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Many magazine articles go through a long process about how to establish a shop rate, and be sure you charge that rate for all hours worked. I have a shop rate (more on that below) but I find these articles absurd. One of the forum discussions, when I first was trying to figure out pricing, involved a gentleman who spent a huge effort determining what his shop rate should be, then he carefully tracked his time to build a living room cabinet (entertainment center with book shelves), and applied his shop rate to the time spent. Four weeks at $70 per hour, he felt he needed to charge over $11,000 for the cabinet. He was rightly concerned. I would have built that cabinet for $1,500. What went wrong? He was just starting to make things for pay. Working full time, I think he should have been able to build that cabinet in a few days (assuming he was a fully qualified professional deserving $70 per hour shop rate). As a beginner he needs to sell that cabinet for what it was worth - perhaps $1,500 - and chalk the extra time up to training. If he wants to support a family with this business, he needs to get the time to build a simple cabinet down to days instead of weeks. Or maybe he needs to find a different day job.
So how do you determine what that cabinet was worth? Forget IKEA and places that sell thin wood or composites that only look pretty but don't last. Forget the bargain "man made materials" at some "inexpensive" furniture stores. (You might want to check out the page on value priced furniture on my customer web site.) Look at regular furniture that will last 100 years, and check the price. I found that I could often meet or beat that price. That is the price your work is worth. So why should someone buy from you? Because that bookcase can be a couple inches shorter or narrower to fit the space, and the price is the same. Because you can make legs to match those from the vendor of previous pieces, when the previous piece is no longer available.
How do you find those prices? Go shopping. Something we did a decade ago worked out well... my wife and I went to a "good" furniture store, and explained "we have been married over 30 years, have all the furniture we need, but are sick of it." The designer/salesperson's eyes rolled like a slot machine, the cash register ringing in her ears, and she gave us a wonderful catalog with prices, so we could consider our options. That isn't what we expected, but we were delighted to get one set of price points - the value of that furniture. You don't need to compete with their half-price sale twice a year - they are selling things that didn't sell all year - things nobody wanted at full price. You will be making the good things that people want.
Another trick when you are nervous - figure the cost of your materials. Then if you throw things together quickly and don't want to make much money, multiply the material cost by 5. If you have a family to feed, multiply the cost by 8. Lots of people set their price that way. I still often do that calculation, and am surprised how often it comes very close to the "value" price from the catalog. A couple problems with this approach. One time you make something from cheap red oak. The next time you make the same thing from clear black walnut, and the material costs 3 times as much. Your risk is a little higher - you must pay for the board you messed up. Your effort is a little higher - you will make a finer finish on the nice walnut piece than on the oak bookcase. But the cost of the finished piece probably shouldn't be three times as high.
Another case: A friend with a sawmill sells ready-to-use table-top slabs, just add legs and sell the table. Some of his furniture-maker customers say his price is too high - they can't sell the tables when they multiply his price for the table top, plus their cost for legs, by 5 or 8 or more. Of course. They weren't thinking - they were buying a completed table top, sanded, natural edge, whatever, and not buying raw materials. They can't multiply the price of a completed (or almost complete) table top by 8, just as they would it they had bought raw materials.
When I started, I begged for the chance to give a free estimate to anyone. Bad mistake. Lots of practice doing designs and cut lists and material costs, and, finally, estimates, only to have people say, "Thanks, I was just wondering." Or "We went with Rooms to Go but wondered if you would have been cheaper. Answer, "How does fiberboard and particle board compare with plywood and hardwood." But since I have learned to scare those folks away (more on that later), I have never been turned down by a serious customer because of cost. The value price prevails, even if it is far more than I thought I could charge. Don't underrate your services.
If you are going to use value pricing, do you need a shop rate at all?
My $60/hours shop rate was caused by Woodcraft.... they kept sending people to me who wanted "just a cut or two," often to create a repair piece. The cut or two often took 30 minutes as they tried to figure out what they really wanted, so I started charging $1 per minute - if you came in ready to go, the cut would really take 5 minutes, and $5 was a mutually acceptable fee, but if I spent a half hour, then I was glad to get $30. I had one (previous furniture) customer come for a cut or two - he had built a frame, swore that it was square, and wanted a couple pieces of moulding cut at a miter to add to the frame. 1:15 later I had cut the two pieces, to match his angles, not 45 degrees. Those were the most painful $75 I ever earned.
Is $60 per hour a good rate? It wasn't set scientifically, but at $1 per minute, it is convenient for quick tasks, and for things like repairs, where the time required is a mystery. It is consistent with other shop rates... if anything, slightly low. Probably $70 - $75 per hour would be closer to my proper rate, if I did the calculations. That would also be closer to the rate other shops charge. I don't want to compete unfairly with somebody who has to feed family with their woodworking. My competitors have remained good friends, and we help each other out.
What does a customer get for the shop rate? They get me, no helper, any combination of machines in my shop, and all the glue, sandpaper, and similar expendable supplies they need to use the shop. They bring their own wood, hinges, and other supplies.
As I said above, when I started, I begged for an opportunity to visit your home and prepare a quotation. Home visits often turned into multi-hour tutorials on furniture. And to give a firm quote on a piece of custom furniture, I had to do a detailed design (not just a casual sketch), cut list, and materials order. This isn't a kitchen that can be sold at $200 per linear foot, it is custom work.
My best selling tool is my web site. On that web site I put the prices "to reproduce this piece, as shown." That may be more than I charged the original customer, several years ago, but if somebody wants exactly that piece, that is what I would charge today. By showing the prices, I am doing the first screening... I am not the IKEA custom furniture store, nor do I expect to charge $11,000 for a simple cabinet (like the first example above). If someone calls or writes with a special need, I will give them a ballpark estimate - "What you want has two more doors than xxx on my web site for $1,200, and seems simpler than yyy on my web site for $1,800, so the ballpark estimate to build it is $1,550. If you would like me to do a detailed design and proposal, my fee is (at least) $200, which is part of the cost of the furniture, but I expect that paid up front. If I see that my quote will go more than 20% over the ballpark estimate (or over the budget that you specified), I will stop work and refund the design fee. If you change your mind, I have done the work, so I keep the design fee. If the final quote is $1,600, I expect 50% before I buy materials or cut wood - in this case $800 less the $200 you already paid. The balance, plus sales tax, is due when the furniture is ready to be picked up or delivered."
How does this design fee idea work? Anyone who is serious is not put off by paying that part of the cost up front - this is not an additional charge. I have had a few people delay the start until they can afford the design fee - I am just as happy not to build something if they can't afford $200. It is just enough design for me to work from - not a detailed blueprint that I deliver to you (I would be glad to do that, but it would cost a LOT more.) I have only had one case where I "collected" the design fee without building the piece - one customer wanted an entertainment center, and my proposal came to exactly the ballpark estimate, but they decided they wanted a deck on their house instead.
Do I make house calls? If I am building something that must fit in an alcove, or other constraint that requires precise measurement, I include the cost of one trip to take measurements in the price of the project. I don't make that "measurement" visit until late enough in the process that I can usually pick up the check for the 50% deposit. But if someone just wants to meet me, by my coming to their home, my price is $2 per one-way mile, with a minimum charge of $50. They may come to see my shop and meet me without charge.
I do not do competitive bids for two reasons. First, to be fair, the specifications must be followed exactly, so everyone is building the same thing. That means there is no discussion about bad design (of course it couldn't be bad, since an architect probably made the design). Let's call that discussing alternatives rather than fixing dumb designs. One of the last I looked at (now I don't even look) required bookshelves 3/4 inch thick and 49 inches wide. Sorry, but that size will sag, and 49 inches will make terrible use of material. If I were working directly, I would have recommended shorter shelves. The folks requesting the bid feel they have done the design, but do not include the material list you will need, so you have to go through the details of how you will build it - the design. Second, assuming you are as good as anyone, you will have to do 3 to 5 designs for each bid you win. That means each project you build has to pay for 3-5 designs.
At some point, you will probably get tired of building "another" ordinary bookcase or "another" entertainment center, and will want to build a special piece of your own design - on speculation that it will sell, rather than something a customer commissions. (I love the British term for custom work... bespoke). You need to think carefully about what you make on speculation.
One of my friends is a superb craftsman. He made a wonderful desk - absolutely beautiful work out of the finest materials. It is priced at $17,000. I have seen it at numerous shows and exhibits over the last several years - it hasn't sold. I could make one that looked as good and would last as long, (but with plywood on the inside, for example, and commercial rather than hand-cut veneers), and could sell it for $3,000 to $5,000. I would rather build something beautiful that sells for $5,000 and go on to the next piece, rather than doing a masterpiece for $17,000 and hope it sells in the next decade. And the craftsman's wife admits that she doesn't have ANYTHING in their home that her husband has built.
Another friend, also a superb craftsman, built an entry table for a furniture show. Beautiful workmanship, but ultra modern design, and unusual wood, that would not fit into most existing decors - would not blend well with most other furniture. It didn't sell. Be sure your design has wide appeal.
Another piece at that furniture show was a large glass table. Nice workmanship, but the artistic leg design would interfere with sitting at most places at that table. The "artist" said "maybe it is an entry table." Maybe it could be if you had a castle, but it wouldn't fit in an entry in any house I have owned. Just because you can build something beautiful, if you want it to sell, be sure it is also practical. (I hear that table was finally sold as an entry table in a hotel lobby.)
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