Mainstream lasers, not as expensive as you thought.....tax break

[Scott Shepherd]

Just in case anyone's got the urge to buy something right now, there's a tax break for machines out there right now. I ran the numbers on a laser and it came back with a $8,000 tax break, so if you're considering a laser right now, you might be surprised at the final cost after the tax break.

It ends this week, unless they extend it.

Section 179 is what you'd search for. It's been on the news several times lately.

[john banks]

There's a similar allowance in the UK ending April 2012 (unless they renew it), where you write down 100% of the value of the machine in the tax year it was purchased, rather than spreading it over years depreciating it. In our system that does mean that you can't clim tax relief against its later depreciation though, so it will increase tax bills in future years.

[Ross Moshinsky]

Doesn't this apply to all machines, regardless of where they are produced?

[Martin Boekers]

Ross, I believe so. It also includes software and some vehicles.
I also believe that it does go into 2012 but at a lower
ceiling of purchases. Still maybe a good opportunity for
many.

[Scott Shepherd]

Doesn't this apply to all machines, regardless of where they are produced?

Yes, it does! I worded it that way because the #1 reason people say they don't buy mainstream machine is their prices.

[Ross Moshinsky]

I understand. Just a little misleading. The fact is, although it makes the domestic machines more affordable, it also makes the Chinese machines even cheaper.

Frankly, I don't care what machine someone buys. I'm far more concerned with the people buying lasers and charging $10/hr.

[Scott Shepherd]

Frankly, I don't care what machine someone buys. I'm far more concerned with the people buying lasers and charging $10/hr.

I'm with you there. Buying any machine is a personal decision based arounds one's business needs. If a magnifying glass and the sun meet your needs then so be it :)

[Rodne Gold]

Those actually running a business and being able to take advantage of the tax relief will not be running at $10 an hour , it the casual guy that "wants to start a laser business" that does that and mostly these are not registered businesses or their owners have no clue about business.
At any rate , what with cheap and capable systems , thats what you will be facing more in the future , it's not the only industry where cost of entry has fallen and thus attracts a lot of "rats and mice below the radar" operators who work off an unrealistic costing base.

[Lee DeRaud]

At any rate , what with cheap and capable systems , thats what you will be facing more in the future , it's not the only industry where cost of entry has fallen and thus attracts a lot of "rats and mice below the radar" operators who work off an unrealistic costing base.As the cost of entry falls, the definition of "unrealistic" changes with it. I suspect you'll also find yourself facing savvy operators whose costing base suddenly got realistic enough to make them competitive.

[Rodne Gold]

Im not quite sure what you mean?

[Keith Outten]

Yeah, I know about the tax break. Northwinds got a new vehicle a few months ago :)
.

[Lee DeRaud]

Im not quite sure what you mean?All I'm saying is, just because a business model doesn't look like yours doesn't make it "unrealistic".

It seems like every couple of weeks I see someone posting something to the effect, "Waaah! There's no way I can compete with those prices! Mom, make him stop!", usually followed by a bunch of snide pronouncements predicting the imminent demise of the offender's business. It smacks of elitism IMHO.

[Rodne Gold]

If I do the maths , its almost impossible to make $10 an hour work.
Thats $1500 a month turnover based on 7 full hours a day for 22 days in a month.
Even a "cheap" machine will require at least $300 a month for amortisation of capital cost and repairs. Leaves a net of $1200 , less business expenses which will be at least $250 - if you extremely frugal and very lucky , you might gross $1000 a month or $6.50 an hour .
http://en.wikipedia.org/wiki/List_of_U.S._minimum_wages
shows that $6.50 an hour is below most states minimum wage...
$10 an hour doesnt sound like a good business model whichever way you slice it. I don't think I was being unrealistic to describe it as unrealistic.

[matthew knott]

Depends what else the business is doing, our epilog gets used for about on average 4 hours a month, we got it cheap ($4k us) its not our core business and we only really got it as we lose the odd job to a competitor (work we dont want) but if gives them a way into our core business (this we dont like). If i could find a job that took very limited labour time and the macine could just sit there running away, that paid $10 I might be tempted as its just sitting there. The more machines you get the cheaper you can afford to run them for, economies of scales i guess. Same with the guy that buys a cheap chinese machine and is happy to use his spare time to make a bit of beer money, he can afford to do it to.

[Scott Shepherd]

The more machines you get the cheaper you can afford to run them for, economies of scales i guess.

How's that work? If I have 1 machine that runs for 1 hour and I get $60 for that hour, and the machine cost me $20,000, if I buy 5 more machines, so I have 6 machines at $120,000 worth of investment, but now I can run the jobs in 10 minutes, I should charge $10 now because I did it in 10 minutes in 6 machines running at a time? I hope that's not what you're saying.

[Ross Moshinsky]

I was just throwing $10/hr out as a number. It wasn't really meant to be taken literally. I was also more or less referring to an "after expenses" $10/hr. Something that is actually a living wage in a shockingly large part of the US.

I do agree with your point though Rodne. The people are not actually figuring out their costs and as a result, are pricing themselves out of business. It still doesn't leave me concerned. If 10 of these businesses pop up around me and each take 3% of my business, then I'm out of business and most likely, so are they.

[Ross Moshinsky]

How's that work? If I have 1 machine that runs for 1 hour and I get $60 for that hour, and the machine cost me $20,000, if I buy 5 more machines, so I have 6 machines at $120,000 worth of investment, but now I can run the jobs in 10 minutes, I should charge $10 now because I did it in 10 minutes in 6 machines running at a time? I hope that's not what you're saying.

I think he's suggesting that he's already paid for the machine and if he's already paying the for the heat, lights, insurance, and labor if he can get an extra $10/hr without his costs increasing, it's essentially found money.

[matthew knott]

Thats exactly it, your up scaling as a core busines, thats not my point, our other lasers make between $60-$120 per hour each. Thats the 'core' if the machine is a usefull tool for us (which it is) so worth having as a tool on its own merits. If its just sit there not being used why not get $10 an hour, everything else is paid for. The problem is as the machines come down in price (they are) and we arent really (have to be carefull not to upset people here) adding much value. By this i mean if you went back in time say 20 years with a cheap $100 printer you could probably make good money printing for people. Loads of printers have gone out of business because you can do it yourself. Theres going to be more and more people popping up and having a go at laser engraving and it will become harder for people to expect to be able to run a business with a few machines and make good money IMHO, its just the way things are going

[Scott Shepherd]

I think he's suggesting that he's already paid for the machine and if he's already paying the for the heat, lights, insurance, and labor if he can get an extra $10/hr without his costs increasing, it's essentially found money.

That's a frightening way of looking at running a business to me. So if someone gave me a $30,000 machine and I ran it out of my basement, where the lights, etc. have all been paid for, it would be found money to bill for $10 per hour? What difference does that make to anything? So the person with the cheapest stuff sells for less? Business 101 says you should sell for what the market will pay, not what you think you are happy with stuffing in your wallet off the books. It's that philosophy that's hurting everyone, including the person selling it.

If the market price for banners is $6-8 per square foot, then that's the price set by the market and people pay it every day. Why in the world would you sell banners for $1 per square foot if you just "had a machine sitting there"? And then call that "making a profit". You would have left $5-7 per sq. ft. on the table, plus now you've set yourself as the low price leader, so you'll cripple the market around you, work your butt off, and in the end, make little to no money.

We charge what he market dictates. I wouldn't do it any other way, but that's me.

[Rodne Gold]

Yes , you can afford to drop prices with multiple machines , so long as the addition of extra machines does not increase other costs.


At the end of it all , More purchase price affordability= more machines in the market = more price competition to get a part of some finite pie=more pressure on margins of those with established businesses and thus less profitabilty. The days of being the only kid on the block with a laser due to expensive price of entry are going west... Seen it with CnC engravers , vinyl cutters, digital printers and so forth.

I would imagine those offering only simple lasering services will suffer most , we offer a product that is not only made with a laser and have a multiprocess approach , lasering other ppls products is a minimal part of my business. I have reacted to the proliferation of cheap machines by letting all and sundry fight over the "easy" jobs and have concentrated on making stuff and offering services other cannot.

[matthew knott]

years ago shops sold just one type of item, for example butchers sold meat, bakers sold bread and so on. Now thats rare, business have realised with big buying power you can take a small cut of everyone elses business without much extra layout. Walmart sell everything, they have a masive building and take small margins on some items but seem to rule the retail world. Thats my point, you might say "i need to make 30% margin or its not worth it" they can say "only a 2% margin but its an exta revenue stream and no exta out lay"
NO business anywhere in the world wories about hurting other business around it, i just find it odd when people say "its ruinning it for everyone"

[matthew knott]

As a PS, its not what i would do either but its whats happeneing all around us, if the lasers went back up to $100k each again then theres a masive block on market entry, now days its less than $2k

[Scott Shepherd]

NO business anywhere in the world wories about hurting other business around it, i just find it odd when people say "its ruinning it for everyone"

Sure they do. Let's take the example then. What happens is this- one sets a price based on their home office/business location. No rent, no real bills, so that $10 per hour is right in their pocket. They go out, get some work because they are undercutting everyone by 75%. So their business grows. People start sending them work all over the place. The people around them can't compete with no rent, no bills, etc, so they stop offering the product or go out of business.

So the work keeps flooding in, now there's more work than can be done in the basement on 1 machine. So now what? You go rent a space. Now your $10 per hour won't cover the bills, the rent, the insurance, etc., so you have to raise your prices. Now you are suddenly at $40 per hour to cover expenses and wages. So now you're not the cheapest guy in town any more, you're back into the real marketplace and all your clients leave because they liked you at $10 per hour, but they don't like you at $40 per hour.

Your cost of products should have NOTHING to do with your expenses. That's like an employee saying "I need to make $25 per hour because I have a lot of bills". Doesn't matter. What matters is what the market will pay.

[Rodne Gold]

Your cost of product is directly related to expenses you incur in producing it , your cost of product might not be what the market will pay however.

[Dan Hintz]

You go rent a space. Now your $10 per hour won't cover the bills, the rent, the insurance, etc., so you have to raise your prices. Now you are suddenly at $40 per hour to cover expenses and wages.
Then as a businessman you have a decision to make... do you increase your bills with the intent you'll be able to keep enough business after raising rates to at least break even, or do you realize you've hit the max mark for your current business layout and stay where you are?

If you choose to move out of the basement and rent a place, hire employees, etc., you can't then say "Nothing has changed, so why doesn't that $10/hr still buy me what it did before?".

I agree that lowballers can destroy your business, but then you have to ask if you're in the right business. By that I mean are you looking at the correct market segment. If I was working with a $2k machine and could get $100k business deals, that's icing... but if I was working on a $100k machine and could only get $2k business deals, then I'm looking at the wrong deals. If that $2k-machine owner is snaking the trophy market from you and happy to take what he makes, maybe it's not a wise decision to continue working in the trophy market... maybe it's time you found a spot in the industrial market, someplace the new trophy engraver can't compete.

I decided early on the only tile engraving jobs I would do were high-profit jobs (e.g., architects), no one-offs for the person off of the street... let the $1k Chinese machine owner take that job for $50, it's not worth my time. I'll be spending that time marking 100 mounting brackets that make me $10/each. I sell quality, I sell service, I don't undersell myself, and I do it all from my basement.

[matthew knott]

Your expenses set the minimum you can charge, its up to you what you charge, upto the market if they buy it! Scott, not sure how your example shows how the business is woried about another. They have destroyed the competion and now have the option to turn work away or expand.

[Scott Shepherd]

I sell quality, I sell service, I don't undersell myself, and I do it all from my basement.

Dan, please understand, I have NO issues with home based businesses. No problem at all. I do think there are a LOT of people that could be making a LOT more than the do because they devalue their services. You are the perfect example of a good example of how it should be done. If I product costs $40 at the store, what difference does it make if it were made in a production facility or your home? The market doesn't care. You set your prices to the market and it works. I wish more people followed your lead.

I don't play in the low end of the market, so it doesn't matter that much, I just hate to see people leaving so much money on the table because they think they shouldn't charge what their services are worth.

[Ross Moshinsky]

That's a frightening way of looking at running a business to me. So if someone gave me a $30,000 machine and I ran it out of my basement, where the lights, etc. have all been paid for, it would be found money to bill for $10 per hour? What difference does that make to anything? So the person with the cheapest stuff sells for less? Business 101 says you should sell for what the market will pay, not what you think you are happy with stuffing in your wallet off the books. It's that philosophy that's hurting everyone, including the person selling it.

If the market price for banners is $6-8 per square foot, then that's the price set by the market and people pay it every day. Why in the world would you sell banners for $1 per square foot if you just "had a machine sitting there"? And then call that "making a profit". You would have left $5-7 per sq. ft. on the table, plus now you've set yourself as the low price leader, so you'll cripple the market around you, work your butt off, and in the end, make little to no money.

We charge what he market dictates. I wouldn't do it any other way, but that's me.

It's not the same thing we're talking about. We're talking about something completely different. This is, "I paid for everything someone walked in the door with an easy job. I have Joe Smith who can run the job. It won't cost me any more in labor. I can afford to run this job at a low labor rate." This isn't a case where you actually have to add hours into the day. There are plenty of people who run their business like this during their "down time". It's incredibly common with masons and people like that to take an interior job during the winter and drop their labor rate way down to get the job. They make all their money in the fall, spring, and summer. The winter is normally a bad time for them so they just do it at a lower rate because it's "found money".

There is nothing new or special about what Matt is talking about. It's fairly common in a lot of industries and businesses. Obviously you don't agree with the practice but other people use that kind of thinking to buy boats or pay for vacations.

[Scott Shepherd]

I understand what he's saying, I just don't see a lot of successful businesses following that model. Name me one other service (we are a service business) that you can walk into the door and ask for 75% off the going rate. When I go into a car dealer, I see their alignment machine sitting there doing nothing. I see the mechanic that runs it, standing around. They don't give me 75% off because they have the machine and the guy is standing there. I go into a restaurant and it's empty, but they have the stoves, ovens, etc running. They don't make my food for 75% off the menu price just because they had someone there and had the equipment. I can't think of any other service business that cuts their rates by 75% just because they have the equipment and the ability. I stand by my comments. The market sets the price, we just live within that market.

My CNC router isn't running right now, so should I take the next job at $10 per hour? Great, then I've just told my customer that the value of CNC routing is $10 per hour. So they come back when I'm busy and want some routing done, and I tell them it's now $80 per hour? Our rates don't change based on our workload, our rates reflect the market prices for our services.

[Ross Moshinsky]

I know I worked in the trade show display industry and there were periods between shows where there wasn't much work to be done. So if a job came in where someone wanted a few cabinets or a display case, it was bid out at a lower price because otherwise everyone was just standing around waiting. The company essentially knew how much money it was going to make per year. Taking on a job making 10 cabinets to be done in 3 weeks was seen as found money. We were never waiting for that job. We were waiting to get approval for another job and that one was just added in to fill time.

Also restaurants do it all the time. What do you think Tuesday night specials are for? They are slow. They want business. They work cheaper on Tuesdays because it's better to have some money coming in than none at all. Friday, Saturday, and Sunday pays the rent. Tuesdays pay for the fun.

I'm not suggesting it's the wrong or right way to do things. I just a very common practice that is very practical for small businesses.

As for your question about the CNC Machine: If you're paying an operator to stand around and pick his nose or you can run the machine and pay his wages, I'd probably tell you to pay his wages. Just let the customer know it's a special price. There is nothing wrong with saying "We're slow right now. I'll take the job for a lower rate. When you come back in next time, it will cost more money." Applebees does it every night with their 1/2 price appetizers after 11pm (or whatever time it is).

[Gary Hair]

I understand what he's saying, I just don't see a lot of successful businesses following that model. I agree, it's ridiculous to charge less because you just happen to be standing around at the time. The restaurant analogy doesn't fly either, they have time when they know they are slow, Tuesdays at 11pm, but I don't know when I'll be slow and when I'll be swamped. My billing rate is $120 per hour, 8 hours a day/5 days a week/50 weeks a year. The rest of the time I'm at least double that much... never less...

Gary

[matthew knott]

Loads of business do it, a good example is hotels, they have a list price but will give a massive discount to the likes of laterooms.com they often hide their name so as not to upset other customers, so for example it will just say 4* hotel, central london, normal price £350 ours £65. As with all things its finding a balance you are happy with. The problem with using "market price" as you say is it leaves gaps in the market that people will try to fill. We started with one machine, we could not afford for that machine to be run at low hourly rates, we now have an excess of machines, they sit not being used, my overhead (other than electric and an operator wages) is the same. 'I' can afford to run that machine at a lower than normal price, thats just me i may not want to but i can. So i might get a job that looks easy wont take up much (off my) time and will drop the quote right down to get the work.
As you say your router is idle, for how long a day? Say you run it 2 hours a day at $80, someone else might think i will charge $40 but try to get 7 hours a day, if he finds the work with the xtra cash he can soon buy another router, now he can run at $30 for 7 hours x2 . Thats what busniess do, they look for the balance off charging as much as they can for their services and getting a much work in as posible. Im sure when McDonalds strated local restaurants said 'look at that idiot selling he's dinners for 20 cents when $1 is the going rate, good luck to him' but they made it work.

[matthew knott]

We have fixed prices to, just saying that theres always someone that will try to undercut you, and you cant say their ruining it for everyone its just business.

[Gary Hair]

Say you run it 2 hours a day at $80, someone else might think i will charge $40 but try to get 7 hours a day, if he finds the work with the xtra cash he can soon buy another router, now he can run at $30 for 7 hours x2 . Thats what busniess do, they look for the balance off charging as much as they can for their services and getting a much work in as posible. Im sure when McDonalds strated local restaurants said 'look at that idiot selling he's dinners for 20 cents when $1 is the going rate, good luck to him' but they made it work.

3 or 4 more routers and you can be charging $5 per hour, 5 more and you can actually pay your customers to do their work... but you'll make up for it with volume!

[Scott Shepherd]

We have fixed prices to, just saying that theres always someone that will try to undercut you, and you cant say their ruining it for everyone its just business.

They aren't ruining it for me, they are doing me a service. They are weeding out the cheap customers that nickel and dime things to death that I don't want anyway. I appreciate that service they do for me. Keeps me from having to deal with them myself.

Restaurants don't cut their pricing by 75% when you walk in and they are slow. They may do a special, but they don't operate daily at 75% off, which is what some seem to suggest is a valid business practice because home based businesses have little overhead. I'm just suggesting that those that are doing things for $10 per hour are missing opportunity. If you have equipment others have and others charge $60 per hour, why cut your price to $10 per hour? Cut it to $50 per hour or $40 and roll on with all the work you can take. But to charge $10 when everyone else is charging $60 is just leaving a ton of money on the table, which, in my opinion, is a bad business practice.

There's plenty of room in this business for home based businesses. Plenty of room. I'm just suggestion there's no need to give away your time when you could charge for it. Cut 20% off the local market, but not 75%. It's just unnecessary.


Good one Gary :) Made me chuckle :)

[Dan Hintz]

I agree, it's ridiculous to charge less because you just happen to be standing around at the time.
Let's take a look at it from the other side. How many service companies do you know of that charge a premium for rush service? Pretty much all of them. The customer is saying "I don't care if you are already booked, mine is a priority." We charge more when we're busy and a customer needs it now, we charge less when we're not busy and/or a customer is not in a rush.

I gave up on a semi-recent nametag job because the customer's expectations were too high for the remuneration offered... I was asked to compete against a guy working out of his garage (just like me), but he was willing to accept a price that barely paid for the materials. After several failed attempts at pleasing the customer, I threw in the towel and said "find someone else to hassle". We both had low overhead, but I was shooting for quality as I always do... and it shot me right back.

[Ross Moshinsky]

Honestly, I don't think you guys are understanding Matt's perspective at all. I don't even use this pricing practice but I know for a fact it works.

The point is: What if you're running a business where you're paying an operator $15/hr and you can't get anymore $100/hr work but you can get $60/hr work. Is it better to pay his wages out of your pocket or out of the customers? Also, if you could come up with a steady cash flow which didn't increase your costs yet it made you $5000 a year, would you be interested in that?

That's what we're talking about here.

When it's just you, then these jobs might not be worth it. It's when you have employees who get paid no matter what is when you start taking these jobs to fill the voids in your schedule. You can get in trouble when these jobs take over your business, but when they just supplement your business, they allow you to buy a nicer car or go on a vacation or get a boat.

I also think people are getting caught up on random numbers. This is a conceptual debate rather than a hard numbers debate.

[matthew knott]

Thats exactly my point Ross, if it takes over you business you have a problem. Also just trying to point out small business that run from home have a low overhead and so can larger companies that can run multiple machines, being in the middle you become a lifestyle business, and thats great if it works for you but one guy with a few spare thousand dolars can setup near you can could hurt you and theres very little you can do about it. I dont have a boat (alas) but me and my business partner both drive very nice cars we own outright over 14 lasers and our building is owned by ourselves so our business plan is not doing to bad for us.

[Martin Boekers]

Folks actually have workers standing around & paying them when there isn't any work?
Hmmmm. that just doesn't sound like a good business practice to me. When I slow down
(rarely) the time is used for working on inventory, paperwork, training, machine maintainence
etc. I realize there will be slower times that I can't control when happens so I have things planned to
do in that time. These things all need to be done and can't be accomplished during busy times.
If all is caught up I send them home. Most the time we work at a pretty good clip and they see
that it's slowing down and ask to leave earlier. I do have a good crew!

I find I have to be consistant on pricing and quoting otherwise customers don't know what to expect
to pay at any given time. 80% of the work I do is repeat work. If you undercut the price once they expect
the lower price again. Rush charges... if I can fit it in I try not to charge them, but, if they want a guarantee
it will absolutely make their suspense they should pay it.

I don't want to be known as the cheapest.....just the best!

I do get customers from time to time that want plates made, sometimes they balk at the price so if it
is a bit rediculus I recommend a local scrapbooking shop as they sell all kinds of textured, marbled & metallic
card stock that can be run through a laser printer. 9 out of 10 decide on my plates instead.

One thing that really amazes me is some folks will run around town for an hour or so to save $3 on a piece.
I guess they figure their time and fuel is worth less than that! Go figure!

[Uros Sovilj]

Hi

I am one of garage low cost Chinese machine engravers. Basic i don't have monthly costs if machine is not working. I could easy do jobs for 20$ per hour and it's 3x more than is average hour if you have normal job in some company.
But like many here said if you don't respect your work and time and killing competition with low prices you won't be able to build your own future growth.
So what i do is to charge full price (in my country is 50$/hour) for jobs that i am willing to do just because of money, and on the other hand i offer big discounts for jobs i want to have.
I tell customer that this is one time discount, give him a bill with full price, on total 25% discount and a coupon for 25% discount that he can use on next order. Customers will see that as 50% discount. If he come back it's only 25% discount per job and if he doesn't you still gave him only 25%.
Now all i have to do is to make better product than competitor and by my statistics i got 60% of that customers returning. On next job they order i never give more than 15% discount.
My point is that you can use low cost running as advantage and build a save future for you.
You always have to look in future and calculating costs based on what your plans for future are.