Pricing Projects
Pricing Projects
I see the topic of pricing work come up over and over again, so I thought I would share my thoughts on the matter. By no means am I a guru of pricing or anything, but I have come up with a decent system that seems to work for me. I am currently a "full time" woodworker, but haven't been for long. There are many more experienced folks on LJ's, so take this with a grain of salt.
I start with the same master excel spreadsheet for every project. The spreadsheet has three separate sections - Labor, Materials, and Overhead.
I begin with labor. The first step is to pick an hourly rate for yourself. This can be hard, but I believe that in any for-profit situation (not a favor for a family member or anything like that) your hourly wage rate needs to be at least in the $15 range. For reference, I am in Fort Worth, Texas if you want to know what region I am basing that wage rate off of. I charge more than that now, but on my first few projects, I didn't. It is really hard picking this rate for yourself because you feel like you are grading your own test. But remember, you are the guy with the tools and the knowledge. They came to you for a reason. It is because you possess skills and knowledge that they don't have. That is worth money. Try as hard as you can not to short yourself.
The second step of the labor estimate is to painstakingly think through the entire build process, activity by activity. This usually takes me 2 hours or so. When I start thinking through my build sequence, I literally talk through how I am going to build the entire project. This is how the conversation with myself goes, this gets a little schizophrenic, but hang with me:
"Self, first you are going to have to go to the lumberyard. That will take you about 4 hours total, if you include driving and picking through lumber."
- Punch in 4 hours for material pickup
"Self, after that, you will have to unload at the shop. That'll take an hour"
- Punch in 1 hour for unloading
"Self, next you will have to do all of the milling. You can probably do that in 8 hours"
"No you can't, idiot."
"Ok, 10."
"Get real, doofus"
"Ok , let's just go with 12."
"That's better"
- Punch in 12 hours for milling
And so on. Now, as you are punching in numbers for hours and thinking through your build process, you should also be considering all of the materials you will be using for each step and putting them over in your material section. At the end of the labor section you should have a good idea not only of how long this is going to take, but also how you are going to do it. Once I am done with labor, I usually work through the build sequence once more, this time really focusing on materials. After the second time through the build process, you should have a very good labor and material estimate. 2 tips for the manhour estimate
1) Don't skip small stuff like material purchase, clean up, delivery, etc. That stuff adds up. And despite the fact that you don't feel like you are working when you are doing it, you are.
2) Don't overestimate your speed. I did that once and got obliterated on a price. Underestimate if you need to. Be realistic.
Overhead is a smaller chunk of the pie, especially for someone who doesn't do much volume per year. Over the past year, I have done a decent amount and will be claiming my profits on my personal tax forms, so I factor in taxes, profit (10%ish depending), electricity, and gas in this section. I know taxes aren't something that come up with a lot of you, but if you neglect state and income tax and then end up having to pay them in the end, you will likely lose 30%ish of your revenue, not just your profit. That is why I try to keep that stuff in order and build in a buffer so that when I get a serious negative tax return, I have money in the bank to pay for it (just don't spend that money on go-karts and stuff ).
At the end, I just add up all labor, material, and overhead. That is my final price. I look at it every time and think it is astronomical. I tell myself that I have to lower my hourly rate. Or I have to do without some of the materials. Anything to bring the price down. But then I realize that despite my own reservations about how good I am and what I am worth, I am still probably better at woodworking than at least 99.5% of the population. And a lot of you likely are too. Not many people know as much about woodworking as us dorks, and we have to use that to our advantage. Our knowledge base, accrued skills, and time are worth something. So don't screw yourself over.
In my opinion, you HAVE to be systematic when pricing projects. Shooting from the hip works sometimes, but I would advise against it. For example, just doubling or tripling material cost will murder you on a very labor-intensive job with small amounts of wood. If you work through the entire process every time, you are much less likely to get burned.
I'd be happy to send my excel spreadsheet to you for your use, but I don't think we can attach things onto blog posts. No guarantees that it is a flawless financial document or anything, but it is a decent place to start. PM me if you are interested in that.
Hope you enjoyed the read. Comments and criticism welcome.
Pricing Projects
I see the topic of pricing work come up over and over again, so I thought I would share my thoughts on the matter. By no means am I a guru of pricing or anything, but I have come up with a decent system that seems to work for me. I am currently a "full time" woodworker, but haven't been for long. There are many more experienced folks on LJ's, so take this with a grain of salt.
I start with the same master excel spreadsheet for every project. The spreadsheet has three separate sections - Labor, Materials, and Overhead.
I begin with labor. The first step is to pick an hourly rate for yourself. This can be hard, but I believe that in any for-profit situation (not a favor for a family member or anything like that) your hourly wage rate needs to be at least in the $15 range. For reference, I am in Fort Worth, Texas if you want to know what region I am basing that wage rate off of. I charge more than that now, but on my first few projects, I didn't. It is really hard picking this rate for yourself because you feel like you are grading your own test. But remember, you are the guy with the tools and the knowledge. They came to you for a reason. It is because you possess skills and knowledge that they don't have. That is worth money. Try as hard as you can not to short yourself.
The second step of the labor estimate is to painstakingly think through the entire build process, activity by activity. This usually takes me 2 hours or so. When I start thinking through my build sequence, I literally talk through how I am going to build the entire project. This is how the conversation with myself goes, this gets a little schizophrenic, but hang with me:
"Self, first you are going to have to go to the lumberyard. That will take you about 4 hours total, if you include driving and picking through lumber."
- Punch in 4 hours for material pickup
"Self, after that, you will have to unload at the shop. That'll take an hour"
- Punch in 1 hour for unloading
"Self, next you will have to do all of the milling. You can probably do that in 8 hours"
"No you can't, idiot."
"Ok, 10."
"Get real, doofus"
"Ok , let's just go with 12."
"That's better"
- Punch in 12 hours for milling
And so on. Now, as you are punching in numbers for hours and thinking through your build process, you should also be considering all of the materials you will be using for each step and putting them over in your material section. At the end of the labor section you should have a good idea not only of how long this is going to take, but also how you are going to do it. Once I am done with labor, I usually work through the build sequence once more, this time really focusing on materials. After the second time through the build process, you should have a very good labor and material estimate. 2 tips for the manhour estimate
1) Don't skip small stuff like material purchase, clean up, delivery, etc. That stuff adds up. And despite the fact that you don't feel like you are working when you are doing it, you are.
2) Don't overestimate your speed. I did that once and got obliterated on a price. Underestimate if you need to. Be realistic.
Overhead is a smaller chunk of the pie, especially for someone who doesn't do much volume per year. Over the past year, I have done a decent amount and will be claiming my profits on my personal tax forms, so I factor in taxes, profit (10%ish depending), electricity, and gas in this section. I know taxes aren't something that come up with a lot of you, but if you neglect state and income tax and then end up having to pay them in the end, you will likely lose 30%ish of your revenue, not just your profit. That is why I try to keep that stuff in order and build in a buffer so that when I get a serious negative tax return, I have money in the bank to pay for it (just don't spend that money on go-karts and stuff ).
At the end, I just add up all labor, material, and overhead. That is my final price. I look at it every time and think it is astronomical. I tell myself that I have to lower my hourly rate. Or I have to do without some of the materials. Anything to bring the price down. But then I realize that despite my own reservations about how good I am and what I am worth, I am still probably better at woodworking than at least 99.5% of the population. And a lot of you likely are too. Not many people know as much about woodworking as us dorks, and we have to use that to our advantage. Our knowledge base, accrued skills, and time are worth something. So don't screw yourself over.
In my opinion, you HAVE to be systematic when pricing projects. Shooting from the hip works sometimes, but I would advise against it. For example, just doubling or tripling material cost will murder you on a very labor-intensive job with small amounts of wood. If you work through the entire process every time, you are much less likely to get burned.
I'd be happy to send my excel spreadsheet to you for your use, but I don't think we can attach things onto blog posts. No guarantees that it is a flawless financial document or anything, but it is a decent place to start. PM me if you are interested in that.
Hope you enjoyed the read. Comments and criticism welcome.