Pricing based on laser wattage

[Jonathan Bowen]

I use my laser almost exclusively for production. I try to stay around $1/min for pricing. This is before I add my normal margins. I'm usually fairly close to market value for similar projects but now we are branching into laser cut tabletop gaming terrain. The process is a little different and should be cheaper. However, I had to cut our margins down to compete in the new market. My laser is on the small size at 40 watts. So the question is should I be compensating my pricing based on our laser wattage? We would probably be more competitive at say 100 watts based on time alone. Some of the issues are my competitors. I try to have enough margin to push our products into wholesale. I suspect my competitors might be pricing their products based laser time without any markup.

I don't want to undercharge myself but the truth is the laser time doesn't have much actual cost to it. I don't want to trap myself in a situation where I'd be losing money if I have to pay someone to run the laser full time. Just curious what others have done in similar situations.

Jonathan Bowen
CorSec Engineering

[David Rust]

Hi Jonathan, I am sure you are going to get many answers. I have a couple of formulas I've tried however I find what works for me is to assess the "worth" of the product and price accordingly.

This is how I go about assessing worth:
1. Conduct an internet search for similar products
2. Gather as much pricing information about the product (don't forget shipping and handling info)
3. Assess differences/ likenesses of the product (Is my product better or not as good)
4. Set a price... If I can't do it for the assessed "worth", I don't do it...
5. Adjust the price as necessary based on sales or lack-of-sales...

Some Jobs I have spent more time on test runs than the time it took to run the job...

Hope this helps...

[Jonathan Bowen]

I find myself making design decisions based on laser time and that has lead me to consider pricing by overall volume of the final assembled building.

I do most of what you mentioned. I do like having concrete numbers to help with pricing but I adjust them based on the market. If a building is too expensive then I use $0.75/min and calculate it again. I'll have to run some numbers based on what an employee at say $10/hour would cost per minute and include that in my pricing. The products that i have released so far have been well received but not many have purchased them. I am right along side most of my competitors on pricing but again I feel almost restricted in the design process. I might work up a formula so to speak that includes volume, level of detail, and laser time. I like to get a ballpark before I go hunting down similar products before I set final pricing.

[Scott Shepherd]

I subscribe to a little different thought process. If you have a machine now that's making you $40 per hour, and you purchase a more powerful machine, why would the price drop? If I have a 1000 watt laser that cost me $200,000, does that mean instead of something that cost the customer $4.50 on a 40W laser should now cost the customer $.50 cents? Doesn't make sense to me. I invested the cash into the machine, I took the risk, and the customer gets the benefit from that risk?

If that's a good model, then it should work no matter what, right? So you'd make more money if you bought a 20 watt machine than a 100 watt machine because you'd be able to charge more based on the time it takes.

I know a lot of people get hung on dollars per hour, but we believe you price to the market and let it fall where it falls. If it makes sense to do, then we'll do it. If the market dictates us making less than it takes to pay the bills, then what's the point? We'd pass on that situation. If we charge $5 for something that runs in 4 minutes on a 45W machine, or we can run the same job in 2 minutes on a 80W, we reap the rewards from taking the financial risk of buying a machine.

[Jonathan Bowen]

Well I'm kinda thinking of the opposite of the situation you describe. The cost per min goes up as the wattage does. So at 40W I'm charging $0.50/min but at 80W I'm charging $1/min. The faster the job the more the time on machine is worth. In my situation, I think my laser is under powered as most of my competitors are running with 60W-100W. So I'd need to decrease what I charge to compete.

Right now I'm pricing my stuff at around the same price as similar items but I know my cutting times are less. @ 40W. My prices used to be cut and dry because I was charged by the min for someone else's laser. Now that I have my own its a bit different. So I guess the real question is, should I pass those savings on to the customer or reap the benefits of the method I developed and have a higher profit margin?

I'll have to sit down and work out some pricing parameters and research what other products are already on the market.

[Tim Bateson]

I shoot for $1.50 - $2.00 a minute, but in reality I charge what-ever the market will bare. Sometimes that may be $.25/minute, other times $10/minute.

I would charge the same or more if I was running at 100 watts. You would have to in order to make the payments on that machine (assuming you didn't just win the lotto).

[Jonathan Bowen]

Well considering that one company made $42k on their first kickstarter and is over $25k on a second that is only a few days old, I might be in a position to buy one out right. I'm going to use this model for my next set and see what happens. It could go big but I just don't know yet. That is why I'm trying to lock down a good pricing formula now because if I have to ship $25k - $50k worth of product in a few months then things get interesting. At that point, I'd probably try to pick up a higher wattage Epilog and upgrade my Hurricane Laser to a 60W. I really need to pin down my costs so that I'll know how much I can spend.

[Rodne Gold]

If you price per minute on products that others also make, you will be beaten into the ground by those with cheaper , faster and more potent lasers. You HAVE to change the pricing model or work out whether it's worth it to you to remain in that competitive market , what to you might be working at a loss can be a handsome profit for others.

[Mike Null]

Price to the market. The market doesn't give a hoot about what kind of equipment you have.

[Michael Hunter]

Here's a little rule-of-thumb that I find useful when faced with difficult pricing decisions. It helps to balance risk against competitiveness -

Take just the materials costs.
If the price works out to less than 3x the costs, then any little problem can wipe out the profit.
If the price works out to more than 6x the costs, then plenty of competitors will want to take the job away.

The only proviso with this rule is that the material costs must be sensible : if you are buying retail and the competition wholesale, then clearly it doesn't work.


The other balancing trick involves delivery time.
My "normal" turnaround is 3 to 5 days from order, but I will take on a low-paying job if I can work it round other better paying ones.
This leads to two prices on the quote - a "have it now" price and a 2-3 week price.

[Jonathan Bowen]

My time on machine is averaging about 7 -10 mins. It depends. The MDF cut run about 15 mins or less and the styrene only runs 2-4 mins max. Each kit is generally 2 cuts but can be as high as 5. Depends on building size. Material costs are getting to be an afterthought. Pricing per min, I'll have $20 in cutting costs and $3 in material. I'd retail that building for $39.99 or so.

You all have given me a lot to think about. The real trick for me is that I'd like to push into retail with them. It hasn't been done yet I've already got several retailers that I work with. I'm going to work something out based on volume, level or detail, and how many times I have to load the machine.

[Martin Boekers]

Well considering that one company made $42k on their first kickstarter and is over $25k on a second that is only a few days old, I might be in a position to buy one out right. I'm going to use this model for my next set and see what happens. It could go big but I just don't know yet. That is why I'm trying to lock down a good pricing formula now because if I have to ship $25k - $50k worth of product in a few months then things get interesting. At that point, I'd probably try to pick up a higher wattage Epilog and upgrade my Hurricane Laser to a 60W. I really need to pin down my costs so that I'll know how much I can spend.

Did the company make $42k or is that the funding they received? I am intrueged by Kickstarter. I know that some here at SMC have financed their equipment that way.
Some may be fine with breaking even after 2 months of work per say or even at a slight loss to pay for the laser. I have seen some projects listed for $5k, then they
hit $100k and wonder if they had a secondary plan to produce much more than they anticipated.

Pricing is very fluid here as i may take on a job that no one else would touch and make it work or vice-a-versa. SMC is a World forum, so some may be in different markets and
price as their market allows.

One thing I find is that some don't taking ing all the costs when pricing, such as shipping and packaging, loadingm, unloading and cleaing the product. Time spent with client for
ordering and pick-up, additional layout time, consumibles etc.... there are many ways for profits to "leak" out.


Good luck with your venture and let us know how things work out!

[Ross Moshinsky]

If you're vector cutting all day, you have the wrong tool for the job. 40w lasers are not designed to cut MDF as their primary job. 40W lasers are more or less designed for engraving and some cutting. If you want to cut, you need to step up to a 80w+ laser. Ideally you want to be well over 100W.

As for pricing, you have to price based on the market and your own profitability. You need to look at what it takes to make the product from start to finish. You need to look at all of your expenses. You also need to examine how you can grow the business in the future. A lot of people start out working out of their home and quickly realize they need some sort of commercial space. Soon after that they realize they couldn't afford the commercial space because the price they were charging didn't figure in any overhead.

[Jonathan Bowen]

Kickstarter is a strange little animal that can bite you BAD if your not careful. My impression is that by the time Kickstarter and Amazon take their cuts your down 8% right off the top. Say you had a goal of $14k for the laser. You going to have to spend that on equipment. In the $42k example, You now have $25k to buy materials and pay people to make them and ship them. You have to pay shipping costs in the US. International has to be discounted or you don't get a lot of overseas orders. You can charge extra for that but try charging $15 or more and you'll have riots. Include packaging and your probably down to $20k with 250 or so orders to fill. Some of which are rather large. For the next 3 months, your doing this almost full time.

Are you going to get rich quick? Probably not. Will you get the funds to launch a company and buy equipment? sure. I'm at an advantage because Kickstarter has taken my industry by storm. So much so, that i'm having trouble promoting and selling my own kits without it. The trick is to set a reasonable goal for just making it and oh crap this went crazy. One miniature company it currently filling $5 million or so worth of discounted orders. So your looking at probably $7-8 Million worth of product that is currently sitting in their parking lot and filling their warehouse as they try to push it out to cranky customers who have waited months for these products. In their defense, They planned for the insanity and was ready with stretch goal and add-ons for up to $5 million or so.

These kind of things are the reason that I need to lock down a sustainable pricing model. I already work 16+ hours a day to manage and fill my current work load and most of that isn't laser time. So the machine is idle but if things go nuts then I'll need to bring someone in to run it and possible a second machine full time for a while. The end result that I'm aiming for is to run the laser more because the work to money ratio is better then the other products that I make now. Some of those are getting outsourced here in a bit as well. Free time would be wonderful but you gotta pay the bills.

[Jonathan Bowen]

I'm on that fence right now. My pricing on a lot of my products is good. Some of them need to be adjusted or discontinued. They don't sell very well but they are a lot of work when they do. I work from the house now and I'm getting close to the point where I need to start setting up for the next stage. Part of the reason that I'm concentrating on the laser more is because that work to profit ratio is nicer. I've got 3 projects running now that can help get me over the hump. I'm to the stage now where I can kinda reliably make my own paycheck each month. The next stage is a small commercial space either built on my property or leased. At that point I can start getting employees.

[Ross Moshinsky]

I'm on that fence right now. My pricing on a lot of my products is good. Some of them need to be adjusted or discontinued. They don't sell very well but they are a lot of work when they do. I work from the house now and I'm getting close to the point where I need to start setting up for the next stage. Part of the reason that I'm concentrating on the laser more is because that work to profit ratio is nicer. I've got 3 projects running now that can help get me over the hump. I'm to the stage now where I can kinda reliably make my own paycheck each month. The next stage is a small commercial space either built on my property or leased. At that point I can start getting employees.

If you're barely making your own paycheck now, with no overhead, how do you expect to make money when you add thousands of dollars a month of overhead into the equation? Just because you move into a more accommodating space does not necessarily mean you're going to make more money.

Typically the right time to move to a new space is when you simply can't cope with the smaller space anymore. When it's a real financial restriction, then you look into moving. From the sound of it, you're not at that point.

[Jonathan Bowen]

It's not something I'm ready for but it is the next goal. I'm at the point now where I don't have to worry about getting another job. So my goals have shifted to working less and eventually moving out of the house. I will probably not work less but it will give me time to design more projects and push into different markets. I'd like to start pushing a few more projects onto etsy so that I can diversify. Christmas is a rough time of the year for us so I'd like to have a few sources of income that will work as gifts and reach a different market.

[Mike Null]

You're scaring me!


I'm going to work something out based on volume, level or detail, and how many times I have to load the machine.

Ross and others are making good sense.

[Kevin Braat]

Jonathan,

My wife did a Kickstarter a little while back on some wargame terrain and was successful. Kickstarter and fees will pull about 10-11% in our situation.

She is still learning the software and we have had to adjust some of the pieces for pricing in the market. She is now doing doll furniture and running into the same issue. If you price based on the laser time, you will either be insanely cheap or insanely expensive. I know some of the files that only take a few minutes to run actually are more popular than the files that are very detailed and take an extensive run time. We adjusted pricing based on the size of the piece and some player 'entertainment' factors.

Also, spend the time to optimize the cut paths on your files. It would have cost a few minutes of time to do that to the files my wife created, but would have saved over 12 hours of cutting time in the long run.

[Joe Hillmann]

Pricing per minute is often only the start of how to figure out pricing.

I have two CO2's a 55watt that I use for nearly everything and a 35 watt that I modified to fit larger items then the 55 watt will take. I also use the 35 watt when I am waiting on parts to arrive for the larger one. I usually try to charge a minimum of $1.20 per minute on the 55 watt. When it was down for a week and I had to use the 35 watt I kept my prices the same but my time more than doubled. For that week I would be surprised if I was making .50 a minute.

Often times when you are making something in the laser you have to do other processes before it goes in and after it comes out of the laser. If you are doing a production run with long enough run times you may be able to do the before and after processes while the laser is working on another part. If you are only doing a single item at a time you are unable to run the laser when doing those other processes. How do you charge for that time? You could say since the laser is running and you have to stick around to keep an eye on it that that time is included in the $1/minute of laser time. You could say since it is unskilled labor you will charge somewhere between $5 and $30 an hour for the before and after work. Or you can say you are going to add another $1/minute for the before and after work.

You can have the same dilemma when it comes to material pricing. On smaller items if you are working in mdf the item may have a material cost of $.05. At that price you may not want to even bother with adding it in to the cost. For me an average item has between $2 and $6 worth of material. On some items I may only add on to the price what the material actually costs, figuring I am making up enough in engraving time that I don't need to worry to much about it. More often though I will multiply the material cost by between 1.5 and 4 and add that to the price.

You also have to worry about other material costs. For me the main ones being tape, glue, application tape, sand paper and sanding sealer. One sheet of sand paper my last for 30 items. Hardly worth adding that into the cost but when I run out of paper I still have to have the money to pay for more so if I don't charge for it then it comes out of my pocket. On thing that you also need to keep in mind with these types of material costs is the cost of getting it to your shop. Either in shipping costs or in your gas and time to go get it. If you pick it up when you are at the hardware store for something else it isn't a problem. If you run out last minute and the nearest open hardware store is 30 miles away, you've now burned up 3 gallons of gas and two hours of your time, that can get expensive.

With my first yag I was making about $1.50/minute. I spent a lot of money to buy a better, faster yag. I kept my prices the same and now I am making $7 to $9 per minute. Although I am not making any more money just working fewer hours. It used to be between October and Christmas I would keep the yag running as close to 24 hours a day as I could. Now I only have to keep it running 5 or 6 hours a day.

I used to sell a cribbage board. I would make up about 20 at a time and then do the finish of them at home when I was watching tv. They sold pretty well until Christmas came around and I ran out. Then they became a large liability for me. I would have to stop running the laser that paid really and was backed up in order to make a board or two. After that I changed some of my pricing so that everything paid well. Some items I dropped from my line because they no longer sell at the higher price but I don't want to get into a situation like that again where in order to fill an order I have to do some piddly work that doesn't pay well.

[Joe Hillmann]

Another cost to keep in mind is, how much did it cost to develop this product? How many hours did it take to design this item? How many times did you have to cut it, modify it and cut it again before it fit together as it should. How much did that material cost. How many different materials did you try to make it out of? Are you going to eat all that cost, are you going to add that cost into the final product? If so over how many items are you going to break it up? 100? 1000? 100,000? Are you including it in your $1/minute? And if you do add the cost in how much are you going to charge for it? $20/hour for design time? $40? $60? What about the time that you were laying in bed imaging how all the parts are going to fit together, Are you going to include that?

[Keith Outten]

Most of you guys must be working at home (under the table). I haven't heard anyone bring up overhead costs like rent, electricity, insurance, phone bills, taxes, business license fees, etc, etc, etc. Overhead fees should also include some kind of allowance for replacing a laser tube when the day comes and it will. Now add labor costs, material and profit......can you do all this for a dollar a minute of engraving time?
.

[Joe Hillmann]

Most of you guys must be working at home (under the table). I haven't heard anyone bring up overhead costs like rent, electricity, insurance, phone bills, taxes, business license fees, etc, etc, etc. Overhead fees should also include some kind of allowance for replacing a laser tube when the day comes and it will. Now add labor costs, material and profit......can you do all this for a dollar a minute of engraving time?
.

I think most of us include that in the $1/minute. It would seem kind of under handed to charge for it twice. But then again I don't generally charge by the minute I often charge what I charge and then for a reference figure out what it comes to per minute after figuring for material. I then use the per minute charge to figure pricing on longer run time items or custom work. (most of my jobs take less then a minute of actual laser time)

[Gary Hair]

can you do all this for a dollar a minute of engraving time?

The short answer is NO. I base my prices on $2.00/minute and I usually get more than than, sometimes WAY more than that. If I had to rely on $1.00/minute I would have been better off at McDonalds flipping burgers...

[Jonathan Bowen]

I'm just using $1/min as the cost of production. I add a good margin on top of that for my retail pricing. I charge $1.50-$2 for custom laser time. Unless the customer needs something more then just loading it onto my cutting software then I charge for design time on top of that.

What I'm trying to avoid is a cost of production that eats too far into my margins if I have to ramp up fast. As I mentioned earlier, my new goal is to get out of the house. I want to keep adding terrain items over time and I don't want to end up with higher volume down the road but margins too low to sustain a building and a few employees. Part of that plan includes a larger laser (in both wattage and bed size) and a kickstarter to get the ball rolling on my terrain.