniture. Now that puts me in about your place....the middle of Nebraska with a limited market.
I have a fair amount of repeat business. I think that's what I'm most focused on. I want the customer SO happy, they come back for more. It's slow starting. I venture that if I were using this as my living career, I'd be dead by now. But that's the strange thing about any craft oriented business. People love the results, but don't want to pay the piper for it. We're not volume manufacturing, there are lots of really great volume produced pieces out there much cheaper, and we're not household names. Hmmmm, kind of depressing huh?
But, once you get a few commissions, if you've done the right things, you'll start getting some repeats, and best of all, some referrals. That's where the growth comes from....that and shamless self promotion. I even went so far as to put something in the state fair this year for goodness sakes, in the professional division. Took all the prizes and will definately use that in my portfolio. I'm also able to take advantage of our local guild who often gets into shows to display my stuff for sale.
Aim for doing your best, tell people about yourself, and have a good time. It will come I'll bet.
Dave
Hi Dave. Hey, you're from where the wind never stops! I used to be a farmer, hence the moniker, and it's kind of stuck. Where are you now? Wyoming is quite a state. I live about 50 miles from the border.
This is amazing. Word has got out that I'm taking jobs, and in the last four days I've been asked to take four commisions. One is a full set of kitchen cabinets, which I'll gladly take. One is for a bed for a reletive, which I'll do, but I don't expect a huge profit on. One is ridiculous, and I'm going to turn down, and the other is a ten min. job which I'll reluctantly take. Not bad for part of a week I guess.
I have a sneeky suspicion that although I want to specialize, I'm going to be doing cabinets and odd jobs for a while.
Thanks for the input and ecouragement.
Steve
Hey Nebraska!
Moved (eventually) to Oregon many moons ago. Retired (technically quit) my real job about 5 years ago (just before the stock market dumped?) but still haven't died yet, so I guess things are ok.
Kitchen cabinets are a bit of a pain after a while, but they can be made to be a challenge and sort of fun if you work at it. I had a client who just couldn't get anyone to bid on her cabinets (she was nearly 30 miles out of Portland for heavens sakes) and so I drove the 50 miles I live from Portland, then the 30 to her house and we talked. She wanted modern designs, cherry, and special doors that would open up like folding doors so she could just leave them all open. Interesting and turned out fun. At the timek, I was building in the garage. Barely fit everything in there!
So, except for something out of oak, I'm up for anything. Keep having fun! That's what a career change is for after all!
Interesting door request! I haven't done very many kitchens, so they are still fun, especially the design. This one is red oak though.... I wonder how it came to be "the" wood of choice for so many.
Steve
Hey guys, new question. I intended to specialize, but I'm getting jobs ranging from kitchen cabinets to fixing a cracked tabletop. Should I turn anybody down, or specialize when I get the opportunity?
Steve
Dirtstirrer
Your call on what to take & what not to take. Part of running a profitable shop is knowing your limitations & also working the jobs you enjoy. I know we will all take on the occasional job we are not entirely happy with for a variety of reasons but you need to make the most of those, get them finished & out the door. I have done that when work slowed (I have two apprentices & me to keep occupied) but it usually ends up going pear shaped, ie: we don't make our desired margin or finish on time or keep the customer as happy as we'd like...........you know the story.
As for margins I don't have a lot of faith in multiplying the materials cost to derive a sale price in our work due to the wide range of timber prices; for example a table made from one of our local native eucs which costs me say $3/bf takes just as much work to make & finish as imported timber at $10. I think here is where experience bourne of researching the market can give a better guide. See what the retail stores & bespoke makers are charging for instance & decide if you are producing a comparitive product. For calculating your profit accurate records of time & other inputs are also needed but you will build up an inventory of information which will help in setting future prices. Don't be affraid to test the market occasionally by putting a higher margin on, also look to differentiate as a custom maker - there are still a lot of people who associate price with quality & who are prepared to pay for it.
Don
There is a HUGE difference between being in the furnituremaking business and doing custom kitchens and built-ins.
Edited 9/13/2005 6:03 am ET by BossCrunk
You are correct. Cabinets are in more demand though then expensive beds today, so I'll do cabinets while waiting for the right bed customer. I bid the cabinet job by using an educated guess on the time required times my rate, plus materials. Made the homeowner sign the plans and a document saying that if they deviate from the plans, my price goes up. So far so good. Now I wish I had a bigger shop.
Steve
Just came across your post. I was in a similar position a few years ago. I wanted to do furniture and made some demo pieces. Then I found I actually needed to make money from what I was doing and now I make kitchen cabinets. Nothing else but kitchen cabinets, which I also design, and install. I would love to make other furniture but if I asked the price I needed the customers would either think I was insane or trying to steal from them. I'm glad to hear that in some parts of the States it's possible to make a living from custom furniture but in the UK, no way! Even the most famous furniture makers survive by having paying students.
Would I base my pricing on a multiple of material costs? No. Not ever. No way. I figured out how much money I needed to make each day to cover my costs and my own wages (or profit, doesn't matter what you call it, it's the money that left over after you've paid your bills). Then I figure out how many days it's going to take to design, make and install the kitchen, and add any other costs such as the hardware and the material. Multiply daily rate by the number of days, add the costs, then apply your knowledge of the market and maybe bend the figure (ideally upwards!) a bit if needed.
Do NOT base your pricing on a multiple of the material cost. There is NO logical basis for doing so. None.
JohnIf my baby don't love me no more, I know her sister will.
This is my first full kitchen, and it is rapidly becoming obvious what you said is true. Even in my sparsley populated corner of the globe, there is quite a demand for custom kitchen cabinets. Much more then for my beds. I'm still going to try furniture making, but the profit margin in the cabinets is nice.
I like to compare the prices people are charging to my needs. No two pieces of furniture or cabinets are identical, so to do a comparison in cost, the cost of goods times x is a convenient way to get a rough idea what people charge. Of course you are right about setting the actual price, but it helps to know you're not too far out of wack with everyone else. Especially if you're a newbe.
Steve
Sometimes you just have to charge by the hour.This project attached only had about $800 in materials and they(2 of them) were about $9600.00.Be careful on a labor intensive job.I would have lost my butt if I would have bid these!Attatchments on post #23
Edited 9/12/2005 8:40 am ET by micr03
Sorry forgot the attatchment.
Nice work, I saw those over on the other thread, and it looks like you have a great client as well. How did you find this commision if you don't mind me asking?
Steve
I worked on there house about 5 years ago and one of my friends is still taking care of what ever they need done.He passed the job on to me.Anything I do for them is custom and by the hour.Rick
If you walk the fine line on the ragged edge of profitability you are operating a charitable organization and not a for-profit entity.
I would start pricing at a minimum of five times raw material costs if you are building standalone furniture. If you build smalls then this methodology won't work.
If you walk the fine line on the ragged edge of profitability you are operating a charitable organization and not a for-profit entity.
Sounds like my blasted restaurant last month.
One constant tone in this thread is to charge what you need to charge. I still have those amateur tendacies I guess. I know I need to charge like you guys do, but, makes me feel a little guilty. I'm sure it will pass as soon as I get a good paycheck.
Steve
Raw materials cost times five and up worked for me early on. On complex work, you simply take the pulse of the prospective customer and adjust the multiple upward. You won't go broke at five to seven times cost, assuming you are building furniture and not smalls. If somebody wants a project out of cheap wood that normally would be built with, say, mahogany then adjust your multiple to account for the fact that the technical challenges are virtually the same.
You can get caught up in the theory of 'competing uses of time' but I assume you want to work wood in your spare time and not take an hourly job or work overtime at your current job so those arguments are moot. Competing woodworking projects add an additional layer of complexity, but you should always talk to a potential customer as if you already have a book of business. In other words, reel them both in. At that point, throw the cost accounting books out the window and rely more on your marketing skills and presentation to get what you need.
The last thing you want to do is develop a reputation for being the bargain provider or being 'cheap.' Don't start out on the wrong foot just to book a project. You'd be better off building a demo piece for a referral source for free than booking the work at a discount.
If you do decide to offer a deep discount to a likely referral source then 'two-line' your invoice - full price, less a courtesy discount. NEVER let somebody confuse a discounted price as your street rate.
Lastly, never refer to what you build as a 'product.'
Get in artist mode, you'll make more money.
You just saved me two or three years of trial and error. Thanks for the input.
Steve
Steve,
I figure what my time is worth, and then I guess at how long it should take me. Currently I figure that my time is worth between $350 and $200 a day. I multiply that my the number of days I believe it would take an experienced pro to do. Unless I have made something simular to the piece before it usually takes me about 25% longer than that estimate. For me that is the cost of experience. I would never base my work on the cost of materials.
Basicly I know how much I need to earn to be happy and I charge enough to do that.
Mike
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