PricingMain

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Pricing is an area that causes some to turn over and over at night in their sleep while others don’t seem to give it a second thought. Understanding the difference between these two behaviors can be the key to becoming comfortable and realistic with your prices. I’ve noted that many artists and craftsmen that get involved in their work will often fret over “what should I charge?” On other side of the coin I find that accountant and business manager types often lay it down without any apparent apprehension, pricing is just a formula. So what is the difference?

Those that take their work personally tend to be the ones that fret over pricing the most. You ask yourself questions like “Is that a fair price? Will someone pay that? Does someone else charge more/less? Can I make a living at that price? What does it really cost? Does it really cost that much? Is what I do worth that price?” and so on. If you are one of these types you will likely recognize these questions and could add even more. Then there is the formulator type. They add up the costs ranging from electricity to labor to shop towels and there’s the price or they simply take an average on the market for what the same product costs and that’s the price. They seem immune to the subjective “worth” side of things.

I can’t give you any secrets or great ideas that will solve your pricing issues. The real secret lies in you. After all, you are the craftsmen or artist and you place the value into your work. You should first determine if you are an Artist type or a Formula type when it comes to prices. In other words, do you take your work personally or see your work value as the sum of input or are you a little of both? Once you can answer that question it will help you understand your struggle with pricing so you can learn what to do about it.


What’s it Worth?

For the personal artist who sees their work as an expression or at the very least a representation of their ability, the key word is worth. If you talk these folks a phrase you are likely to hear (or hear yourself say) is “what is it worth?” Cost and Price are not the primary focus. Ironically artists and craftsmen will undervalue their work because they see the flaws in themselves and in their work. That “sight” tends to thwart the worth in their minds. Those struggling heavily with this aspect of pricing will often find that seeking help or letting someone else do the pricing is the best approach. If you find you do struggle with this aspect but can push through it, you may need to adopt a more formula driven approach to your pricing.

Pitfalls for this person include undervaluing your work, dropping the price too quickly when talking to a client, never setting a firm price for your work, feeling guilty for your price, charging different people different prices and apologizing for your prices. This can make pricing uncomfortable and a dreaded chore. Adding some formula to your pricing can be a great relief and give you a firm ground upon which to hold your prices.


What did it cost to make?

For the formulator it would seem pricing is simple. Find the real cost to produce, add your desired profit and you there is your price. If you talk to these people you’ll hear words like overhead, material costs, market value and so forth. Worth is about the last thing they think about, the key to finding the right price is nailing down what everything cost that went into making an item, tacking on a fair profit margin and that’s it, no more thought required.

Pitfalls for this group include getting to caught up into details and never arriving at a final price, undervaluing work that could sell for much more due to the artistic value or wildly overpricing work compared to the market average without realizing it. Often, if these people then look at the market average and see it much lower than their math, they’ll abandon the product or project altogether. They can become rigid in their belief that a price must be the sum of the parts and get discouraged wondering how anyone makes a living doing something. They can fail to realize the worth of an item that may go beyond the money they get for it. This is why many stores sell items as loss leaders. They see the value in having a wide variety and selling some items that simply don’t have great returns but hold interest for the customer.


So, how should I price my work?

You should price your work in a manner that is comfortable and understandable to you, takes into account the actual cost to produce the item without ignoring the worth of an item and the profit you need to make in order to stay in business. Once you find your method WRITE IT DOWN! Make a spreadsheet or a quick cheat sheet of your method and follow it. Don’t be afraid to adjust your method.

I’ll go ahead and admit I’m more of the “What’s it Worth” mind set. I went for years undervaluing my work and apologizing for the prices. After much pain and suffering I learned that I hate pricing so I consciously avoided doing too much custom work. I prefer creative freedom while offering products for others to purchase.

Here is the pricing method I’ve come to use: 1) Don’t forget to cover any design and project layout. a. For a one off custom project this is critical b. For a repeat production item it can be almost overlooked, but don’t ignore it completely. 2) Find out material cost in the product. a. Materials such as wood, paint, stain, nails etc… b. Don’t’ forget hauling or delivery fees and storage c. Don’t forget consumables, rags paint brushes etc… 3) Find out machining cost to make the item. a. I set a basic $/hour for bot machine time which covers i. Bit consumption ii. Machine wear and tear. iii. Power consumption b. I also set a $/hour for shop tool usages with the same considerations c. Don’t’ forget to add a surcharge if you used project special tooling 4) Now add something for your labor. a. I have a skilled labor rate, I use it when I’m working with hand tools etc… b. I have an unskilled labor rate, make this enough so you could honestly pay someone else to do the job.

Add up this information and you’ll arrive at a before shop profit price for your project. This is your safety net. You should keep these numbers modest and realistic but they represent the amount of money you need to get to make the project worth while. If you go below that number, look very carefully at what you are doing and why, basically, selling below that number means selling at a loss. It’s always good to know this number no matter how you proceed with the next step of pricing. If you are a “charge what everyone else charges” shop… then you MUST figure out this number, it’s the only way you can see what you are really making.

From here I use various methods, market match, calculated profit, what the heck I want to do it, a “problem customer” surcharge etc… THIS IS YOUR PROFIT! This is where you make money. Everything up to here is paying bills. Consider your skilled labor rate… that’s the rate you would have to pay someone else to do your job so consider it a cost. Profit can be modest for the home shop and if you are happy with your profit that’s fine, but don’t sell your profit short. You’ll also find your peer group much friendlier to you if you sell close to market values not under cutting your competition to the bone AND you might even pick up a little overflow work from them.

Here is a quick overview of several methods: 1) Market Match is what it sounds like, dig around, find comparable products and price in the group. 2) Calculated profit, sometimes I just ignore the market and add 20% or 30% or even more if I think it will support it. 3) Sometimes I just charge what I want, on one recent project I needed $1000 and I really wasn’t enthused about the job, I tacked it on even though I knew the guy could probably get it done for a few hundred less, he took the job, I bought my trailer. 4) Sometimes I don’t really want a job for whatever reason, but if I get it I’ll make it worth while. Be warned though, even when I usually get those jobs at the much higher price it generally just makes it “almost” worthwhile.

Finally, I consider my feelings and worth of the item or job. This is a step many of the formulators can skip. I always walk away and try to consider it objectively. I’ve found some things or jobs sell for far more than I think they should and a few I’ve come to realize I need to make some adjustments downward. It’s at this point I also consider my love of making something. If I am not particularly thrilled with working on a project… why would I ever give it a low profit margin? If I find something that will need a low profit margin to compete but I enjoy making it, I may find the lower return acceptable.

Then there is selling at or below cost. That’s up to you and there are occasions when it can make sense. Clearing out the last few items you’ll never make again is one example. But don’t forget the power of having an interesting item or project that may be at cost but draws the customers to your work.

Finally, here are a few tips that have been passed along to me:

NEVER apologize for your price. If you have to apologize for your price your customer will quickly get the feeling that you don’t think it’s worth what you are asking, so why should they? If you’ve used the steps above you can be confident the price is fair and as such it is not something that needs an apology.

Never drop your price off the cuff. It’s ok to compete but sudden price dropping can be counter productive. You should make sure your price is accurate and fair from the start. Price dropping off the cuff can make you look desperate or the customer may think you tried to take advantage of them and dropped to a “real” price when you learned they wouldn’t be taken.

You’ll hear one question often, “Is that the best you can do?” One good answer is “yes, but if you would like I can go back and see if there is anything I could change or shave off.” A customer will often not like the idea of “shaving” anything off the quality of their project. If a customer asks “Can you do it for $X?” consider it carefully, don’t be too quick to respond. If it’s a token amount, you’ll generally be fine to accept it but if it is a significant reduction you are generally best to take time to consider it before responding and even use the same method as with the last question as well.

If your customer seems earnest and the price is simply beyond what they are able or willing to pay, take it to heart and work with them but don’t give away the shop. One gem I’ve used several times successfully for custom projects is quantity. For custom projects there can be significant design and layout work that must be amortized into that single project. Offering to make two or more of the same thing for a lower price each will often have a customer looking for a buddy.

A wise man once told me, don’t talk costs, just don’t do it. You will get customers that insist on saying things like “well, how much lumber cost do you have in that anyway?” or “So, how long did that take to make?” etc… They are attempting to take control of your pricing strategy, not make conversation. So, how do you respond? I don’t prescribe to the approach the wise man used “I’m sorry, I can see we won’t be able to do business” and closing the door. He absolutely was insulted anytime a customer would make such a remark and would forbid his shop from doing business with the person. While extreme, I think you can see the sentiment. For me I respond by ignoring the questions, I just move on with the knowledge that the customer has earned no price breaks. I move them to my “not preferred” customer list until they redeem themselves.

This has not been intended to give you a magic formula to set a price, no pricing method fits every situation. Instead, the information here will hopefully give you some tools with which to refine a pricing strategy that works for you.


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