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Reply by Mark A. DeCou

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Posted on Counting The Cost: Estimating Questions

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Mark A. DeCou

1979 posts in 3032 days


#1 posted 2759 days ago

It dawned on me yesterday when I was thinking about this topic, that we might be a little off focus by considering the selling price in this Forum Topic.

I was hoping in this topic to discuss how to estimate a project, the number of hours, board feet, etc. I was hoping to learn about what resources and experience the professional jocks have in terms of determining what the costs are associated with creating something from a dream on a piece of paper, or in our heads. I was hoping to hear what professional jocks do to break down the procedures of a project into an estimate of it’s cost to build it.

Remember, If I just throw wild guesses at estimates of cost, then my pricing can run people off, and then I have nothing to sell.

I seem to only be accurate in estimating when I’m building something for a second, or third time. For instance, I have made a bunch of walking canes. I can tell almost by the exact hour how long something will take me to carve and finish based on someone’s specifications. So, figuring up the Production Cost of making one of my signature style canes is easy now, but determining a Retail Price that someone will pay for it is something different.

Sure, I have a handle now on the Walking Cane Production Cost, but I don’t have that experience on my furniture work, as each piece is different from the next. After building a Maloof-Inspired rocking chair, I have a good handle on how long something like that will take me to build again. But, how do I estimate another style chair, such as a Windsor?

I know we all deal with these issues when trying to stay in business, and so there has to be more to an educated guess than multiplication factors on material costs. At least, that is the type of thing I am trying to define for my work.

To support my theory on Costing vs. Pricing having no relationship:
Last week I saw a Nakashima small table on the Philadelphia Antique Roadshow #1 from this season’s episodes. The current value was important to me to smile about, but what really pissed me off was the cost of the table at the time it was originally purchased in 1982. The owner stated that he bought the table for $200. This made me angry. Now, this was late in Mr. Nakashima’s life, the height of his career, and he was overwhelmed with orders at the time. Why did he sell something so cheap? I don’t know, but looking at the table, the work involved and the materials used, and I can’t see how he could have made any profit at $200, even in 1982 dollars. There had to be something else at play, or the owner misrepresented the cost.

Things I learned in MBA school:
  • Market Forces (Demand) drive selling prices. (period)
  • Labor cost, material cost, and overheads drive production costs (Supply). (period)
  • In a free market, selling price and production cost are not related, and do not necessarily have an intersection point.
  • The only market-driven relationship between cost and sale price is the price we will not be willing to sell something for on a given day. Another day, things might be different.
Here is the Part that “Professor Mark (me)” adds to that list:
  • Life happens, and woodworking artists are no exception to this rule.

Sometimes I am willing to hold off on selling something at a price lower than I want, but another day, or another month, I might have happily considered the same price offer, or something even lower. So, this just supports my Professor’s points that selling price and production costs are not related.

In some cases customers have asked me to build them something and then happily accepted the bill when it was complete. In those cases, I can charge less per hour in my estimating, as there is no risk to cover. At other times, they want to know exactly how much I will charge upfront. In some cases after the fact, they refused to pay the sales tax, as they said that it was their understanding that “it” was included. For that reason, I am more and more getting very specific about what is “in”, or “out” of my pricing. However, dealing with retail issues and retail pricing is another topic.

Before I can tackle the Selling Price, I must first be able to estimate my Costs. So, what I am thinking is that we should continue the talk about Selling Price in the other Topic.

what are your thoughts?
Mark

-- Mark DeCou - American Contemporary Craft Artisan - www.decoustudio.com


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