The topic of how to price your work comes up all over the woodworking forums. Everybody has a different opinion on how to go about it, and rarely are they sufficient.
When I first started building custom furniture, I was happy just to get a few dollars to cover the cost of the materials and have a little left over to buy a new tool. After all, at that time woodworking was more of a hobby than a means to provide for my family. Pricing my work in this manner was a great way to build my experience and to increase my tool collection. It did have a down side, I never really made what I would call “good money” at least not enough to compensate for the time I had invested in each project. I justified this by telling myself “it’s just a hobby, I’m still learning the craft, and I’m not a professional so why would anybody pay full price for my pieces.”
The more I thought about it the more I realized that, that line of thought is terrible thinking. No matter if it is just a hobby or a full time business your time matters and you should be paid a fair price for your time. After all when you build something for someone even if it is a hobby all of a sudden you have a commitment to finish that project in a reasonable amount of time. Having such a commitment can suck the fun out of a project and leave you on the hook for fixing it, or changing it if your customer doesn’t like it.
However, that got me thinking, what was “full price”, and how do you decided what full price is for a custom-made piece of furniture? When I decided to get more serious about selling my work, I had to answer that question and come up with a better way to price my work.
At the time, I was still working for another company as a salesperson, selling flooring products. In my sales position, they paid me a commission. The commission was figured by what the profit margin was on each sale. Naturally, I started to use a percentage markup, as a way to figure my pricing for my products. Most of the products I sold at my day job had a 50% markup on them, so I used that as my benchmark for my pricing.
This worked OK when I was building furniture out of moderately priced woods, such as walnut or maple. However, when I built something out of a cheaper wood like pine, I made very little money for the time invested. On the other side of the spectrum, when I built projects using more expensive exotics, the final price was so expensive; it was hard to justify the price to my customer.
I know many crafters that do the same thing and charge materials times 3, or materials times 2. When I ask them how many hours it took them to make the item and did the math, many of them weren’t even making minimum wage for their products.
This method also didn’t take into account any overhead they may have. They did not figure into their materials cost things like sandpaper, tool sharpening, or electricity to run their shop. I decided this was a terrible way to price my products.
To solve this I decided to figure my materials and labor separately, and charge by the hour for my labor. The challenge I had was determining how long it would take me to build each piece. As a custom furniture maker, I rarely made the same piece twice, and each piece had varying degrees of difficulty. One bed could take 30 hours to make, the next bed could have a ton of spindles to cut and take 50 hours. I had to start keeping track of my shop time and how long it took me to complete each task.
Once I started keeping track of my time I started to make decent money on my projects, but I still wasn’t done yet. I wanted to grow my business, some of my entry level tools where wearing out and I wanted to invest in high quality tools like Festool. I wanted the best of both worlds to be paid a decent wage for my time invest in the project and have money left over to reinvest back into my business.
It was clear that I needed to add a profit margin to each project so I would have money to grow. This created a new problem. With a good profit margin, my furniture was now really expensive, and I doubted whether people would be willing to buy them. This was partly a marketing problem and a perceived value problem.
I started marketing to higher end clients and came to the realization that not every piece of furniture was going to be able to have the same percent markup on it. Some pieces would have a high markup some would have a low markup and everything in between, it all depended on each pieces perceived value.
To determine what markup I was going to use for each piece, I used the perceived value method. Comparing my prices to other similar quality items to see what people were willing to pay. I did not compare my prices to the furniture in the big box stores. Think about that a minute. Rolex does not sell their watches at Walmart. You have to go to a high-end jewelry store to buy them. When someone sees a Rolex, he/she knows that it is an expensive high-end watch. It has a perceived value of being expensive. Rolex has done a good job of making a quality product and marketing it as such.
As makers if we want to be paid a fair price for our work we need to stop comparing it to the crap in the big box stores. We need to decide what the perceived value is based on comparable products and make high-end product. Then adjust our profit margins and pricing to match. If the math doesn’t pencil for us to make decent money, we need to figure out a better way to build it so it does pencil out, or figure out a marketing strategy to increase its perceived value