My dad had a successful machine and welding shop. He said that if there isn’t 10 to 15 percent of the customers complaining about high prices, you aren’t charging enough.
one of my machinist instructors at school used a similar formula for cost estimating. material plus labor X2 then, X2 for good measure. and then you can cut the price from there lol
True. My last business however was a sawmill. People normally try to get as cheap as possible that’s understandable. Ive had customers tell me I’m selling my lumber too cheap. I would agree but watching what other mills charge I followed that BECAUSE of the cheap thing although my lumber was superior to other mills i wasnt able to raise my prices above theirs and guarantee sales. Business is fickle
Head slap. What an elemental and perfectly applicable formula. I have been building for years and will start using this formula (and maybe even revisiting old invoices!). The biggest problem in my eyes is that custom building projects CAN NOT be cost compared to mass produced products from overseas. Unless you are in a race to the bottom (you will never beat Walmart). That said, makers must produce products that have other advantages (better built, customization, personalization, accessibility, etc.). Thanks guys for another fun/useful video.
"Race to the bottom" is exactly right. Reasonable people understand that quality is a distinguishing factor - for better or for worse, i.e., poor quality is worthless, regardless of the materials used. Unreasonable people who do not understand this are not going to be valued clients, so I wouldn't spend much time trying to convince them. Chances are that both of us will ultimately be unsatisfied by some aspect. J&D address that in one of their earlier vids.
I appreciate this very much I have been stuck in a rut ever since I was basically fired from my first job. The client wanted at first to build a brand new shed an tear the old one down. I gave an estimate for that and they decided they wanted to just redo roof and put new siding. Then that estimate was pretty close to the original because pretty much same material needed except for the 2x4. Then they decided to go ahead and rebuild it. Which then in my confusion I ended up losing out on some labor. Well I finished the framing and the trusses installed and was halfway done with sheathing and I had a doctors appointment which they decided was not going to get it done. I lost a lot of money on that one.
I didn’t think this would work, so I flipped to side tables, painted them and replaced the hardware and priced it according to this formula thinking “we’re not going to have any responses. I would NEVER pay this much for them” . They sold the same day and had a ton of responses, hahaha … thank you guys!
This is funny! I bet they are thinking but i wanted custom made. Well Yeah, that's why is more expensive because it's custom made to your needs and Handmade
This is fantastic! I just sold my Roubo split-top workbench that took me 500 hrs to build for $25,000! A profit of $8,000! That was my first and last customer. I’m out of business now for being overly confident.
Thank you for making this video. I've been struggling with pricing my projects for a while now. I build custom subwoofer enclosures. Depending on the type of finish I can usually get these done in 1 day. Using your formula gets the price close to what others are selling for online. I've been doing charity work as you said. This is much appreciated.
Keep raising prices! You probably offer a lot more to the customer than some stranger on the internet can! Customer service, no shipping problems, custom sizes, etc.
Whenever I make something custom, I ask for a downpayment of the material costs to produce it, that way I'm not buying the materials out of my own pocket. Have a better day!
Doesn't that also incentivize their purchase ability and make the pill a bit easier to swallow for them? "5 EASY PAYMENTS OF 99.99" is a thing for a reason. As long as you aren't a shady salesman I feel this works for both parties.
I will never forget the time almost 4 decades ago when I was in my friend's kitchen. He hauled up this huge box and started unwrapping it. I said... 'What's that?" he said "It's a coffeemaker. New advanced technology." So I said, "Wow, that looks cool. Is that a good model"? to which he replied, "It's the best one they had!". I thought about that for a minute and asked him "What made you think that?" I was thinking maybe a magazine review or something like that. I will never forget his answer. "It has to be the best because it was the most expensive one." Some people really believe that, and to people like my friend, the more you charge the more attractive it will be.
For those who want the formula shearing, jump to 4:45 in the video. Decent content. I understand ads on your channel help fund your channel. However, I'm not a fan of ads over 5 seconds and I'm sure I'm not the only one. If and when the ads are reduced to the 5 seconds, I can see myself returning to watch your content. If not, I'd likely won't return. I'm sure I'm not the only one that feels this way.
As a professional accountant I think this is a great formula - especially for a busy shop or a shop that is located in your home. It does a great job of simplifying overhead calcs. Just be sure to adjust the labor formula when you get to the point where you are hiring help to encompass the employer paid FICA taxes.
The best advice I was given when going to to business, you can't ask for more but you can always give a discount. Plus customers always prefer you come in under the number you quote not over. So use this formula, see what number it produces, then decide if you can''t charge this much then your business isn't viable, you can't do it for less so either do it faster, use cheaper materials, or sell it better, otherwise don't do it at all.
I agree 100% with everything mentioned in this video. After I get paid on Friday I'll be buying a dewalt job table saw and miter saw and looking to get started in woodworking. These videos are great! Thanks for sharing
What a great video! I have been trying to wrap my head around what I should be charging and not what I'm settling for. The prices just went up! Thank you!
My formula is very similar. Mats + hourly * 1.25 for monthly bills then another * 1.25 for profit, then if I'm selling at a craft fair I might add another 50-100% for fuel and also time away from the shop that I'm not making things to sell. But I like the 1.5 thing. That will save me a step. ;)
Thanks guys! You really solved my problem on how to price my sofa business. This will be my first business and we will open our store for the next 2 weeks. :)
This is exactly the formula I used for years in my sign business. Great Job on the video! And a very good way to Illustrate your point in the beginning of this video to make your point clear and understandable. We’ll thought out. Keep up the good work.
Thanks for your great insight on this topic. The formula makes perfect sense. My issue is that I take a lot longer to build items because of the inefficiencies in my woodworking. I tend to be a perfectionist and always find myself repeating steps to make the project better. Therefore the project that should take maybe four hours total ends up 8 to 12 hours. Thanks for sharing. Felix
Hey Felix. What helped me (Davis) in this area is to work backwards! Nail down a budget from the customer, then work backwards using the formula (and a little algebra) to find the maximum amount of time you can spend on the project! Then do your best to stick to that.
My parents bought a dining room table and china cabinet custom made out of Cherry from an older gentleman (mid 70's) for about $5,000.00. This was back in the mid 80s and that was a big chunk of change for furniture. Every time I go to my moms for a visit, we sit around those same pieces, 40 some odd years later. You get what you pay for when it comes to hand made custom furniture, why would you expect to pay less and get more? It just makes no sense.
Great video, very helpful, I made a new table base for a friend a while ago and afterwards I got to figuring that I made all of like $5 an hour on that project. They were moving and the original table base fell out of the back of their truck when they were backing down a steep driveway and it got run over so was asked if I could make a new one for them. A few years ago I was contacted by a woman who asked me to make a couple shelves for her, it was a complete nightmare and she was such a pain o work with. In the end I made no money, if anything I think I lost out on that one just from the labor and the headache that she cost me 🙄. Thanks for sharing this video, it was definitely beneficial for me and I’m sure it was for a lot of others as well.
@@pekitas I wasn’t just wanting to vent I was just wanting to share some of my experiences. The table base I didn’t have any problem with how much I got paid because it was for a good friend but the lady that I did the shelves for I should have just dropped them off on her door step but I didn’t want to get a bad reputation from having a lousy costumer.
Friends are the worst for keeping your sanity an price where you can make it worth while /just rember people when you get your auto worked on you pay /an the friends have to pay / this is the way you make a living !
This is a must, I’m a handyman/furniture maker/kitchen fitter etc. started using this formula a few years ago i now win approx 56% of my work bids but make a ton more money.
This is the first I have ever seen from you two and I must say, keep it up. Your ability and form of teaching are fresh, to-the-point, and enticing. As others have said, some of your quotes I have never heard anyone say: "Intelligence is not a requirement for wealth", but I vibe with 100% and have even thought similarly before. Keep up the amazing show, you have just gained a subscriber!
this is pretty much what i use and the nice thing about the multiplier itself is it also accounts for any under estimations, or problems that come up in the process of making the thing
I'm only a student and building for family and friends and I've already WAAAAAYYYYY undercharged for pieces I've built and it sucks, gonna try this and hope I can actually implement it.
There are people that understand what goes into a project, and there are people that say "well I could do that cheaper". You want the former ones as your customer and run fast and far from the latter.
in manufacturing industry people tent to bellieve big clients to be important customers and offer sharity to them. in a way it can be sensible if you trade secure (not imaginary) deals out of it.
Chris! Join the Stud Stack!!!! Confidence is like a hot coal. If you’re with others, you’ll get more confident. Spend time away from the fire, you’ll start to lose your heat!
I think this is great advice (and a $250 daily rate is actually pretty low). I think where it's gets tricky is when you're talking about those super custom, labor-of-love type woodworking projects. It is more difficult to apply this formula successfully due to the extensive hours those projects take, and in order to be profitable with them you really need to be selling to a niche customer base... in other words rich people.
Howdy (again 😀) Just found your "Maker's Money" section of videos. Damnit!! I've got stuff to do and y'all just made me binge watch your playlist 😂. I'm one of those "types" that think my skill/product isn't good enough, no one is gonna buy this. My friends and family have always told me my stuff looks great. But I always thought, well they're just saying that not to hurt my feelings. I see the flaws in what I built...there's a check in the wood here, the stain isn't even, it's a 32nd out of square, the 45 doesn't completely seam to the other 45....are you guys blind. But, they never see those flaws, only me. So, I have low self confidence in my own skill cause it's not "perfect". In 30 years of woodworking, I can't think of a single project I've made that was ever "perfect". So, I never thought people would buy anything I made. Watching your videos has given me confidence. I am the reason I never tried. Thanks for opening my mind.
I have been using this formula for years and it works well. The issue I have is the quality of work that s being generated. A lot of these comments say how much we would be surprised how much people pay for quality work, but of the same formula is used for "less than" quality work, it kinda muddies the waters. Would I like to be charging the same amount as Michael Fortune? SURE! Can I? No way. The difference is going to be in the magic multiplier. Where Michael Fortune can set his at 5 times, I can probably stick with 2/2.5 times. Good video, though.
I often joke with family/friends and say that I went into ministry because I don’t like math and we don’t do math in ministry. This is definitely some math I can understand! Thanks for helping out someone new to woodworking!
For all the perfectionist, a quote I heard recently. "Perfection is the enemy of good enough." Perfection of course is a relative term.. I am a recovering perfectionist... As one's skill and efficiency increase "perfection" becomes less of an issue.
I'm in metal working. And we use a 3 multiplier but and go as low as a 2 multiplier. For beginners I like the 1.5. But that would have to increase quickly.
@@TheGrumpyChef I think it is pretty standard. I work for a commercial general contractor and the way we bid jobs is to estimate our labor and costs, add it to subcontractors pricing, then add a "fee" on top of that which is a percentage and depends on how aggressively we want to bid the job. if we really want the job, we go with a 1% fee, if we don't want to be as aggressive, maybe we go to a 2 or 3% fee or higher if we think we can. So a 1 Million dollar job would net us 10,000 in overhead and profit at a 1% fee. From a woodworking perspective, just like in other sectors, supply, demand and name recognition can alter the percentages, but that's not something beginning wood workers usually need to worry about.
I wasn't far off but this is definitely more profitable than what I was doing... (materials x3) x hourly = total. Thanks ill write it down moving forward
This is awesome. Tried figuring how to price and there was so many different ways by different people. I’m definitely going to try and use this one for my stuff. THANK YOU!!!
i am greatly amused right now. i just found this video today but i was thinking about this subject for about a month before now and just yesterday i finished my pricing formula. it is exactly the same. the thing i realized, and in turn allowed me to finish my pricing formula, was that with what i do know how to do and my skill at doing those things i am worth that hourly rate. and believe it or not, so are you. the first few times you sell some things at that price it will be uncomfortable. however, when you get the first sale and then get more sales at that price, you will get more confident and more skilled. then your magic multiplier will increase. and more money is rarely uncomfortable.
Good Video and directional correct. However more detail should go into whats making up the Multiplier(s). I.e. calculate your G&A cost. Critical to know if you're in the black on expenses. And yes the G&A includes marketing and BD expenses.Thats a sunken cost that either turned into sale or not. Like the fact you're covering O&M expenses in there however make sure you calculate wear and tear on the tools and machinery . Quality / Custom made items are at a higher value / price point than say an item from IKEA or production furniture store. Also Shipping and Handling should be outside the sale pricing.
It's this kind of bean-counting that keeps people from trying, failing, learning, and succeeding. Make a few sales, lose a few bucks, and fail better the next time. Do spreadsheets and cost comparisons later! Get moving first!
Not to be negative, but, there is absolutely no way anyone around me is going to pay $975 for a coffee table unless it comes with a chef to roast, grind, and brew it for them. I live in hickville U.S.A. Most everyone around here works in a carpet mill, or hospitality field or farming. I'm a decent woodworker but I'm certainly not nor will I ever be Norm Abrams. Maybe I should just stick with cutting and hauling fire wood. Either way I certainly hope this video helps aspiring woodworkers. Good luck to all and may you all have a great and very prosperous new year!
Your biggest obstacle is your mindset. You don't need to be Norm Abrams, nor are you doomed to stay a beginner. There are wealthy people within driving distance of where you live who want custom furniture. You can find them. There are over 20 million millionaires in the USA.
Simple and easy. I had spreadsheets that calculated bf for projects materials and supplies etc. At the end of the day it was close and took a while to build. It was a useful learning experience when shop time was slow. Key learnings, use a day rate, forget the hour rate. How many days will this take you to build, or how many can you build in a day. No one works 8 or 10 hours straight. Boils down to time and materials. In my experience the 1.5 is a close estimate for the extras that you run into, overnight changes in materials, mistakes, wastage etc. Some you under estimate others you over estimate, but you don't waste time thinking about it. For me it is closer to 1.65-1.75, this also allows some flexibility for a "discount" price that people look for ... now you can give without your business losing money. You can always say no to anything and anyone.
That's where a lot of one person or mom & pop shops go wrong. For example, they say, "We made $50,000 last year." I then ask, How much did the business make? If you can do the same job and make the same money working for someone else then do that. It eliminates all the other hassle of running a business. You have to price out your labor, what you would have to pay someone from the outside to run the office, and all the overhead. If you work out of your house the rent is free, but what if the business grows and you have to move into a rented space and did not factor that into your price? Now you have to raise the selling price which alienates your customers. If your price is high to begin with, as competitors come into the market you may just be able to keep the price the same and increase efficiency in production to maintain your profit. Most people do not add in all of the fixed and variable costs such as year end tax preparation, utilities, insurance, vehicles, lawyers, tools, furniture, etc.
For independently designed and made pieces, X 1.5 isn't that bad. 30/hr is too high for most novices. Just multiply the cost of materials by 3-5 depending on the complexity. Then add wear/tear/delivery. So skill level doesn't affect hourly. Be ready to have a varied inventory that works as advertising for other customs that you can charge more for.
I'm a little leery of using this formula tbh given how I am just starting out and feel like my work is too novice as of yet. But I will give it a shot and see what happens since I will be attempting to batch make planter boxes as my first project to sell. I made a few prototypes and I will say my second planter box I made was made *much* faster then my first one. So maybe more practice and speed that will help keep labor costs low. Thanks guys, I took some notes and I'll be visiting your other videos here soon.
4:30 TLDR (Material Cost + Labor Cost) * 1.5 = Sales Price. 1.5 is an arbitrary multiplier to generate profit, account for wear, your experience, etc. Scale the multiplier accordingly.
Don’t put a price on something based on your shopping past. As an artist your customers need to be above you, economically speaking. The worst thing to hear is not that the price is to high but when a client says what a deal it is .
Great video! Thank you for the advice. Starting out I used a pricing method of material cost x 2 = base cost. BC x 20% was starting price. From there add 20% for wholesale and then 20% more for retail. It was easy and effective for what we were doing. Question - what do the pins in the US map on the wall represent?
I just heard basically the same thing from a successful businessman a few weeks ago. His formula was parts + labor × 5. His company has been out of business for several years but he and his partners are all millionaires now.
Thank you guys so much! I've been struggling with trying to figure out pricing on the things I make. Almost to the point I was thinking of not making anything ever again.
You have to know when to FIRE YOUR CUSTOMERS. They are often ready to fire you over very minor things. I saw a comment a while back that a customer was trying to get something built at cost of materials... I told the person that is not the customer that you need. Fire that customer NOW and dont waste anymore time on them. The more time you waste on that customer the less time you are spending on finding that customer that will pay you.
All good comments below. I would add one more especially for those just starting out. If you start your pricing low it is much harder to raise your prices as word gets around about what you can do. By starting higher you don't have the burden of trying to figure out when and how to raise your prices.
Great video! Too often we price our products at a level, we feel, that potential customers won't turn down. When a customer says, no, to buying your product, it feels like rejection. Of course, this is ONLY in the beginning, because when doing business this way, there is no business after that. If we ask ourselves this question, or something similar...When starting a business, was everything needed, like materials, location/shop space, tools/equipment, etc, purchased at prices that couldnt be turned down? NO! Full price was paid. And that's why the businesses that sold all those start-up products is still in business. Sure, everyone likes a bargain. But not everything is at a bargain price and not all bargains are a better deal.
We run a Jewelry business - both our own fabricated product, as well as others (wholesale). The best advice we've followed is to remember we actually are running *three* businesses - Fabrication, Wholesale *and* Retail. As you recognize in the video, Fabrication costs are materials and labor, and "some" amount of overhead to cover utilities, tool wear, rent etc - generally expressed as an hourly addition. We then run a Wholesale business, whether selling to other shops *or* "selling to ourselves" - we still have to account for the time it takes for the accounting, or shipping to/from others, or making sales calls and chasing invoice payments., Finally, we run the Retail business, which is where we spend time with the clients, or maintain and operate the store (or website), process orders, invoices, payments, accounting etc. **EACH** of these needs paying for, and actual profit *beyond* costs - fabrication labor, wholesale overhead, retail overhead. If you are "just" running a fabrication business (hiring people to do the labor, buying the materials) you need to make a profit after costs. If you are "just" running a wholesale business (paying a fabricator), you need to make a profit *in addition* to the fabricator's profit. If you are "just" running a retail business (buying wholesale) you need to make a profit *in addition* to the wholesaler's profit. Just because *you* are all three businesses doesn't mean *each* shouldn't make profit - especially since, in essence, you are *part-time* at each of them. If you are *only* selling direct-to-consumer, you may be tempted to skip the wholesale stage - I don't recommend this, as it will miss costs you still have, and will prevent you from *ever* selling through other outlets *if* your product is available *both* from your "shop" (web) or others - people *will* research pricing, and will be upset if you under-price your retailers. Many, many "pricing strategies" out there skip all this, and just add a margin to costs. As you've noted, this is a disaster-in-waiting since it misses the real efforts. Yeah, it "raises prices" - in reality, it exposes your actual costs. If the result is beyond what your market will bear, then you have to re-think your product - *either* reduce material and/or labor - *OR* (what people most miss) raise the PERCEIVED VALUE of your product - if there is a specific technique, or material, that raises your costs, MAKE SURE the customer can SEE the value in the product and "give you credit" for that feature. Note I say "see" - if you have to explain it to the customer, you've lost the sale. It's not so much the exact multipliers, as it is separating out the different "costs" and labor at the different stages.
I’ve been doing cabinets for over 30 years. I work for a cabinet shop. But I have done many side jobs thru these years. Everything you talked about is to the tee. I underbid myself thinking I wouldn’t pay that much for that pc. Of furniture. Finally I decided to charge for what I think what I am worth. Clients don’t even bat an eye. As long as you can deliver.
very well explained and well displayed. But too many young or newbees forget the minor materials and things like utilities and advertising and business cards even shop rags etc. Also there is the business principal called alternative use of your money, that is what else could you use that same money for. Maybe you could make two end tables for the same cost( $650) and sell each for $600 therefore realizing more profit : it is very fair to charge $975 for this piece. Labor is the most expensive item in any service or hand made enterprise therefore if it is not factored in properly then losing money is inevitable.
Thank you so much for the financial confidence boost, I’m about to start building furniture and didn’t know where to start with costing, this will help heaps Cheers from Aus
So, I know everybody will want to tie me to a whipping post but, unless I'm paying somebody to actually perform labor I don't like to estimate price based on labor. And before anybody shoots me, let me explain why. First, my professional (I own a consulting company) hourly rate would fall around $x/hr. Hours are the product my business sells. When I invoice my clients it's for the number of products (hours) they consume. The rate my company charges is 3x what my personal rate would be and pay myself a salary. So just like everybody on a salary time expended is not important. I would never, ever, ever estimate how much time it would take to do a, b, c. There's way too many "what-ifs". Which brings me to my second point. If you were asked to bid on a custom piece and you estimate 40 hours of labor how many potential clients will think it will be done next week? And if it takes more than 40 hours are you going to charge them more? Take material costs x 3 or 4 and that's your price. You have to separate yourself from your business - if that makes sense. Run the business like you're the owner but, treat yourself as an employee who not only does the physical work but also manages the business and pay yourself a salary. That salary will probably be pretty small at first but, when business begins going really well give yourself a raise. When you can finally afford to hire someone then you'll need to worry about labor hours and rate.
That does not make any logical sense. If you build three identical tables. One from Pine one from oak and one from Mahogany. You get paid chump change for the pine table and a king’s ransom for the mahogany….
@@douglasmeyer1887 that's exactly why it makes sense. Materials cost is higher you sell it for more. What if you somehow screw up a piece of pine it'll cost next to nothing when you compare it to how much replacing a piece of walnut. That percentage leaves a buffer based on the cost of materials. The labor - if making the same exact table should be the same. But, if you add labor plus the cost of materials x the multiplier the cost of labor would be higher than it should be. If you want to add labor to a price do it after the multiplier for materials. That's why labor cost is really irrelevant because it should be covered in the "overhead" portion of the markup.
I like following you young go getters. Certainly agree too many people are working for free. You can see cutting boards for $35 on- line. My formula is materials x2 + $50 per hr.. Good luck have fun work safe!
This is good to know because people always ask me to build things for them and refinish furniture. And I'm a very green woodworker but apparently I do a pretty good job and I always have no clue what to charge someone.
This is a simple formula that is used in business, should be used in all business! I work in sales and estimation for an electrical contractor. The 1.5 multiplier is 50 GM. You could really customize this to what you building. Let’s say you can use a 2 or 3 multiplier on cutting boards, you have regular customers, you can build batches and fast, etc. this plan could let you lower your margin on targeted projects and expand customer base. Let’s say you make a dining table at 1.35 multiplier, still making a profit but you are letting the high margin items carry load, and when it all comes out in the wash your overall margin multiplier could be 1.75 for everything you make. It’s done this way at every contractor I’ve worked for.
The magic multiplier is also where you accommodate those customers that can be a little more difficult. If you're on the fence about a job because of the customer, timing, or whatever, just increase your magic multiplier. Customer is a pain in the fourth point of contact? Their number is 5. If they want to pay that, maybe it is worth dealing with them. Adjust to reflect your needs as a business.
Haha ya. Ive been in business for over 35 years. 1.5 is the lowest factor you should use HOWEVER the MARKET dictates the price at the end of the day. That $975 coffee table wont fly so like you say build it in half the time or build something else. Thx
How do you add a pricing factor for unique designs? I look for new ways to do old things...A new take on an archery bow stand, a re-think of what a bench might be, or re-imagining the concept of a chair.
I really hade this problem, which is pricing the items that I made for the customers. It is really annoying me alot. But I think your video for today will help me for that matter.
Most furniture I’ve ever seen in any of the chain stores was always made in China or Vietnam. All of the boards appear to have been made on an assembly line, packaged neatly in cardboard then assembled in the receiving area of the store then wheeled out onto the showroom for the customers. They probably have an assembly line style of production, so there’s no down time between one piece of furniture and the next. Somebody producing in their garage is having to reconfigure their garage in between each piece. I don’t feel like you’ll ever be able to compete on cost to the mass produced, pressed “lumber” furniture, so you should concentrate on making a finer product with much better materials.
Remember that your customers are not those who buy mass produced items, if you are marketing correctly you will have followers/ customers who appreciate and recognise that handmade one off products come with a price tag that reflects their value and uniqueness. Make sure you have spent time making sure you know who your ideal customers is and where they shop online/ which social media platforms they use, create great products and amazing photographs of the product as well as the process of making the item, showcase this online and your customers will find you.
Good start to this discussion, but you have to also consider what the going market rate is for the items you are selling. No matter your costs, you won't be able to sell your products if you are priced higher than the competition without more perceived value. Unless you are building something niche or of very high quality, I would say a slightly better approach is to start by working at it from both sides of the equation by reducing either your hourly rate or your multiplier so that your prices are competitive until you get so much demand that you can raise your prices.
'going market rate' doesn't matter until you have an appreciable amount of the market cap. For small hobbyists and local Makers, spend your time finding the customers who will pay above 'going market rate' and don't look back!
@@jennieanddavis not sure market cap means what you think it means. In any case, you must have a competitive advantage like originality or first-to-market in order to sustainably charge above what other companies charge for similar products. This is business school 101 stuff. Hope it helps
The reality is thats to cheap. People forget overheads . Tax. Superannuation . The big mindset issue is realising you are actually going broke and the more you sell the worse it gets. You have to do the REAL numbers before you even start.
You need to do the in depth numbers before you get too big, but if your business plan is selling a few hundred dollars on entry level products... you just need to get started. Get started, remain vigilant on taxes, and be willing to adapt as you grow. You may lose money on some, and make money on some, but I'm assuming most folks aren't starting out with high dollar (high risk) ventures.
My dad had a successful machine and welding shop. He said that if there isn’t 10 to 15 percent of the customers complaining about high prices, you aren’t charging enough.
one of my machinist instructors at school used a similar formula for cost estimating. material plus labor X2 then, X2 for good measure. and then you can cut the price from there lol
Lol! Intelligence is not a requirement for welth." Best quote ever.
True. My last business however was a sawmill. People normally try to get as cheap as possible that’s understandable. Ive had customers tell me I’m selling my lumber too cheap. I would agree but watching what other mills charge I followed that BECAUSE of the cheap thing although my lumber was superior to other mills i wasnt able to raise my prices above theirs and guarantee sales. Business is fickle
The key to remember is, they came to you for a CUSTOM piece! If they want cheap, they can go to the big box store and “settle for”!
Head slap. What an elemental and perfectly applicable formula. I have been building for years and will start using this formula (and maybe even revisiting old invoices!). The biggest problem in my eyes is that custom building projects CAN NOT be cost compared to mass produced products from overseas. Unless you are in a race to the bottom (you will never beat Walmart). That said, makers must produce products that have other advantages (better built, customization, personalization, accessibility, etc.). Thanks guys for another fun/useful video.
Go watch the very first video in the Maker’s Money series. We address that topic head-on!
"Race to the bottom" is exactly right. Reasonable people understand that quality is a distinguishing factor - for better or for worse, i.e., poor quality is worthless, regardless of the materials used. Unreasonable people who do not understand this are not going to be valued clients, so I wouldn't spend much time trying to convince them. Chances are that both of us will ultimately be unsatisfied by some aspect. J&D address that in one of their earlier vids.
I appreciate this very much I have been stuck in a rut ever since I was basically fired from my first job. The client wanted at first to build a brand new shed an tear the old one down. I gave an estimate for that and they decided they wanted to just redo roof and put new siding. Then that estimate was pretty close to the original because pretty much same material needed except for the 2x4. Then they decided to go ahead and rebuild it. Which then in my confusion I ended up losing out on some labor. Well I finished the framing and the trusses installed and was halfway done with sheathing and I had a doctors appointment which they decided was not going to get it done. I lost a lot of money on that one.
As a customer recently told me: “custom products = custom prices”
I didn’t think this would work, so I flipped to side tables, painted them and replaced the hardware and priced it according to this formula thinking “we’re not going to have any responses. I would NEVER pay this much for them” . They sold the same day and had a ton of responses, hahaha … thank you guys!
I LOVE the look on peoples faces when I tell them "You can always buy the one at Wal-Mart" when I won't come down a price I've quoted them!!
This is funny!
I bet they are thinking but i wanted custom made. Well Yeah, that's why is more expensive because it's custom made to your needs and Handmade
This is fantastic! I just sold my Roubo split-top workbench that took me 500 hrs to build for $25,000! A profit of $8,000! That was my first and last customer. I’m out of business now for being overly confident.
Thank you for making this video. I've been struggling with pricing my projects for a while now. I build custom subwoofer enclosures. Depending on the type of finish I can usually get these done in 1 day. Using your formula gets the price close to what others are selling for online. I've been doing charity work as you said. This is much appreciated.
Keep raising prices! You probably offer a lot more to the customer than some stranger on the internet can! Customer service, no shipping problems, custom sizes, etc.
I've been following your advice and I'm selling more than ever! Thank you so much!!!!! ❤
You should also take a down payment before you start work on any custom job.
Whenever I make something custom, I ask for a downpayment of the material costs to produce it, that way I'm not buying the materials out of my own pocket.
Have a better day!
I always ask for 50 percent so part of labor is included
Doesn't that also incentivize their purchase ability and make the pill a bit easier to swallow for them?
"5 EASY PAYMENTS OF 99.99" is a thing for a reason.
As long as you aren't a shady salesman I feel this works for both parties.
@@CFChristian no. It’s custom hand made furniture. 50 percent down to cover you in case the deal goes sour. Human behavior cannot be underestimated.
This is great, it's worth remembering that time for consultation, design development and actually sourcing materials should be factored in as well.
I will never forget the time almost 4 decades ago when I was in my friend's kitchen. He hauled up this huge box and started unwrapping it. I said... 'What's that?" he said "It's a coffeemaker. New advanced technology." So I said, "Wow, that looks cool. Is that a good model"? to which he replied, "It's the best one they had!". I thought about that for a minute and asked him "What made you think that?" I was thinking maybe a magazine review or something like that. I will never forget his answer. "It has to be the best because it was the most expensive one."
Some people really believe that, and to people like my friend, the more you charge the more attractive it will be.
Nice simple way to do it. Provided you know your costs well, this should yield ~33% gross margins which is pretty spot on for a healthy business.
For those who want the formula shearing, jump to 4:45 in the video.
Decent content. I understand ads on your channel help fund your channel. However, I'm not a fan of ads over 5 seconds and I'm sure I'm not the only one.
If and when the ads are reduced to the 5 seconds, I can see myself returning to watch your content. If not, I'd likely won't return. I'm sure I'm not the only one that feels this way.
As a professional accountant I think this is a great formula - especially for a busy shop or a shop that is located in your home. It does a great job of simplifying overhead calcs. Just be sure to adjust the labor formula when you get to the point where you are hiring help to encompass the employer paid FICA taxes.
The best advice I was given when going to to business, you can't ask for more but you can always give a discount. Plus customers always prefer you come in under the number you quote not over. So use this formula, see what number it produces, then decide if you can''t charge this much then your business isn't viable, you can't do it for less so either do it faster, use cheaper materials, or sell it better, otherwise don't do it at all.
I agree 100% with everything mentioned in this video. After I get paid on Friday I'll be buying a dewalt job table saw and miter saw and looking to get started in woodworking. These videos are great! Thanks for sharing
What a great video! I have been trying to wrap my head around what I should be charging and not what I'm settling for. The prices just went up! Thank you!
My formula is very similar. Mats + hourly * 1.25 for monthly bills then another * 1.25 for profit, then if I'm selling at a craft fair I might add another 50-100% for fuel and also time away from the shop that I'm not making things to sell.
But I like the 1.5 thing. That will save me a step. ;)
Thanks guys! You really solved my problem on how to price my sofa business. This will be my first business and we will open our store for the next 2 weeks. :)
very blunt and practical. guess this is the first time a video has ever given me a hard slap and brought me back to reality.
Subscribe! We’re full of that kind of stuff!
This is exactly the formula I used for years in my sign business. Great Job on the video! And a very good way to Illustrate your point in the beginning of this video to make your point clear and understandable. We’ll thought out. Keep up the good work.
Thanks for your great insight on this topic. The formula makes perfect sense. My issue is that I take a lot longer to build items because of the inefficiencies in my woodworking. I tend to be a perfectionist and always find myself repeating steps to make the project better. Therefore the project that should take maybe four hours total ends up 8 to 12 hours.
Thanks for sharing. Felix
Hey Felix. What helped me (Davis) in this area is to work backwards! Nail down a budget from the customer, then work backwards using the formula (and a little algebra) to find the maximum amount of time you can spend on the project! Then do your best to stick to that.
My parents bought a dining room table and china cabinet custom made out of Cherry from an older gentleman (mid 70's) for about $5,000.00. This was back in the mid 80s and that was a big chunk of change for furniture. Every time I go to my moms for a visit, we sit around those same pieces, 40 some odd years later. You get what you pay for when it comes to hand made custom furniture, why would you expect to pay less and get more? It just makes no sense.
Wow, shows also the impact your effort can have. 40 years later those pieces are still where you all come together
$5,000 in 1985 is equivalent in purchasing power to about $12,915.80 today.
@@duderguy1571 That’s actually a decent comparison time and price wise.
@@duderguy1571 wow! Not gonna lie that’s a lot of money… for a table… a lot of money
Great video, very helpful, I made a new table base for a friend a while ago and afterwards I got to figuring that I made all of like $5 an hour on that project. They were moving and the original table base fell out of the back of their truck when they were backing down a steep driveway and it got run over so was asked if I could make a new one for them. A few years ago I was contacted by a woman who asked me to make a couple shelves for her, it was a complete nightmare and she was such a pain o work with. In the end I made no money, if anything I think I lost out on that one just from the labor and the headache that she cost me 🙄. Thanks for sharing this video, it was definitely beneficial for me and I’m sure it was for a lot of others as well.
so you just wanted to vent. cool
@@pekitas I wasn’t just wanting to vent I was just wanting to share some of my experiences. The table base I didn’t have any problem with how much I got paid because it was for a good friend but the lady that I did the shelves for I should have just dropped them off on her door step but I didn’t want to get a bad reputation from having a lousy costumer.
Friends are the worst for keeping your sanity an price where you can make it worth while /just rember people when you get your auto worked on you pay /an the friends have to pay / this is the way you make a living !
This is a must, I’m a handyman/furniture maker/kitchen fitter etc. started using this formula a few years ago i now win approx 56% of my work bids but make a ton more money.
Yes! Stu gets it!
This is the first I have ever seen from you two and I must say, keep it up. Your ability and form of teaching are fresh, to-the-point, and enticing. As others have said, some of your quotes I have never heard anyone say: "Intelligence is not a requirement for wealth", but I vibe with 100% and have even thought similarly before. Keep up the amazing show, you have just gained a subscriber!
this is pretty much what i use and the nice thing about the multiplier itself is it also accounts for any under estimations, or problems that come up in the process of making the thing
I'm only a student and building for family and friends and I've already WAAAAAYYYYY undercharged for pieces I've built and it sucks, gonna try this and hope I can actually implement it.
“Build it faster, or find a new customer”. I love it!
There are people that understand what goes into a project, and there are people that say "well I could do that cheaper". You want the former ones as your customer and run fast and far from the latter.
in manufacturing industry people tent to bellieve big clients to be important customers and offer sharity to them. in a way it can be sensible if you trade secure (not imaginary) deals out of it.
Lack of confidence and salesmanship is the bane of my capitalistic craftsman existence. Thanks guys. Got my sub.
Chris! Join the Stud Stack!!!! Confidence is like a hot coal. If you’re with others, you’ll get more confident. Spend time away from the fire, you’ll start to lose your heat!
I think this is great advice (and a $250 daily rate is actually pretty low). I think where it's gets tricky is when you're talking about those super custom, labor-of-love type woodworking projects. It is more difficult to apply this formula successfully due to the extensive hours those projects take, and in order to be profitable with them you really need to be selling to a niche customer base... in other words rich people.
Howdy (again 😀)
Just found your "Maker's Money" section of videos. Damnit!! I've got stuff to do and y'all just made me binge watch your playlist 😂.
I'm one of those "types" that think my skill/product isn't good enough, no one is gonna buy this. My friends and family have always told me my stuff looks great. But I always thought, well they're just saying that not to hurt my feelings. I see the flaws in what I built...there's a check in the wood here, the stain isn't even, it's a 32nd out of square, the 45 doesn't completely seam to the other 45....are you guys blind. But, they never see those flaws, only me.
So, I have low self confidence in my own skill cause it's not "perfect". In 30 years of woodworking, I can't think of a single project I've made that was ever "perfect". So, I never thought people would buy anything I made.
Watching your videos has given me confidence. I am the reason I never tried.
Thanks for opening my mind.
I have been using this formula for years and it works well. The issue I have is the quality of work that s being generated. A lot of these comments say how much we would be surprised how much people pay for quality work, but of the same formula is used for "less than" quality work, it kinda muddies the waters. Would I like to be charging the same amount as Michael Fortune? SURE! Can I? No way. The difference is going to be in the magic multiplier. Where Michael Fortune can set his at 5 times, I can probably stick with 2/2.5 times.
Good video, though.
This is the most helpful video I’ve ever watched on pricing for my business. Thank you so much for this!
Nice little vid. There's really no way around any of this and it's as simple as it can reasonably be.
I often joke with family/friends and say that I went into ministry because I don’t like math and we don’t do math in ministry. This is definitely some math I can understand! Thanks for helping out someone new to woodworking!
For all the perfectionist, a quote I heard recently. "Perfection is the enemy of good enough." Perfection of course is a relative term.. I am a recovering perfectionist... As one's skill and efficiency increase "perfection" becomes less of an issue.
Thank you for this. I was over thinking.
I'm in metal working. And we use a 3 multiplier but and go as low as a 2 multiplier. For beginners I like the 1.5. But that would have to increase quickly.
So the formula they are providing is an industry standard, and your organization's X3 or X2 is an industry standard as well?
@@TheGrumpyChef I think it is pretty standard. I work for a commercial general contractor and the way we bid jobs is to estimate our labor and costs, add it to subcontractors pricing, then add a "fee" on top of that which is a percentage and depends on how aggressively we want to bid the job. if we really want the job, we go with a 1% fee, if we don't want to be as aggressive, maybe we go to a 2 or 3% fee or higher if we think we can. So a 1 Million dollar job would net us 10,000 in overhead and profit at a 1% fee. From a woodworking perspective, just like in other sectors, supply, demand and name recognition can alter the percentages, but that's not something beginning wood workers usually need to worry about.
I wasn't far off but this is definitely more profitable than what I was doing... (materials x3) x hourly = total. Thanks ill write it down moving forward
Thank you for the inspiration and help!
This is awesome. Tried figuring how to price and there was so many different ways by different people. I’m definitely going to try and use this one for my stuff. THANK YOU!!!
i am greatly amused right now. i just found this video today but i was thinking about this subject for about a month before now and just yesterday i finished my pricing formula. it is exactly the same.
the thing i realized, and in turn allowed me to finish my pricing formula, was that with what i do know how to do and my skill at doing those things i am worth that hourly rate. and believe it or not, so are you. the first few times you sell some things at that price it will be uncomfortable. however, when you get the first sale and then get more sales at that price, you will get more confident and more skilled. then your magic multiplier will increase. and more money is rarely uncomfortable.
Good Video and directional correct. However more detail should go into whats making up the Multiplier(s). I.e. calculate your G&A cost. Critical to know if you're in the black on expenses. And yes the G&A includes marketing and BD expenses.Thats a sunken cost that either turned into sale or not. Like the fact you're covering O&M expenses in there however make sure you calculate wear and tear on the tools and machinery . Quality / Custom made items are at a higher value / price point than say an item from IKEA or production furniture store. Also Shipping and Handling should be outside the sale pricing.
It's this kind of bean-counting that keeps people from trying, failing, learning, and succeeding. Make a few sales, lose a few bucks, and fail better the next time. Do spreadsheets and cost comparisons later! Get moving first!
Im just starting out and seem to have lost on every job. THen this seems to be very high. Confidence is much needed. Thank you.
The ikea effect really melts people’s brains when you tell them a price.
Not to be negative, but, there is absolutely no way anyone around me is going to pay $975 for a coffee table unless it comes with a chef to roast, grind, and brew it for them. I live in hickville U.S.A. Most everyone around here works in a carpet mill, or hospitality field or farming. I'm a decent woodworker but I'm certainly not nor will I ever be Norm Abrams. Maybe I should just stick with cutting and hauling fire wood. Either way I certainly hope this video helps aspiring woodworkers. Good luck to all and may you all have a great and very prosperous new year!
Your biggest obstacle is your mindset. You don't need to be Norm Abrams, nor are you doomed to stay a beginner. There are wealthy people within driving distance of where you live who want custom furniture. You can find them. There are over 20 million millionaires in the USA.
Thank you for sharing your video and for the information.
Simple and easy. I had spreadsheets that calculated bf for projects materials and supplies etc. At the end of the day it was close and took a while to build. It was a useful learning experience when shop time was slow. Key learnings, use a day rate, forget the hour rate. How many days will this take you to build, or how many can you build in a day. No one works 8 or 10 hours straight. Boils down to time and materials. In my experience the 1.5 is a close estimate for the extras that you run into, overnight changes in materials, mistakes, wastage etc. Some you under estimate others you over estimate, but you don't waste time thinking about it. For me it is closer to 1.65-1.75, this also allows some flexibility for a "discount" price that people look for ... now you can give without your business losing money. You can always say no to anything and anyone.
I would knock out gainers like it was my job at 14. 25 years later my back felt like it suffered an instant exorcism and reminded me how old I was.
What I like about this is that not only you're getting paid for your labor, but your company also gets paid so it can make a profit.
That's where a lot of one person or mom & pop shops go wrong.
For example, they say, "We made $50,000 last year." I then ask, How much did the business make?
If you can do the same job and make the same money working for someone else then do that. It eliminates all the other hassle of running a business. You have to price out your labor, what you would have to pay someone from the outside to run the office, and all the overhead. If you work out of your house the rent is free, but what if the business grows and you have to move into a rented space and did not factor that into your price? Now you have to raise the selling price which alienates your customers.
If your price is high to begin with, as competitors come into the market you may just be able to keep the price the same and increase efficiency in production to maintain your profit.
Most people do not add in all of the fixed and variable costs such as year end tax preparation, utilities, insurance, vehicles, lawyers, tools, furniture, etc.
For independently designed and made pieces, X 1.5 isn't that bad. 30/hr is too high for most novices. Just multiply the cost of materials by 3-5 depending on the complexity. Then add wear/tear/delivery. So skill level doesn't affect hourly. Be ready to have a varied inventory that works as advertising for other customs that you can charge more for.
I'm a little leery of using this formula tbh given how I am just starting out and feel like my work is too novice as of yet. But I will give it a shot and see what happens since I will be attempting to batch make planter boxes as my first project to sell. I made a few prototypes and I will say my second planter box I made was made *much* faster then my first one. So maybe more practice and speed that will help keep labor costs low. Thanks guys, I took some notes and I'll be visiting your other videos here soon.
4:30 TLDR (Material Cost + Labor Cost) * 1.5 = Sales Price. 1.5 is an arbitrary multiplier to generate profit, account for wear, your experience, etc. Scale the multiplier accordingly.
That distills it down too far, and ignores further details about expansion, but hey.. I look forward to you dumbing down more videos.
@@lokidecat you can lead a horse to water but you can’t make him drink… you can only hope to make him thirsty… 🤷🏼♂️
Don’t put a price on something based on your shopping past. As an artist your customers need to be above you, economically speaking. The worst thing to hear is not that the price is to high but when a client says what a deal it is .
Great video! Thank you for the advice. Starting out I used a pricing method of material cost x 2 = base cost. BC x 20% was starting price. From there add 20% for wholesale and then 20% more for retail. It was easy and effective for what we were doing.
Question - what do the pins in the US map on the wall represent?
I just heard basically the same thing from a successful businessman a few weeks ago. His formula was parts + labor × 5. His company has been out of business for several years but he and his partners are all millionaires now.
Thank you guys for this great content! I know this takes time and money, so thank you!!
You just spent the first 3 minutes describing me... 😆 less think, more do! ✌🏽
Thank you guys so much! I've been struggling with trying to figure out pricing on the things I make. Almost to the point I was thinking of not making anything ever again.
You have to know when to FIRE YOUR CUSTOMERS. They are often ready to fire you over very minor things.
I saw a comment a while back that a customer was trying to get something built at cost of materials... I told the person that is not the customer that you need. Fire that customer NOW and dont waste anymore time on them. The more time you waste on that customer the less time you are spending on finding that customer that will pay you.
All good comments below. I would add one more especially for those just starting out. If you start your pricing low it is much harder to raise your prices as word gets around about what you can do. By starting higher you don't have the burden of trying to figure out when and how to raise your prices.
Great I learned about this 😊😊 thanks 🎉
Thanks for the insight on this video! Nothing good is easy, and this is good stuff you both create.
I also add the "intake cost" into my labor cost. The time you make taking the order...
Thank you.... I over think things...this was very helpful... I saw my self on the diving board pearlized to move forward..
Great video!! Tyty. Informative, fun, and energetic....great!!.
Great video!
Too often we price our products at a level, we feel, that potential customers won't turn down. When a customer says, no, to buying your product, it feels like rejection. Of course, this is ONLY in the beginning, because when doing business this way, there is no business after that.
If we ask ourselves this question, or something similar...When starting a business, was everything needed, like materials, location/shop space, tools/equipment, etc, purchased at prices that couldnt be turned down? NO! Full price was paid. And that's why the businesses that sold all those start-up products is still in business. Sure, everyone likes a bargain. But not everything is at a bargain price and not all bargains are a better deal.
Purchasing a great product is usually the best deal.
Been using this type formula for years. Works quite well.
We run a Jewelry business - both our own fabricated product, as well as others (wholesale). The best advice we've followed is to remember we actually are running *three* businesses - Fabrication, Wholesale *and* Retail. As you recognize in the video, Fabrication costs are materials and labor, and "some" amount of overhead to cover utilities, tool wear, rent etc - generally expressed as an hourly addition. We then run a Wholesale business, whether selling to other shops *or* "selling to ourselves" - we still have to account for the time it takes for the accounting, or shipping to/from others, or making sales calls and chasing invoice payments., Finally, we run the Retail business, which is where we spend time with the clients, or maintain and operate the store (or website), process orders, invoices, payments, accounting etc.
**EACH** of these needs paying for, and actual profit *beyond* costs - fabrication labor, wholesale overhead, retail overhead. If you are "just" running a fabrication business (hiring people to do the labor, buying the materials) you need to make a profit after costs. If you are "just" running a wholesale business (paying a fabricator), you need to make a profit *in addition* to the fabricator's profit. If you are "just" running a retail business (buying wholesale) you need to make a profit *in addition* to the wholesaler's profit. Just because *you* are all three businesses doesn't mean *each* shouldn't make profit - especially since, in essence, you are *part-time* at each of them.
If you are *only* selling direct-to-consumer, you may be tempted to skip the wholesale stage - I don't recommend this, as it will miss costs you still have, and will prevent you from *ever* selling through other outlets *if* your product is available *both* from your "shop" (web) or others - people *will* research pricing, and will be upset if you under-price your retailers.
Many, many "pricing strategies" out there skip all this, and just add a margin to costs. As you've noted, this is a disaster-in-waiting since it misses the real efforts.
Yeah, it "raises prices" - in reality, it exposes your actual costs. If the result is beyond what your market will bear, then you have to re-think your product - *either* reduce material and/or labor - *OR* (what people most miss) raise the PERCEIVED VALUE of your product - if there is a specific technique, or material, that raises your costs, MAKE SURE the customer can SEE the value in the product and "give you credit" for that feature. Note I say "see" - if you have to explain it to the customer, you've lost the sale.
It's not so much the exact multipliers, as it is separating out the different "costs" and labor at the different stages.
I always say, don't pretend to know how much money someone has. A price for a product might be high for you, but lunch money for someone else.
LOUDER for the people in the back!
I’ve been doing cabinets for over 30 years. I work for a cabinet shop. But I have done many side jobs thru these years. Everything you talked about is to the tee. I underbid myself thinking I wouldn’t pay that much for that pc. Of furniture. Finally I decided to charge for what I think what I am worth. Clients don’t even bat an eye. As long as you can deliver.
Is the labor cost in-line with what is paid to hourly employees in the cabinet business?
@@TheGrumpyChef no, I price closer to what my company charges per man hour to keep the doors open.
You’re right I don’t like the formula AND I’m scared, but I NEED it.
very well explained and well displayed. But too many young or newbees forget the minor materials and things like utilities and advertising and business cards even shop rags etc. Also there is the business principal called alternative use of your money, that is what else could you use that same money for. Maybe you could make two end tables for the same cost( $650) and sell each for $600 therefore realizing more profit : it is very fair to charge $975 for this piece. Labor is the most expensive item in any service or hand made enterprise therefore if it is not factored in properly then losing money is inevitable.
Thank you so much for the financial confidence boost, I’m about to start building furniture and didn’t know where to start with costing, this will help heaps
Cheers from Aus
So, I know everybody will want to tie me to a whipping post but, unless I'm paying somebody to actually perform labor I don't like to estimate price based on labor. And before anybody shoots me, let me explain why. First, my professional (I own a consulting company) hourly rate would fall around $x/hr. Hours are the product my business sells. When I invoice my clients it's for the number of products (hours) they consume. The rate my company charges is 3x what my personal rate would be and pay myself a salary. So just like everybody on a salary time expended is not important. I would never, ever, ever estimate how much time it would take to do a, b, c. There's way too many "what-ifs". Which brings me to my second point. If you were asked to bid on a custom piece and you estimate 40 hours of labor how many potential clients will think it will be done next week? And if it takes more than 40 hours are you going to charge them more?
Take material costs x 3 or 4 and that's your price. You have to separate yourself from your business - if that makes sense. Run the business like you're the owner but, treat yourself as an employee who not only does the physical work but also manages the business and pay yourself a salary. That salary will probably be pretty small at first but, when business begins going really well give yourself a raise. When you can finally afford to hire someone then you'll need to worry about labor hours and rate.
That does not make any logical sense. If you build three identical tables. One from Pine one from oak and one from Mahogany. You get paid chump change for the pine table and a king’s ransom for the mahogany….
@@douglasmeyer1887 that's exactly why it makes sense. Materials cost is higher you sell it for more. What if you somehow screw up a piece of pine it'll cost next to nothing when you compare it to how much replacing a piece of walnut. That percentage leaves a buffer based on the cost of materials. The labor - if making the same exact table should be the same. But, if you add labor plus the cost of materials x the multiplier the cost of labor would be higher than it should be. If you want to add labor to a price do it after the multiplier for materials. That's why labor cost is really irrelevant because it should be covered in the "overhead" portion of the markup.
Wow, great video!
I like following you young go getters. Certainly agree too many people are working for free. You can see cutting boards for $35 on- line. My formula is materials x2 + $50 per hr.. Good luck have fun work safe!
This is good to know because people always ask me to build things for them and refinish furniture. And I'm a very green woodworker but apparently I do a pretty good job and I always have no clue what to charge someone.
Toughest part of any job imo. Pricing.
This is literally inputs X overheads (tweaked with reinvestment profit) it's actually really smart
Thanks J&D
This is a simple formula that is used in business, should be used in all business! I work in sales and estimation for an electrical contractor. The 1.5 multiplier is 50 GM. You could really customize this to what you building. Let’s say you can use a 2 or 3 multiplier on cutting boards, you have regular customers, you can build batches and fast, etc. this plan could let you lower your margin on targeted projects and expand customer base. Let’s say you make a dining table at 1.35 multiplier, still making a profit but you are letting the high margin items carry load, and when it all comes out in the wash your overall margin multiplier could be 1.75 for everything you make. It’s done this way at every contractor I’ve worked for.
Not to mention up selling products. Customized laser engraving for $X.XX, etc. add ons and up sells typically have a huge margin.
The magic multiplier is also where you accommodate those customers that can be a little more difficult. If you're on the fence about a job because of the customer, timing, or whatever, just increase your magic multiplier. Customer is a pain in the fourth point of contact? Their number is 5. If they want to pay that, maybe it is worth dealing with them. Adjust to reflect your needs as a business.
This is exacly what I was looking for! Starting my first custom project this week and I wanted to know how much to charge. Left a sub
This is totally off topic, but I love the intro theme song. I dont know why, it's just fantastic.
A different/ better angle on what I've been doing for a looong time.
I like better. Alot.
Thanks
Very sound advice, thank you for sharing.
Haha ya. Ive been in business for over 35 years. 1.5 is the lowest factor you should use HOWEVER the MARKET dictates the price at the end of the day. That $975 coffee table wont fly so like you say build it in half the time or build something else. Thx
That’s was a FANTASTIC video!
How do you add a pricing factor for unique designs? I look for new ways to do old things...A new take on an archery bow stand, a re-think of what a bench might be, or re-imagining the concept of a chair.
That’s great! And if you want to sell it, you need to find out the customers budget and work backwards from that constraint
Thank you!
I really hade this problem, which is pricing the items that I made for the customers. It is really annoying me alot. But I think your video for today will help me for that matter.
Most furniture I’ve ever seen in any of the chain stores was always made in China or Vietnam. All of the boards appear to have been made on an assembly line, packaged neatly in cardboard then assembled in the receiving area of the store then wheeled out onto the showroom for the customers. They probably have an assembly line style of production, so there’s no down time between one piece of furniture and the next. Somebody producing in their garage is having to reconfigure their garage in between each piece. I don’t feel like you’ll ever be able to compete on cost to the mass produced, pressed “lumber” furniture, so you should concentrate on making a finer product with much better materials.
Remember that your customers are not those who buy mass produced items, if you are marketing correctly you will have followers/ customers who appreciate and recognise that handmade one off products come with a price tag that reflects their value and uniqueness.
Make sure you have spent time making sure you know who your ideal customers is and where they shop online/ which social media platforms they use, create great products and amazing photographs of the product as well as the process of making the item, showcase this online and your customers will find you.
100% agree. Great vid. Simple formula but it works.
Good start to this discussion, but you have to also consider what the going market rate is for the items you are selling. No matter your costs, you won't be able to sell your products if you are priced higher than the competition without more perceived value. Unless you are building something niche or of very high quality, I would say a slightly better approach is to start by working at it from both sides of the equation by reducing either your hourly rate or your multiplier so that your prices are competitive until you get so much demand that you can raise your prices.
'going market rate' doesn't matter until you have an appreciable amount of the market cap. For small hobbyists and local Makers, spend your time finding the customers who will pay above 'going market rate' and don't look back!
@@jennieanddavis not sure market cap means what you think it means. In any case, you must have a competitive advantage like originality or first-to-market in order to sustainably charge above what other companies charge for similar products. This is business school 101 stuff. Hope it helps
Thanks!! This helped me out greatly!!
What about for online virtual products, any formula for that since the material cost in a way is $0?
Thank You and God Bless you.
The reality is thats to cheap. People forget overheads . Tax. Superannuation .
The big mindset issue is realising you are actually going broke and the more you sell the worse it gets.
You have to do the REAL numbers before you even start.
You need to do the in depth numbers before you get too big, but if your business plan is selling a few hundred dollars on entry level products... you just need to get started. Get started, remain vigilant on taxes, and be willing to adapt as you grow. You may lose money on some, and make money on some, but I'm assuming most folks aren't starting out with high dollar (high risk) ventures.
This was really helpful!…..Thanks!