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Thoughts on Pricing #2: Thoughts on Formulating the Right Price

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Blog entry by pashley posted 06-08-2012 12:19 PM 3695 reads 4 times favorited 5 comments Add to Favorites Watch
« Part 1: Thoughts on Pricing, part one. Part 2 of Thoughts on Pricing series Part 3: Thoughts on Pricing, #3: I'm such an idiot! »

Let me say first off, this is not a complete formula, simply some thoughts I’m jotting down for discussion.

Here are some factors that have come to mind when considering the formulation of a price:

Cost of making the product How much did you spend on materials? How much did your shop “charge you” to make it?

Time making the product How much time did you spend picking out the lumber? If you designed it, how much time went into that? How much labor time did it take to make it?

Cost of Marketing How much does it cost you to sell it? Are you doing it through Etsy, eBay, print ad, a craft show, etc?

Uniqueness of product If you’re the only one making this product, consider that a reason to increase your price – if it’s a good seller. If you’ve got a hot item, you can charge a premium, but if you have a unique item no one is interested in, you can’t.

What is an acceptable profit to you? This is usually expressed as a percentage. If a piece cost $50 in material, and another $10 in marketing, you spend 3 hours making it, and it sells for $150, is $90 (or $30 an hour) a profit level of 250% acceptable? Myself, I like to use the per hour dollar amount, since I can compare it to a real world job.

Can it be sold? An off-shoot of the above acceptable profit thought above is, the salability of the product. Sure, you can make a 250% profit ($30 per hour), but what does it matter if no one buys it?

Wholesale or Retail? Will you be selling to wholesalers, strictly retailing it, or a mix? Wholesalers generally pay you half what they want to sell it for; is that enough profit for you? If you are the only one selling it, yes, you’ll profit more, but sell less in number. If you do both retailing and wholesaling, you can’t undercut the wholesaler’s store price on your website.

Cost doesn’t necessarily dictate price Create your price not necessarily on cost, but on perception of value. Let’s use an example to illustrate. Perhaps you make a shadow box for the display of the American flag and medals, as seen here:

You usually charge materials x 3. There is not a lot of materials in this kind of piece, and really not a lot of time. Maybe what, $25 in materials? So, $75 is what you’d normally charge. Sounds like a great markup right?

Well, think again. The shadow box in the picture is mass produced, sold at Linen N’Things for $120. You came up a little short at $75, didn’t you? You should be pricing that at at least $150. Why? Because it’s handmade by a craftsman, is real cherry, not “finely crafted wood with an elegant cherry finish” as they describe theirs (cheap wood made to look like cherry, which it never does). The point is, something like this, which is an emotional purchase, can command a high price, because many people want the best, and they perceive you, a craftsman, as producing the best product. Get paid for it.

Well, there are some thoughts…I hope they benefit you.

-- Have a blessed day! http://newmissionworkshop.com



5 comments so far

View tyskkvinna's profile

tyskkvinna

1308 posts in 1676 days


#1 posted 06-08-2012 12:56 PM

Before I price something – even if it fits my personal formula – I like to browse Etsy, Amazon, Google Shopping for that same item to see the general market for it. Like the shadow box, sometimes things surprise you.

-- Lis - Michigan - http://www.missmooseart.com - https://www.etsy.com/people/lisbokt

View Don's profile

Don

492 posts in 1932 days


#2 posted 06-08-2012 04:47 PM

Just browsing through Etsy and I came across a Chess board, very similar to what I and several other LJ’s make.

I’m not one to begrudge anyone from making a buck and I realize that different regions will command different prices but…..

There is a $1200 difference between what I sell mine for and what the seller on Etsy is asking! I’ve sold 4 of the boards in the last 6 months and I’m curious as to how many the other seller has sold.

Which price is off base or are both correct for the region??

-- -- Don in Ottawa, http://www.donebydon.ca

View Jorge G.'s profile

Jorge G.

1526 posts in 1165 days


#3 posted 06-08-2012 05:44 PM

Ok, lets tackle this. You are now in the more subjective area of pricing, where rule of thumb does not apply. Certainly the dumb “materials x 3” rule, which I cannot understand why would anybody use it.

Using your example, lets say someone came and asked you to make the same shadow box, but they wanted some inlay banding on the front of the face frame. All of the sudden your simple box became a time sucking black hole, yet the materials have increased nothing, since you can make banding from waste materials.

Then there is the “if I have to do this all day I would kill myself” factor. A person came to me and asked me if I could do water container stands for him since the ones he was buying came from another state and shipping was costing him too much, with the promise that he would order at least 100 a month and probably more as time and business increased. These were simple 1/2” MDF stands put together with glue and screws and painted white. For this I had two choices, I could do them myself with an assistant, or I could hire people and re purpose my shop for a serial production setting. Neither one was a good choice for me, so I passed on the business and referred him to a friend who is already set up this way.

With the same guy, his partner’s wife calls me and asked me if I made kitchens. I say I did, so she said to me, I am right next to your workshop, can I stop by and see you. I told her I was installing floor at the moment and was not at the shop. So she then said, “really, the laminated floor?” I told her I did not do that, that I installed real hardwood floors. She then asked me how much I charged for this, I gave her my price per square meter…..never heard from her again… LOL.

Now for my current project, these people asked me to design a kitchen, but they were very specific that they did not want a “regular” kitchen, that for that they could go to the many kitchen vendors that already exists. This is the kind of jobs you want, as a kitchen maker and designer I believe we have a blank canvas to work with, creativity si more important than materials. Kitchens are very profitable for me, but if I charged materials x3 I would be giving the kitchens away. In this case the customer is paying for knowledge, just like any other professional.

So let me get to the point, every job has to be examined individually. You have to know very closely how long it would take you to make something and if you have the tools and set up to take the job. It is better to refuse a job than to repair your reputation.

In other words there are no hard and fast rules. If you make a business plan, this is the time you decide what is a reasonable profit for you and the kind of customer you want to work with. To realize the profit you have a choice, you can make a 100 boxes a day and make a small profit for each or you can make 1 box a week and make a big profit, even though they might not sell as often. You have to decide what are your resources to back you off in slow times.

-- To surrender a dream leaves life as it is — and not as it could be.

View Earlextech's profile

Earlextech

996 posts in 1381 days


#4 posted 06-08-2012 08:40 PM

This is about the hardest part of woodworking for many. If you worked out all of the details of cost and such and looked at the number as if you were the customer, you would feel uncomfortable with the high price. So, don’t look at it that way.
This is something I learned early in my career. PRICING HAS NO REALITY!
Value, in an art like woodworking, is perceived, not actual. If you can convice the customer that your kitchen design and construction prowess is better or more aligned with their needs than the guy down the street, then they will go with you.
However, with a lot of customers, price is the bottom line. So work with as many high end customers as you can, don’t take jobs with customers that are abusive right from the start, they will only drag you down and don’t be afraid to tell them your price and back it up with reasons they should pay it. Don’t show fear, the customer will pick up on it and either rip your throat out or they will walk.
State the price with a smile and then wait for them to speak first.

-- Sam Hamory - The project is never finished until its "finished"!

View tyskkvinna's profile

tyskkvinna

1308 posts in 1676 days


#5 posted 06-09-2012 12:54 AM

The nice part about Etsy is you CAN look at a seller’s sale history. You can’t see how much they sold the pieces for, but if a person has a $1500 chess board you can see if they’ve sold any more on Etsy.

-- Lis - Michigan - http://www.missmooseart.com - https://www.etsy.com/people/lisbokt

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