# pricing woes



## CarolH (Mar 15, 2015)

Have been making eastern cedar adirondak-type lawn furniture for relatives/friends. Recently, however, have been asked to make some to sell to coworkers.
Cedar is abundant on my farm, and I have been using our lumber made on a small mill we own, so I have nothing invested other than time and labor.
That being said, I don't want to overprice them, but I want to make a profit for my time, and I don't want to undercut anyone else, either. How do you determine "fair market value" for your product?
Thanks for your input!


----------



## HerbC (Jul 28, 2010)

Determine how much the materials (wood, hardware and finish products) would cost if you had to buy them from reasonable sources. Determine how much time you use to build a unit. Determine what you think is reasonable to ask for your time, most skilled labor is worth at least $25 per hour. Don't forget to factor in a small amount to cover your overhead costs such as electricity, wear and tear on tools, etc.

So, total price of a chair would = Cost of material + cost of labor + cost of overhead + desired profit

Don't be overly concerned about how much someone else is said to charge for a similar product, just tell whoever mentions it that the other producer obviously know how much their product is worth…

Good Luck!

Be Careful!

Herb


----------



## CarolH (Mar 15, 2015)

Thanks, Herb. I will do some looking for cedar prices. Thanks also for the advice on how to reply to mentions of others' prices.


----------



## Yonak (Mar 27, 2014)

Carol, find out how much others charge. If no one else sells them locally then there's no one to undercut.


----------



## exelectrician (Oct 3, 2011)

Ask for half down payment cash in your hand before you make a drop of sawdust…..

Advice from an old contractor…..


----------



## bonesbr549 (Jan 1, 2010)

Well that lumber ain't free. It comes off your land and you mill it. Charge going retail for the wood. Figure how much profit you want to make first as a%. Figure your overhead costs and material costs and add it up. If you include as income. Don't forget taxes

Don't sell yourself short. You deserve to make your asking price and stick to it. A lot of folks expect ikea prices for custom made goods.

I request 50% up front. I always say if not satisfied on finish a full refund will be given. Never had anyone take me up on that offer.

Put it in writing I can't stress this enough

Finally if someone wants a customization on a piece, I charge a fee for my time. If the deal goes through I credit that to the piece.

I use to do it for free but it takes time and when they don't buy you have wasted your time. Plus it puts some skin in a he game for them.

Over the years I've picked up the knack for judging who the bs folks are.


----------



## Finn (May 26, 2010)

It does not matter how long you take to make an item nor the coast of materials IF…..IF…. you are looking for a "fair market value" The market determines that. 
When I price my small items to sell, I try to think "how much would I spend on this item if someone else was offering it?" Using this idea serves me well. Some items I make good money on and others not so much. I do sell all that I make…..eventually.


----------



## alittleoff (Nov 27, 2014)

Wish I could get 24 or 25 an hour for my labor. I figure I wind up at about 50 cents maybe a dollar an hour if I'm lucky and whoever buys my product dosent want me to refinish or stain it after a years use. All else aside all the answers above are good. Wish you luck.
Gerald


----------



## Ghidrah (Jan 20, 2015)

An issue I have had far too often with customers, (potential and repeat) is, " Geeze that's like twice the cost of blah, blah, blah"! Brand names of major mass manufacturers, many likely over seas. I try to explain these companies buy stock in huge bulk, quite often, even though they fabricate them over seas and then ship them here they can often sell an item for equal to or less than my purchase price for the species mat needed to build said project. Add factory milling and assembly line production of 3 or 4 product styles (at preset dims) and there's no way a small company can compete cost wise.

Some understand what custom built means but in general it still it boils down to the bottom dollar.


----------



## helluvawreck (Jul 21, 2010)

Ask a fair price for your product. I agree about the 50% before you start if it is a custom item. You should get the rest when it is delivered. Don't cheat yourself with a low labor figure. If nobody wants to buy your product at your price then it's not a good thing to make anyways. So it's better to not make the item and loose the sale than to make the item and loose money. Then you can use the time you save to come up with products that will sell. I also believe that you should mark up your material by 100% and don't forget the waist factor. IOW, if you use 20$ worth of material, including waist, you put into the price 40$ worth of material. You should also add a reasonable amount for any overhead that you have (tooling cost, utilities, insurance, maintenance cost, building cost, etc.). You can probably use a certain overhead cost per hour worked just to keep it simple since the more hours you work some of the items increase and the less you work they decrease . The fixed overhead items (building cost and similar) can simply be another hourly figure that is added in. This could be *total monthly fixed cost* divided by *173.2 hours * since there is 4.33 weeks in one month (40×4.33).
One of these two hourly figures that you add in will be something of an educated guess. However, the fixed monthly cost you should be able to determine fairly close. If you are not working close to 40 hours per week you should still use this formula if you are trying to get your business going because it's unreasonable to expect your customers to pay for your total fixed cost when you don't have a viable business yet.

I am developing a line of laser engraved signs and am trying my best to come up with the right formula. But I do think that it's better to be too high than too low because if you are too low you won't be doing it for very long.

This is just some ideas off of the top of my head as I was posting. However, the point of it is that you should sit down at a desk and list all of the things that goes into the making of a product:

electricity, water, gas, building cost, machinery cost, insurance, tooling cost, supplies, materials and hardware, finishing materials, accounting, financial cost (do you accept credit cards) vehicle cost, interest if any, freight, taxes , waste disposal, etc. etc. etc.

The point is you will try to recover all of these 'hidden and fixed costs' with these two figures that you add in.

After all of your cost are added up you should add on a multiplier to your total cost so that your business itself can make a profit for you. For example: *total selling price * = 1.5 x* total cost* A multiplier of 2 would be even nicer. If you don't think the market will bear this then use a multiplier of 1.25. Use something because in addition to your hourly pay you should make a profit off of your business.

My brother and I learned the hard way to figure costs. We weren't trained to do it. We started out with nothing much and, after 45 years, ended up with a 180,000 sq ft molding plant with five molders and 50 employees. We certainly weren't business geniuses. It was mostly hard work and long hours. Over those 45 years we probably made money roughly a third of the years, lost money a third of the years, and broke even a third of the years. We did put most of what we made back into the company after our salaries. A salary is a funny thing. If you make a salary when you work 80 hours a week you make only half a much an hour than you do when you work only 40 hours. ;-|


----------



## rhett (May 11, 2008)

Just keep in mind it's easier to drop a price than it is to raise it. If you're looking to actually profit, build without the added "friend/coworker" discount.

Materials on YOUR property have VALUE above labor alone. If you have long term plans for selling these chairs, you need to charge market price for materials used. Should things take off, your wood won't be free forever.

Also, should the buyer refer your work to a third party, who isn't a "friend/coworker", the sale price they quote will be what you charged them. So, when you give a real price to the third party, they will think you are trying to upcharge and will pass.

Speaking from hard earned experience, but take it for what it's worth.


----------



## CarolH (Mar 15, 2015)

Thanks for all the advice. Much food for thought. This helps. Thanks again.


----------



## wormil (Nov 19, 2011)

Two ways to determine fair market value-trial and error (sell a lot of chairs), and market research (selling price of similar chairs). Your costs, time, materials, are all irrelevant to "fair market value". You are correct to determine fmv then figure out how to sell at that price while making a good profit. If your customers are affluent and there is no competition then sell for whatever price you want.


----------



## Puzzleman (May 4, 2010)

Fair market Value is an elusive number. It all depends where the market is at today or tomorrow or next month.

I sell my products for an amount that makes profit for me. Period. Not all markets can handle the pricing of my products. That is where I let my competitors who only try to be the lowest price go.

Think of it this way. What is the fair market value of a new car. You will tell me it depends on make and model and options and features. Same with your products. Lets take your idea of Adirondack chairs / furniture. I am sure that you will put features, options and skill into them that other won't or don't. So how can you compare yours to theirs. You are comparing Cadillac's to Kia's.

Bottom line is to charge what is a fair price to *you* to make a profit. If you hear comments about that is a good price, then raise your price. You want to have your pricing where not every can afford the work you do. That is what makes it special and not a commodity.


----------



## nerdbot (Sep 3, 2014)

In a recent episode of Making It, Jimmy Diresta (http://www.makingitpodcast.com/making-it-016-perfect-vs-profit, starting around 37:50) said he gets this question a lot and his answer was, as far as labor is concerned, to figure out your day rate and charge in multiples of your day rate, instead of hourly. Made sense to me, at least as far as a starting point to tweak from.


----------



## Yonak (Mar 27, 2014)

> ... figure out your day rate and charge in multiples of your day rate, instead of hourly.
> 
> - nerdbot


+1


----------



## wormil (Nov 19, 2011)

> ...charge in multiples of your day rate, instead of hourly.


Very smart.


----------



## WDHLT15 (Aug 15, 2011)

For me, it is the cost of wood, plus other material costs, plus $35/hour. If that is more than "fair market value", then the customer can go to Walmart and buy a piece made from Indonesian rubberwood. It is their choice.


----------



## Yonak (Mar 27, 2014)

> For me, it is the cost of wood, plus other material costs, plus $35/hour. If that is more than "fair market value", then the customer can go to Walmart and buy a piece made from Indonesian rubberwood. It is their choice.
> 
> - WDHLT15


Really ? You can get $35 / shop hour in middle Georgia ?


----------



## WDHLT15 (Aug 15, 2011)

There are some extenuating circumstances. I saw logs, sticker the lumber, air dry it, kiln dry it, plane it, and sell it to woodworkers. So, I have a lot of people coming by for some lumber. Some are expert craftsman, some are less skilled. Many times, there is a project that I am doing that is in process or in the final stages of completion. People see these projects.

The hardwood lumber business brings people to my place, and they see what I am doing. They ask questions. Some ask me if I will prepare lumber for them, as in, face joint, finish plane, glue up table tops, etc. Help them along with their project. Many times I will do this. I tell them my price per hour. So, If I joint 5 boards that a customer buys for a coffee table, and he/she does not have the capability to do it themselves, and if it takes me 20 minutes to do it, the cost is $12 - $15. That is a bargain for them. However, sometimes they want me to make the project for them. Sometimes I will, depending on what I have going on. For that, I charge the wood cost plus $35/hour to use my shop, my equipment, my skill, etc.

But, in the long run, it is having the wood for sale and the interaction with the customers on projects, goals, etc. that positions me to do custom work. Without the sawmill, the lumber stocks, and the kiln, it would be much more difficult to attract any interest.

Still, my primary focus is sawing and preparing high quality lumber. They is what brings people in. Without that, it would be a long row to hoe. A very long row to hoe to do custom work. Many times the custom work gets in the way of sourcing logs, and sawing lumber. It is always a trade-off.

I could not do as well making commissioned projects for people as sawing, drying, and selling high quality hardwood lumber on a $/hr basis. Some of it is serendipity.

Making furniture for a living is a very hard way to go. Many times, a starving way to go. Many people want cheap stuff like they see on he Internet. Some want what they want. Without the hardwood lumber for sale, and species/dimensions/thickness/unusual stuff, etc. that is not commonly available that I offer, I would not be able to interact with the "people that want what they want".


----------



## Daruc (Apr 20, 2015)

Using a set price, whether it's hourly or daily, sometimes leaves you short. You should always charge market value plus whatever extra you can get above that. If you can't make enough money charging market value (example: selling cutting boards or mass produced cheap crap) then it's best to pass on it.
Sometimes a project is worth way more than the hourly figure you charge.


----------



## WDHLT15 (Aug 15, 2011)

You have to have a repeatable process, whatever it is.


----------



## Daruc (Apr 20, 2015)

you figure the bottom line and go from there


----------

