Costing a job/project out
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Sgian Dubh
Established Member
I find it hard to believe some of the things I'm reading in this thread. I know that many contributors here are amateurs and do this woodworking malarkey for fun, but the sheer amateurishness of some of the pricing suggestions just beggar belief.
Fer gawds sake some of you on this planet and not on some faraway idyllic constellation must work in businesses that aim to make a profit and earn money for things like investment, repairs and maintenance, the business owner, non-billable items, the employees wages, the pension fund, to pay taxes, National Insurance, overhead and other costs of being in business, so there must be some grip on the real world somewhere?
Did I read in this thread that there was a serious proposal to ask for a whole £5 an hour? I can ask customers, "Would you like fries with that, or supersize your order," for more without having any extra expenses like overhead, new tooling, repairs, rent, etc., to pay out of those princely labour rates.
Who in their right mind would resell materials at cost if they were aiming to make any money in business? If there's anyone here that does so then they must surely know that they are reselling their goods at a hefty loss. Materials alone need to be marked up by a minimum of 25%, and that might let you to just about break even. A 75% or 100% mark-up is a more appropriate figure.
I confess, I'm dumfounded. And no bloody wonder customers regard furniture makers in such low regard if we're all as unprofessional and unbusinesslike as this. Slainte.
Fer gawds sake some of you on this planet and not on some faraway idyllic constellation must work in businesses that aim to make a profit and earn money for things like investment, repairs and maintenance, the business owner, non-billable items, the employees wages, the pension fund, to pay taxes, National Insurance, overhead and other costs of being in business, so there must be some grip on the real world somewhere?
Did I read in this thread that there was a serious proposal to ask for a whole £5 an hour? I can ask customers, "Would you like fries with that, or supersize your order," for more without having any extra expenses like overhead, new tooling, repairs, rent, etc., to pay out of those princely labour rates.
Who in their right mind would resell materials at cost if they were aiming to make any money in business? If there's anyone here that does so then they must surely know that they are reselling their goods at a hefty loss. Materials alone need to be marked up by a minimum of 25%, and that might let you to just about break even. A 75% or 100% mark-up is a more appropriate figure.
I confess, I'm dumfounded. And no bloody wonder customers regard furniture makers in such low regard if we're all as unprofessional and unbusinesslike as this. Slainte.
Sgian Dubh
Established Member
On now to an estimating method now that I've woken you all up. It's not very good or adaptive in its crude form as described below, but it will at least get you into something like a half-assed decent price.
Add up accurately all your material costs, including getting them to your place of business and multiply by ten, e.g., Material Costs = £1000 including taxes, delivery and/or collection. Charge to customer = £10,000.
It's not a very good estimating method and it's a blunt instrument missing all elements of accurate pricing according to the scale and complexity of the job, but at leat it stops you making a thumping loss on every paying project.
Don't forget that delivery is charged extra and is not an occasion to have a nice chat with the lovely customer, who happens to be a fine feller. Your customer is probably a lawyer, estate agent or a doctor that charges £10 just to look condescendingly down his nose at you. Slainte.
Add up accurately all your material costs, including getting them to your place of business and multiply by ten, e.g., Material Costs = £1000 including taxes, delivery and/or collection. Charge to customer = £10,000.
It's not a very good estimating method and it's a blunt instrument missing all elements of accurate pricing according to the scale and complexity of the job, but at leat it stops you making a thumping loss on every paying project.
Don't forget that delivery is charged extra and is not an occasion to have a nice chat with the lovely customer, who happens to be a fine feller. Your customer is probably a lawyer, estate agent or a doctor that charges £10 just to look condescendingly down his nose at you. Slainte.
tim
Established Member
Richard
I agree with a large part of your sentiment. Its the same as selling cakes at a bring and buy sale for less than the cost of the ingredients - which seems to happen all too often.
I am however in disagreement with some of your suggestions. The 10x formula definitely doesnt work if you use lots of hardware for example. It also doesn't work if the majority of the competition is significantly cheaper than the 10x 'rule'.
Also I don't think its necessary to be prescriptive about what you must and mustn't do re marking up materials. I tend to mark up my materials very little but instead calculate labour costs to include handling, machining etc. The reason I do this is that material prices are much easier for customers to challenge and in some cases offer to buy themselves - whereas the labour has to come from me.
Anyway my point is that I think formulae/ factors can be very misleading and its only often feasible to calculate such a formula from 'back calculation' ie analysing several commissions/ projects etc and then seeing if there is a common link that can then be loosely described as a formula or factor. These however rarely translate accurately outside a particular niche. I certainly now make a good living, have a full workbook and am at the higher end of the competition re pricing. If I marked up as you suggest then I would not have any work at all.
Cheers
Tim
I agree with a large part of your sentiment. Its the same as selling cakes at a bring and buy sale for less than the cost of the ingredients - which seems to happen all too often.
I am however in disagreement with some of your suggestions. The 10x formula definitely doesnt work if you use lots of hardware for example. It also doesn't work if the majority of the competition is significantly cheaper than the 10x 'rule'.
Also I don't think its necessary to be prescriptive about what you must and mustn't do re marking up materials. I tend to mark up my materials very little but instead calculate labour costs to include handling, machining etc. The reason I do this is that material prices are much easier for customers to challenge and in some cases offer to buy themselves - whereas the labour has to come from me.
Anyway my point is that I think formulae/ factors can be very misleading and its only often feasible to calculate such a formula from 'back calculation' ie analysing several commissions/ projects etc and then seeing if there is a common link that can then be loosely described as a formula or factor. These however rarely translate accurately outside a particular niche. I certainly now make a good living, have a full workbook and am at the higher end of the competition re pricing. If I marked up as you suggest then I would not have any work at all.
Cheers
Tim
Sgian Dubh
Established Member
Tim, how is a customer to know what you are charging for materials? I agree that you can mark up materials by whatever you like, or not at all: it's up to you, but a business definitely needs to account for the cost of purchasing and storing goods somehow somewhere.
I never break down estimates for work. My quote will say something like,
One cherry dining table as per agreed design, X mm X Xmm X Xmm finished with polis (type.) £3000.
Delivery. £100
Total. £3100.
Does a car buyer expect every nut and bolt to be itemised on their bill? It's the same for me and my furniture. The customer buys the whole package including my integrity or they don't buy it at all. Now it's true that's my type of business and other woodworking businesses might break out prices more. I used to break out prices, but I stopped when I found it was causing me more aggravation than it was worth.
There's nothing in my quotes for the customer to challenge. In any case if the customer wants to separate out the cost of the materials to save money they're welcome to go to the timber yard and select the cherry for me. They can also return it to the yard when I (in all likelihood) reject it as unsuitable and they can go through the selection process again, and again, until they get it right.
Where's the saving for them there?
I did say that the simple multiplier of X 10 was a crude instrument. I seldom use it, but it can be useful to get you roughly in the right area for a quick and dirty estimate. Proper estimating requires a thorough breakdown of all the essential tasks in a project and applying a time/cost to each one. I have this information for every task I do, from cutting a mortise and tenon (or batch of M&T's) to laying a square foot of veener (or several square feet of veneer) to the time required to laminate or steam bend each and every square foot of timber. Most of the work I've done has been one off pieces of free standing furniture-- tables, chairs, cabinets, beds, built-ins, etc.
I derived the X 10 multiplier from the business records I've kept over the last 25 years. I analysed the records and crunched the numbers and that's what came out.
Other businesses that crunch numbers the same way might come up with a different multiplier, and I agree that a business that does mostly kitchens will probably come up with a lower multiplier.
Then there is the question of what to charge per hour. It's the case that those who own small one person furniture businesses spend only about 75% or 80% of their time on billable activities, i.e., making furniture. The rest of the time is spent on things like office work, meetings, publicising activities, design work, working up estimates, meeting customers, taking holidays, sick days, etc.. Most of these activities either aren't, or can't be charged for so the billable hours have to cover these non-billable activities.
To see suggested labour rates of numbers like £10 and £15 an hour I find quite incredible. There's nothing in those rates for any of the activities I mentioned above, let alone enough for profit and reinvestment in the business. Slainte.
I never break down estimates for work. My quote will say something like,
One cherry dining table as per agreed design, X mm X Xmm X Xmm finished with polis (type.) £3000.
Delivery. £100
Total. £3100.
Does a car buyer expect every nut and bolt to be itemised on their bill? It's the same for me and my furniture. The customer buys the whole package including my integrity or they don't buy it at all. Now it's true that's my type of business and other woodworking businesses might break out prices more. I used to break out prices, but I stopped when I found it was causing me more aggravation than it was worth.
There's nothing in my quotes for the customer to challenge. In any case if the customer wants to separate out the cost of the materials to save money they're welcome to go to the timber yard and select the cherry for me. They can also return it to the yard when I (in all likelihood) reject it as unsuitable and they can go through the selection process again, and again, until they get it right.
Where's the saving for them there?
I did say that the simple multiplier of X 10 was a crude instrument. I seldom use it, but it can be useful to get you roughly in the right area for a quick and dirty estimate. Proper estimating requires a thorough breakdown of all the essential tasks in a project and applying a time/cost to each one. I have this information for every task I do, from cutting a mortise and tenon (or batch of M&T's) to laying a square foot of veener (or several square feet of veneer) to the time required to laminate or steam bend each and every square foot of timber. Most of the work I've done has been one off pieces of free standing furniture-- tables, chairs, cabinets, beds, built-ins, etc.
I derived the X 10 multiplier from the business records I've kept over the last 25 years. I analysed the records and crunched the numbers and that's what came out.
Other businesses that crunch numbers the same way might come up with a different multiplier, and I agree that a business that does mostly kitchens will probably come up with a lower multiplier.
Then there is the question of what to charge per hour. It's the case that those who own small one person furniture businesses spend only about 75% or 80% of their time on billable activities, i.e., making furniture. The rest of the time is spent on things like office work, meetings, publicising activities, design work, working up estimates, meeting customers, taking holidays, sick days, etc.. Most of these activities either aren't, or can't be charged for so the billable hours have to cover these non-billable activities.
To see suggested labour rates of numbers like £10 and £15 an hour I find quite incredible. There's nothing in those rates for any of the activities I mentioned above, let alone enough for profit and reinvestment in the business. Slainte.
tim
Established Member
Richard
As I said I have no disagreement with your principles or accounting practices. What I was trying to highlight for those trying to gain insight from this thread is that there is no hard and fast rule to how you account for stuff eg:
I agree all costs (including future investment and unbillable hours) need to be accounted for, but how is up to the business owner. I do choose to show labour and materials as separate items on an estimate but they are only two numbers - I don't even show delivery or installation separately, preferring to group it all under labour.
Cheers
Tim
As I said I have no disagreement with your principles or accounting practices. What I was trying to highlight for those trying to gain insight from this thread is that there is no hard and fast rule to how you account for stuff eg:
Sgian Dubh":2cnh7wnm said:
I agree all costs (including future investment and unbillable hours) need to be accounted for, but how is up to the business owner. I do choose to show labour and materials as separate items on an estimate but they are only two numbers - I don't even show delivery or installation separately, preferring to group it all under labour.
Cheers
Tim
DomValente
Established Member
So basically you guys agree with one another.
How about this, charge as much as you can possibly get away with, keep meticulous records, work bloody hard producing quality goods and if after say a year you are not in profit (disregarding capital investment) try a new career
Someone find me a wooden spoon
Dom
How about this, charge as much as you can possibly get away with, keep meticulous records, work bloody hard producing quality goods and if after say a year you are not in profit (disregarding capital investment) try a new career
Someone find me a wooden spoon
Dom
johnelliott
Established Member
DomValente":342e2hwp said:
I think that a year is probably not long enough for most woodworking businesses to get off the ground. I would suggest that anyone setting up such a business plans not to make any money for two to three years.
John
johnelliott
Established Member
This is the way I price a job-
The most important consideration is time. I can have as much material as I care to order, but time for me and my assistant is strictly limited.
I know from a careful study of the costs of operating my business that I need to make a certain amount of gross profit each week. By gross profit on any particular job I mean the amount of money the customer pays me less the cost of the materials fuel etc incurred doing that job.
When I look at a job I figure how much the materials are likely to come to, then work out how long the job is going to take
Time in weeks * weekly g.p. requirement plus materials = price
eg 4 weeks * £2000 plus £1000 materials = £9000
I don't actually need £2000 gp pw BTW, but that is my target. Sometimes when business is quiet I decided not to risk a few weeks of no work, and price lower in order to keep things turning over.
John
The most important consideration is time. I can have as much material as I care to order, but time for me and my assistant is strictly limited.
I know from a careful study of the costs of operating my business that I need to make a certain amount of gross profit each week. By gross profit on any particular job I mean the amount of money the customer pays me less the cost of the materials fuel etc incurred doing that job.
When I look at a job I figure how much the materials are likely to come to, then work out how long the job is going to take
Time in weeks * weekly g.p. requirement plus materials = price
eg 4 weeks * £2000 plus £1000 materials = £9000
I don't actually need £2000 gp pw BTW, but that is my target. Sometimes when business is quiet I decided not to risk a few weeks of no work, and price lower in order to keep things turning over.
John
tim
Established Member
DomValente":2z6j4vrg said:
Yep, I'd say so. The principles are identical, the actual numbers/ mechanisms are irrelevant.
Cheers
Tim
engineer one
Established Member
i think it is time to differentiate the costs that people are talking about, and the fact that many people are self confessed amateurs, so are afraid of asking for real money.
i think if you do a job that is going to get paid for you have to consider the knock on effect of your pricing. if you are too cheap, then the next job that you cannot do because it is too complicated will, because of your original low price, not get done because the customer has an unrealistic idea of costs.
i think that in woodworking you should actually offer an overall price, because it is easier to achieve a profit this way.
remember on nearly every job your wood wastage will be up to 25% no matter how clever you are, now i know you can use some of this wood on another job, or where it is out of sight, but why should the customer know about overage?
then as you become more experienced, you make things more quickly,
or in a different way, so your actual labour element in the job changes,
but the job is still worth the same or more than the initial piece, and then your reputation will grow, and thus allow you to increase prices, but remember in business, it is easier to offer a special discount, than put up your prices.
i think the nub of this discussion is everybody is afraid to offer prices that are both fair to the customer who is buying a hand made heirloom item, and the maker who wants to be in business for many years to come.
so what's my answer?
do a calculation. how much do i need to live on every week, mortgage, utilities, food, car etc, this number will scare you immediately,
then think how many hours i want to work, so use the so called statutory week, 37.5 hours, divide the above sum by that and you will see what your baseline per hour should be, then you have to think about all the overheads, tax, nic, workshop, pension, tools consumables, yes you really should charge for each sheet of sandpaper that you use.
all the above are called profit, but frankly are not, they are just overheads, then you have to add a profit margin, at least 35%, because as has been said you will only work about 25 hours a week, the rest is designing, checking and collecting wood, customer greeting, and doing the work of the government. even if you do the vat return at night, you should include it in your overhead.
also remember in your first couple of years, although you cannot afford one, you really need an accountant to give you clues to those things you can and cannot claim for.
make sure the cost of your computer is in there, and write it off over one year if you can, but ensure that you have a decent accounts package, and enter everything, you will be surprised by how much you spend.
final thought this weekend was a report about the cost of car servicing around the uk now, in london it can be up to £140 per hour ONE HUNDRED AND FORTY QUID AN HOUR, or elsewhere as low as £40.
now i know that mechanics do not get £50 per hour, so where does the money go to????? the other thing to think about is that mechanics these days do little hand work it is mainly information technology, but people have gotten used to their cars, and being convinced that such sums are warranted, amazing what you can convince people of when you put a couple of computer chips everywhere, but think with the low resale value of cars now, many cost more to repair than to buy.
so what we must all try to do is make woodworking/ fine furniture a respected and therefore well paid craft. we do this by charging more, but making things which like a saville row suit offer understated quality.
but just to finally put it in perspective, although underground train drivers in london get about £26k a year, bus drivers whose job is more dangerous, get about £8.00 per hour. go figure.
quick and dirty, think of a number, add materials, then double it. and then add on some more. give yourself some negotiating room and expect to make it pay.
paul :wink:
i think if you do a job that is going to get paid for you have to consider the knock on effect of your pricing. if you are too cheap, then the next job that you cannot do because it is too complicated will, because of your original low price, not get done because the customer has an unrealistic idea of costs.
i think that in woodworking you should actually offer an overall price, because it is easier to achieve a profit this way.
remember on nearly every job your wood wastage will be up to 25% no matter how clever you are, now i know you can use some of this wood on another job, or where it is out of sight, but why should the customer know about overage?
then as you become more experienced, you make things more quickly,
or in a different way, so your actual labour element in the job changes,
but the job is still worth the same or more than the initial piece, and then your reputation will grow, and thus allow you to increase prices, but remember in business, it is easier to offer a special discount, than put up your prices.
i think the nub of this discussion is everybody is afraid to offer prices that are both fair to the customer who is buying a hand made heirloom item, and the maker who wants to be in business for many years to come.
so what's my answer?
do a calculation. how much do i need to live on every week, mortgage, utilities, food, car etc, this number will scare you immediately,
then think how many hours i want to work, so use the so called statutory week, 37.5 hours, divide the above sum by that and you will see what your baseline per hour should be, then you have to think about all the overheads, tax, nic, workshop, pension, tools consumables, yes you really should charge for each sheet of sandpaper that you use.
all the above are called profit, but frankly are not, they are just overheads, then you have to add a profit margin, at least 35%, because as has been said you will only work about 25 hours a week, the rest is designing, checking and collecting wood, customer greeting, and doing the work of the government. even if you do the vat return at night, you should include it in your overhead.
also remember in your first couple of years, although you cannot afford one, you really need an accountant to give you clues to those things you can and cannot claim for.
make sure the cost of your computer is in there, and write it off over one year if you can, but ensure that you have a decent accounts package, and enter everything, you will be surprised by how much you spend.
final thought this weekend was a report about the cost of car servicing around the uk now, in london it can be up to £140 per hour ONE HUNDRED AND FORTY QUID AN HOUR, or elsewhere as low as £40.
now i know that mechanics do not get £50 per hour, so where does the money go to????? the other thing to think about is that mechanics these days do little hand work it is mainly information technology, but people have gotten used to their cars, and being convinced that such sums are warranted, amazing what you can convince people of when you put a couple of computer chips everywhere, but think with the low resale value of cars now, many cost more to repair than to buy.
so what we must all try to do is make woodworking/ fine furniture a respected and therefore well paid craft. we do this by charging more, but making things which like a saville row suit offer understated quality.
but just to finally put it in perspective, although underground train drivers in london get about £26k a year, bus drivers whose job is more dangerous, get about £8.00 per hour. go figure.
quick and dirty, think of a number, add materials, then double it. and then add on some more. give yourself some negotiating room and expect to make it pay.
paul :wink:
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