As a followup to the previous post, what do you all feel is a fair hourly labor rate for quality custom furniture?
Thanks, PMM
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Replies
Taunton has a book on the subject. I would recommend it. As for your direct question how could anyone possibly answer it. Each region varies in wages and pricing. It also based on skill and demand and reputation as well as overhead. Obviously working in your garage gives an advantage. The Jones would be a good read. You should also talk to your accountant.
PM:
It's really the wrong question.
The costs you incur to make a product have absolutely no bearing on what a customer might be willing to pay for that product. Cost-based pricing may have worked 20 years ago, but customers simply have too many choices for it to work well today. Furthermore, cost-based pricing leads to underpricing in strong markets and overpricing in weak markets. Also it has a circular logic. Your costs are, in part, a function of volume, but volume is a function of price.
You should ask yourself what customers are paying for the type of product you produce. Then, you can work backwards to ask if you are willing or able to work for the hourly rate implied. There is no such thing as a fair hourly rate for your work. Customers don't care about you, they only part with dollars because it satisfies them in some tangible or intangible way. Provided it does that, they are not concerned with, and nor should they be, with the vendor's business situation.
With a little effort, you should be able to determine what the going rate is in your area. What you should do is graph price versus inherent quality and see if the market wants, and is willing to pay for, higher quality.
Cordially,
Hastings
Very well put. If cost based pricing really worked, the <!----><!---->Soviet Union<!----> would still be in business. I sell for a living and the most fundamental rule is that the buyer sets the price, period. That even goes for items like Sam Maloof’s $50K rockers, the buyer sets the price, that is why he isn’t getting $100K for them.
Depends on skill.
Starting out I would say between $15-20/hour
Less than 10 years but more than 3 years experience $20-30/hour
More than 10 years $30-?/hour
This is just my guess. I figure if you can stay in the furniture business for more than ten years and still make a profit you deserve more than $30/hour.
J.P.
If possible, always try to price "What the piece is worth". You may make less in the beginning but as your speed and quality increase the "net" hourly profit will soar accordingly. I do home improvements and didn't learn that lesson until 10 years ago. I lost a lot of what I could have made because I sold work too cheap based on my "hourly rate"
Hastings and Kaleo are right...
Somebody in some response said 15 to 20 bucks an hour. What a bunch of hogwash! You ought to be able to make more than that building plywood doghouses.
If you're a halfway decent woodworker and building standalone furniture pricing is as much an art as the stuff you're building. A lot of your potential clients will not want to deal with you if you are too cheap. Check out the luxury good pricing theory in any college marketing textbook.
Edited 2/27/2007 6:52 am ET by VeriestTyro
I appreciate everyone's input on this difficult question. I am a businessman and salesman in my real life so I understand the reality of market forces, i.e. supply and demand. The reason for the my question was/is a certain amount of confusion on my part. I have researched product similar to what I make, a shaker grandfather clock made from tiger maple, for example. The prices are all over the map. $1500.00 to $9,000.00. It is easy to say that the market dictates the price. Of course that is true. What is more difficult is to determine what the market will pay, especially when one sees prices all over the map as described above. And then there is the problem of explaining to the potential buyer why handcrafted furniture is worth substanially more than factory made furniture. Sure, the more sophisticated buyers will understand the differences but many will not. So a degree of confusion remains. Perhaps the more obvious solutions is to place some product in a local studio and price it a bit on the high side. If the product doesn't move in a few months, adjust the price until the market price is determined. Any additional input would be appreciated.
PMM
I usually explain why Henry Ford invented the assembly line and factories advantage in buying bulk. Also they use a lot of "fake" wood in their products. That's why factories won't make custom sizes. It costs too much for them to change their machines to custom make things. If they can get what they want from a factory...buy it.trimjim
Hi PMM ,
I think that some of the problem of prices that varied may stem from the difference of offering a product ( clock) that is already made and on the shelf so to speak , or custom building the same or similar product for a particular client .
People expect to make an offer to a merchant who has a warehouse or shelf full of similar products at less then the asking price . Marketing your product and yourself imo sets you in the driver seat . True we can price ourselves out of a particular market , but with custom commissions you can also write your own ticket , the client can take it or leave it . I don't turn the saw on until I've got the deposit , a guaranteed sale .
Perhaps having an example of the factory clock to show the difference not just tell the difference would be helpful . What I tell people is if they are not able to see the difference ( maybe because they don't really know what they are looking at ) don't pay more for it , because it won't mean anything to them. Take the time to educate your clients.
Not really sure if you make and then try and sell or what . On custom work at least in my shop the hourly wage is not as big a factor as the overall bottom line and possibly even profit that is left after all expenses . One theory is if you get all your bids , you may need to raise your prices a tad at a time until you lose a few . That can establish what your market or circle will allow .
Imo custom work should not be bid T & M , rather the true value of what it is.Therefore your hourly wage becomes secondary . Also imo the hourly rate that the mechanic charges or your MD for that matter may be an indication of what they can charge but with all their skills it is unlikely they could build your product , so the comparison is unrelated especially if you have few or many custom clock makers in your area .
good luck dusty
PMM,
This is an interesting discussion.
If you were hiring a skilled woodworker to make the pieces for you while you covered all of the other overhead and selling expense, what labor rate would you be willing to pay?
Turning an equation around sometimes helps.
Just my $.02 / hour :)
Monte
PM:Clearly the market for fine woodworking products is not efficient (as economists would use the term). Stocks, on the other hand, are bought in a very efficient market, bonds less so. If you buy Apple stock, you know you didn't get ripped off because the market price is established second by second.For fine furniture, market clearing prices are not established efficiently so there is a great deal of subjectivity involved, because the needed information is not readily available. Inefficient markets present opportunities for sellers to gouge buyers; just visit your automobile dealer to experience this.Typically, when we buy something, we establish what is called the "reference price". We may do it subconsciously or very deliberately but somehow we get an idea of what we should pay for a given good or service. Buyers then compare prices to their reference price. They may make adjustments to it based on the bid input and then select the best combination of price and perceived value for them.Rather than start this from your cost basis (which you should absolutely understand by the way), first consider what the customer might be willing to pay. Your product is sold in what economists call a negotiated market, in other words prices are set by negotiation.Viewing this as a negotiation forces you to think how you can influence the customer percieved value and charge appropriately for it. That might require some education of the customer or explanation of the benefits of certain features.In my experience, a lot of craftsmen are lousy marketers and expect the customer to do the heavy lifting.Finally, pricing is the hardest part of the marketing mix – we all struggle with it. All I ask is that your starting point be customer perceived value, not cost and you'll certainly make more money.Hastings
Hastings,A very clear and well-thought out comment. I was beginning to think "supply and demand" that I learned in economics class was no longer in effect :-)
Hastings,
Very well conceived and thoughtful post on pricing. Thanks. I would like to add my thoughts and experiences. I build custom furniture for friends and acquaintances through word of mouth. I stimulate that by periodically having open houses for "show and tell" and try to educate my friends about the processes that went into the pieces.
The market for me, I believe, is for pieces that cannot be purchased anywhere. That lack of availability could be size, function, workmanship, complexity, artistic impression, personal relationships, or whatever shapes the customers interests. The pricing is based upon the market for similar pieces and is influenced by my T&M estimates. As my skills improved, my hourly rate has indeed grown. (my second blanket chest took 120 hours. The 12th one took 50 hours and had better workmanship)
I think a guild or community organization of woodworkers could really develop the market through public showings of their work, along with some teaching about the craft and its value. My experience is that people really enjoy learning about our craft and, as they do, the demand will develop.
Best regards, Tom.
Tom,Well thank you; I appreciate your kind words.Your idea about a guild is a good way to inform people about the inherent value of fine woodwork. With today's mass-production technology, the benefits of craftmanship are not readily apparent.In England, furniture was something you inherited, not bought. My wife and I were fortunate to have a lot of antiques, which we have started to pass on to our children (we're downsizing).The longevity of fine woodwork is something that is unique to that art and, in my view, should receive more emphasis.Regards,Hastings
I don't agree with anyone that has posted so far. Especially with the customer decides the price.
You have to determine waht market you are trying to attract. Do you want to make things that can be sold at a craft fair for 100.00 or less? Or are you making fine furniture? There is absolutly no point in trying to compete with chinese import furniture. Because you can not win. What you need to do is make something that is so much better tht it is in a league of it's own.
It also depends on how hungery you are. Most of us a motivated to sell things cheap because we need the money. But we undercut ourselves and every other fine furniture maker out there when we do this. Sam Maloof doesn't get 100k for his chairs because he's not asking for it. But if he design something and built it and decided that he wanted to charge 100k for it, I bet someone would buy it. You set the price you want, be fair but don't undercharge. And if you can wait it out, do it.
There are plenty of people out there that want high quilty stuff and are willing to pay, finding them is the difficult part.
I heard a good rule of thumb for hourly wages, is to see what you local mechanic is making and take you range from that. They are no more skilled than you are. So if it's 50-80 dollars an hour, than charge that. That's what you are worth.
http://www.kalafinefurniture.blogspot.com
Of course the customer sets the price. If you ask too much for your work, no one will buy it no matter what it is. That would be the customer setting the price. I have been a professional salesman for a log time, and the cardinal rule is that the buyer has all the power, it is up to you to offer him value he is willing to part with his hard earned money for.
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Your comment about the mechanic is in error also. People view a functional auto as necessity, not so with luxury goods like hand made furniture. Therefore, a mechanic has more pricing power than a woodworker will. It has nothing to do with skill level, it has to do with demand.
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Just look at who makes the money in this economy, people who offer a good value for the price. A price at which the buyer feels he is getting value. And remember, he, (the buyer), has all the power.
I determine what I want for each of my piece. If I don't get it that does not mean that it'snot worth that much. It only means that I have not found the right buyer.Being a custom furniture maker we are not dealing with your everyday Joe. We are dealing with people a high end client. People that aren't nessisarly worried about money. That's the market that I am talking about. Not your everyday walmart shopper. Of course they dictact the price. That is the express reason wy we can not compete with them. I can't make the same bookshelf you find at almost any furniture store for less than you can buy it there. So why even try.The higher end market sees the value of what they are looking for. That's why they are looking at custom made things. They can't find it anywhere else. Therefore they are ready to pay for what they already know is a great value.If your not charging your hourly labor out at atleast what a mechanic makes then you won't be in business long enough to worry about it. With everything from overhead to insurance to materials to machinery to bills and transportation cost. 50-80 dollars an hour is nothing. Break it down and your still only making 10 bucks an hour.Kaleo
http://www.kalafinefurniture.blogspot.com
My question would be how long can you sit on it while waiting for the “right” buyer. So then if it never sells, does that mean the right buyer does not exist? Or that your price is too high? Believe me I understand the high end market, and they are as concerned about money as any one else, that is how they got the money in the first place. There are a lot of starving artists out there still waiting on that one customer. Most of them end up with other jobs to pay the bills.
Like I said, the hardest part is finding the buyer. The point I disagree with you on is that the artist can set the price on his piece. Sam Maloof can put any price he want now on his work, and I bet they would still sell. But he's not stupid and realizes that 100k for a rocker is not right. But he knows that he can get what he asks for, not what his customers tell him to charge.Like I also said, the high market cares about value for the money. But they recognize the value that goes into custom made fine furniture. They know that a piece by the artist is way more vaulable than a mass produced piece.And yes if you can just sit on it, if it doesn't sell you have found the right buyer yet. I'm not advocting that we all should be charge what Sam Maloof does, and that we should stick it the customer. But there is a fair price for everything, But I can determine that price not my customer. If I bid for a job and the customer doesn't want it or thinks it's to high, do I tell them ok I'll lower it. No, because the next onne won't think that.Kaleo
http://www.kalafinefurniture.blogspot.com
you can set the price, just not the market value. the market will determine what the value is, but as stated earlier, it's much tougher to define your market for fine woodworking.
All you have done is make my point. Every statement you make supports the fact that the customer is setting the price. You say that the artist can set the price, sure, he can make it what ever he wants. But that is meaningless unless it SELLS. How many bids can you lose and how many pieces can you have taking up space in the shop not selling before you end up roofing houses to pay the bills?
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You say a piece made by an “artist “ is far more valuable than a massed produced piece, maybe, but only if there is a secondary market for it, it is worthless unless there is someone to buy it.
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Maloof doesn’t get a $100K per rocker because he can’t, not because he doesn’t think it’s right or wrong. Hell $50K for a rocker is unbelievable, but that is what his customers are willing to pay. His prices have climbed every year, why because customers are willing to pay more for his work, that’s why.
YOu said it yourself that 50K for a rocker is crazy. But you crazy to think that he couldn't get 100K for them. It's only because he doesn't ask it. But if his prices go up every year, they will evetually get to 100K. And people will still buy them. Rolls Royce can put any price they want on there cars any people buy them, people go on 4 year waiting list to get them. Is that the customer setting the price, when they are willing to pay whatever is asked? Then you are right they do set the price. People see the value in what is made and will spend what is ask. Granted this is like only 3-5% of the market. But they are there, and that can not be denied.Kaleo
http://www.kalafinefurniture.blogspot.com
I just charge my hourly rate which is too low at this time. I'm a part timer without all the high end production equipment. I have a well equiped shop, but no high volume tools. I have to charge a lower hourly rate in order to sell my goods. A shop with more advanced tools could make the same product faster, getting them a higher hourly rate for the same product at the same price. They also have to invest in the production tools, and carry that overhead. In the end I MAY make the same $ per man hour. My guess is that I make less than they do. I already have a full time job in a large computer chip factory, a house, rentals and family.. The last thing I need now is a wood factory instead of a woodshop.
As noted earlier, A simular product can range from $1500 to $9000. We are looking at different markets. I'm not very good at reaching the high end customers. My location is filled with middle class folks. Few are poor, and fewer are wealthy. They all need furniture at some point. I'm not trying to highjack this thread, but If I may be so bold as to re-phrase your question to "how do I reach these high end markets so that I can earn a reasonable shop/labor rate?. " This I need to learn.
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