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A Way to figure what you should charge.

by Dallas
posted 11-11-2014 09:25 PM


19 replies so far

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,

2387 posts in 4598 days


#1 posted 11-12-2014 01:59 AM

That was a very good article, thanks.

-- .

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TopamaxSurvivor

20612 posts in 4726 days


#2 posted 11-12-2014 02:14 AM

Make sense to me. I used to tell people their real cost to the company was 4x their take home. Most did not believe it, but I had the cancelled check to prove it ;-)

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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bigblockyeti

7188 posts in 2771 days


#3 posted 11-12-2014 02:20 AM

Started to read it and what I got seemed very interesting, then the pop up ads started covering the text which I can’t stand.

-- "Lack of effort will result in failure with amazing predictability" - Me

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jmartel

9168 posts in 3201 days


#4 posted 11-12-2014 02:24 AM

Topamax,

I’ve always heard (and calculated out based off of my bill rate) that what you cost the company is roughly 2x your salary. My bill rate, for instance is roughly 3x my salary. So, 1/3 of that is my pay, 1/3 is my additional overhead, and 1/3 is profit/covering non-billable overhead.

-- The quality of one's woodworking is directly related to the amount of flannel worn.

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TheGermanJoiner

847 posts in 2688 days


#5 posted 11-12-2014 02:32 AM

A+ Method

-- Greg - Ferdinand and Son Construction: Do it right the first time. Like us on Facebook

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Monte Pittman

30609 posts in 3389 days


#6 posted 11-12-2014 02:58 AM

It’s much the same as LJ Huff’s blogs. I am not completely there, but working in that direction.

-- Nature created it, I just assemble it.

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Puzzleman

417 posts in 3995 days


#7 posted 11-12-2014 12:25 PM

Agree that this is the same as Huff’s blog series. His goes into much more detail and explanation. It works.

-- Jim Beachler, Chief Puzzler, http://www.hollowwoodworks.com

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NoThanks

798 posts in 2580 days


#8 posted 11-12-2014 02:21 PM

This is good for a way to calculate your target number in order to reach the profit goal you have figured.
But, it doesn’t calculate how much you should charge and sticking to only that number may leave you undercharging at times. You need to be able to sell your item for market rate no matter what your target number is. Sometimes the market price could be way more than your target rate. I suggest using your number more for a guideline than a rule.

One thing it will do is let you know when you aren’t charging enough and this is good. At least you know what you have to charge to meet your goal and whether or not you have to sacrifice to get the job or not, or make the sale if your pricing/making products to sale.

-- Because I'm gone, that's why!

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,

2387 posts in 4598 days


#9 posted 11-12-2014 05:13 PM

Iwud4u makes a great point. When reading the article, I was reading some of the comments also. One of the comments took this a step further and stated if the market number is less than your target number, it is time to walk away and do something else. Many times I feel in business customers want us to take a number that is far below our operating/target number because they feel that is where the market/retail number is at, usually based on misguided thinking brought on by a cheapened sense of thought. Armed with knowledge and facts as the builder or sales person of your product, a little educating about prices may go a long way towards getting customers, who are ignorant to costing, to see things in a better light.

I recently had a builder make a valiant attempt at getting us at a number that was extremely low. There was some deception involved and I will not go into details, but purely based on my knowledge regarding what things cost to manufacture I was able to avoid what would have been a disaster, or at the very least a very hungry period of time. Another cabinet maker with less knowledge would have fallen victim.

-- .

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Kaleb the Swede

1982 posts in 3020 days


#10 posted 11-12-2014 06:30 PM

Thanks for sharing this Dallas. This was a great informative article

-- Just trying to build something beautiful

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AlaskaGuy

6475 posts in 3360 days


#11 posted 11-12-2014 07:11 PM

You can charge all you want. The trick is getting someone to pay it. :)

-- Alaskan's for Global warming!

View TopamaxSurvivor's profile

TopamaxSurvivor

20612 posts in 4726 days


#12 posted 11-13-2014 02:27 AM



Topamax,

I ve always heard (and calculated out based off of my bill rate) that what you cost the company is roughly 2x your salary. My bill rate, for instance is roughly 3x my salary. So, 1/3 of that is my pay, 1/3 is my additional overhead, and 1/3 is profit/covering non-billable overhead.

- jmartel

May be talking oranges and apples? I was referring to an employee’s “take home” not total salary vs total cost with good benefits.

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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TopamaxSurvivor

20612 posts in 4726 days


#13 posted 11-13-2014 02:39 AM



... if the market number is less than your target number, it is time to walk away and do something else. Many times I feel in business customers want us to take a number that is far below our operating/target number because they feel that is where the market/retail number is at, usually based on misguided thinking brought on by a cheapened sense of thought.
- Jerry

I won’t speculate on the motivations for trying to intimidate contractors to take a low ball price for their work. I have had regular customers ask me to take jobs for a price established by another bid. Many times they were less than 1/2 of my price. After 20 years in business, there was no one left that was doing the same work when I started business. All were used up, spit out and bankrupt.

One of my employees ask one time how long another company could continue low balling jobs? I told him it did not matter. There will be another fool doing it when they were out of business and there was.

My policy was if I could not do better financially than having a real job, I’d better close the doors and get a real job ;-) Knowing when to just say “NO” is probably the single most essential ability in business survival.

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

View Dallas's profile

Dallas

3599 posts in 3538 days


#14 posted 11-13-2014 03:05 AM

Topamax,

I was basically the only person running the office at the small electric company I worked for. I got the job because I knew bookkeeping and was also an IT guy.
We had 5 engineers on staff at any given shift and I was the one who woke up and answered the phone at 03:00 when an engineer couldn’t figure out why his computer wouldn’t work.
I also did billing and payroll for about 50-60 people, I also ran parts if there was no other tech or apprentice in the office.
It didn’t start that way, but as the big guys started in, we lost contracts and income.
For 6 weeks I was the only Secretary, receptionist, phone person, hell desk person, IT guy, webmaster, and HR guy.
My boss took me in to his office and told me to never do anything like that again without being paid 3X as much as I was getting. He was a good and honest guy, but he is the one who originally hired me.

I immediately went back to work and did a slow down. It took about a day for him to come to me, laugh and offer me $26/hr. I countered with $50/hr and we settled on $35/hr, (This was the mid 90’s).

I have set my prices the same way using his advice ever since: Never compromise on your value, never compromise on the quality of your work. Never doubt that your work will stand up with the best. If you do, you will live in public housing and need help all your life.

-- Improvise.... Adapt...... Overcome!

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TopamaxSurvivor

20612 posts in 4726 days


#15 posted 11-13-2014 03:17 AM

That is a good story Dallas. Makes the point. I have a few 3 AM phone call stories, but they aren’t really related to WW or the business issues of this thread other than to say do not offer 24 hour emergency service to the public! Reserve that for only the best customers ;-)

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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Woodknack

13552 posts in 3431 days


#16 posted 11-13-2014 05:09 AM

These articles always ignore market value of your product or service. With few exceptions there will be a range within which you can charge and stay in business over the long term. The first step is determine the market value of your product or service then research whether you can afford to sell within the market and make money. If widgets are selling for $50 but it costs you $40 to make then find another product. Don’t be the guy trying to sell widgets for $80 in a $50 market. If you are selling one off commissions then charge whatever people will pay because your customers have money.

-- Rick M, http://thewoodknack.blogspot.com/

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TopamaxSurvivor

20612 posts in 4726 days


#17 posted 11-13-2014 09:30 AM



These articles always ignore market value of your product or service. With few exceptions there will be a range within which you can charge and stay in business over the long term.
- Rick M.

That is quite true. The articles and info presented establish a criteria to determine the economic viability of producing a certain product or service. Once armed with that information, one can move on from widgets to wadgets if the widget will not support your price point; or, provide a level of service certain customers will pay your price for widgets; or, develop an efficiency to produce widgets at a price level the market will support.

One of my primary policies was to never get myself so busy doing work that did not pay that I did not have time to do the work that did pay. Without that first basic determination, how do you know where that price point is?

-- Bob in WW ~ "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

View AlaskaGuy's profile

AlaskaGuy

6475 posts in 3360 days


#18 posted 11-13-2014 11:21 AM



These articles always ignore market value of your product or service. With few exceptions there will be a range within which you can charge and stay in business over the long term. The first step is determine the market value of your product or service then research whether you can afford to sell within the market and make money. If widgets are selling for $50 but it costs you $40 to make then find another product. Don t be the guy trying to sell widgets for $80 in a $50 market. If you are selling one off commissions then charge whatever people will pay because your customers have money.

- Rick M.

That’s exactly what I meant ” You can charge all you want. The trick is getting someone to pay it”. :)

-- Alaskan's for Global warming!

View huff's profile

huff

2828 posts in 4336 days


#19 posted 11-14-2014 12:29 AM

Thanks for the link Dallas; I found the article interesting and was surprised how close it was to the format I have written about in my blog, “How to price your woodworking (and sell it).

It’s not really rocket science, but any business that “manufactures” their own product must know their true and total cost to manufacture a product and be able to sell it for a profit.

Over the 30+ years I’ve been involved in this business, at least 90% of all woodworkers have a problem with figuring out how much to sell their work for and actually make a profit and not that they may be charging “too little”!

Once you understand your total cost to build a product, that includes your material cost, fixed overhead, administrative cost (none billable time), what you like to pay yourself, and of course profit, then you can decide whether the market will bear what you need to charge to sell your product.

At that time you can make a decision if you can even sell your prouduct or if you need to change your marketing strategy, change your production strategy or just walk away from that product because you are unable to manufacture that particular product and sell it to make a profit.

The idea that it would limit you on how much you can make if the market will bear more for a particular product is only true if you don’t allow yourself to know and understand your market. Again, most woodworkers “undercharge” for their work because they don’t understand the true cost of manufacturing and only ”guess” what they should sell their work for and not based on actual facts.

You can always pay yourself more or allow yourself a bigger profit, but the most important thing is to make sure you at least know what it will take to be able to pay yourself, pay all your overhead (bills), cover your non-billable time, cover your material cost and of course to make a profit, ( anything above and beyond that is totally up to you and your ability to market and sell yourself, your company and your product).

Pricing (to make a profit), Marketing and Selling, will always be three of the most important elements to having a successful woodworking business…..................that’s assuming you are building a quality product! LOL.

Woodworking has been good to me and hope everyone can enjoy a fun and profitable woodworking experience.

-- John @ http://www.thehuffordfurnituregroup.com

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