Pricing Strategies

[Adam Bullington]

All,

Until recently I have mainly been making hardwood flooring, cabinets, Trim & Moldings etc "Big Stuff" , but after the addition of my Shopsabre IS 408 CNC I have been getting an overwhelming request for craft type items. Signs, Carvings, Boxes etc. I am really at a loss on what pricing strategies others are using to price these types of items? I don't need nor want to know your prices as they fluctuate nation wide i'm sure I'm just curious on the methods you used to arrive at those prices? The big stuff is easy to price in my shop due to normal customers want a specific item with a specific budget in mind. The small stuff is more of a impulse buy type stuff and I don't want to leave money on the table but also don't want to scare people away from these items. Any insights that might point me in the right direction would be gratefully appreciated.

[Jim Becker]

One method for signs seems to be a fixed setup/design charge (varies with complexity) plus a square foot charge for material plus any special accommodations, such as a welded metal frame to support HDU for outdoor signs.

For the craft items...spend a bit of time cruising sites like ETSY to get an idea what folks charge for similar items, but pay particular attention to quality of craftsmanship, materials and methods so you're comparing actual similar items whenever that's possible.

And sometimes, it's just gut feeling. Things you can mass produce can have more attractive pricing points than things that require extensive customization. For an equestrian-oriented product I'm intending to offer (Corian stall signs) I'm planning on a fixed cost of about $35 for the basic product with a stock graphic, for example, but will have uplift charges for a custom graphic, "out of the ordinary colors", etc. I may have a special version for fund raising purposes, for example...a local 4-H group is potentially interested. The same holds true for a barn that wants everything to be "branded". Anything that requires additional work or different materail will incur some form of appropriate up-charge.

[Adam Bullington]

Jim,

Thanks for the insight, This gives me a place to start. I have been just throwing numbers out there so far "because I don't have a structure in place for these items" and some customers run away with there hair on fire cussing me as they go or they tell me "thats to cheap" it is rather easy to make this stuff with this larger format cnc but there is still a cost involved with making this stuff and as you know these machines are not cheap to purchase and IMHO require a return on your investment from each and every job or item that comes off these machines, its quantifying that number is what is hard, not making these things. Like this for example I had someone want these made and it took 6 min each to cut out388200. well 6 min calculated at a shop rate is not even worth turning on the power to the cnc....unlike the bigger items that are calculated using board foot of lumber+doors+etc.+etc. IDK my wheels are turning over this pricing delema and it looks like i have more research to do. Thanks again Jim

[Joe Pelonio]

I always used the hourly rate of $100, minimum $25, to cover my time, machine and electricity. Then I double the cost of materials. Unfortunately you cannot price compete with the stuff made in China on laser and sold at craft stores like Ben Franklin or Hobby Lobby, which is why I mosly do industrial work now.

[Adam Bullington]

Joe,

Can you clarify "industrial work" i'm interested in what that entails? I'm not trying to compete with the Chinese stuff mostly one of a kind items personalized etc that i have recently been flooded with. do you use the program time to justify the "time aspect" of the hourly rate or how do you keep track of your time. Just curious

[Mark Bolton]

Im in the Joe camp with regards to the hourly rate and so on. My method in anything Ive done in the last 30 years is to account for every billable hour (or minute) to get the item out the door. Which would mean materials and a markup on the materials to cover procurement, pickup/unloading, processing the payment etc., then stock prep, drawing time, machine time, sanding and finishing, invoicing and accounts receivable, and so on. The 100/hr is right on the money to me if your legitimately in business and more if you have employees.

I have always sworn that I would never touch the craft/hobby/etsy market and after shutting down our construction side of the business have avoided retail at all possible costs and focus solely on wholesale, and supplying the construction industry. That said, I just hired someone who is taking over the marketing/social media thing as well as working in the shop and has begun to dip a toe into those waters. I have avoided that market like the plague. All you have to do is look at Etsy/Pinterest to see a bunch of products that are being made as a hobby or even someone who has bought and setup a CNC with money earned from another income and they are willing to price their work so low that it would just be impossible to compete when you factor in the true and total costs of owning and operating a business that has/had to purchase all its own equipment and so on. There is nothing wrong with that, and Im happy for them, but it prices shops who quantify their time out of that market.

There is one out there who will basically CNC anything you want (that will fit) on a 9"x24" pine board, stain it, and maybe clear it, for 39.99. All looks like Eastern White Pine just like you'd buy at the lumberyard (no idea if buying wholesale or retail). You pull up 1x10 retail and its 2.50 a foot and you have to go after it at the lumberyard ($$$). Thats $5+tax and time just in material, then unload, rack it, break it down on the saw or do it all on the cnc, draw the file, run it, sand/cleanup, stain it, possibly clear it, put it in a box, print an invoice and shipping label, then empty dust collector, clean the shop, etc.. So take off $7 for the material, and whatever Etsy's cut of the 40 bucks is, your left with maybe 30 bucks. Could probably compete in quantity.

We have always done odd ball one-of's, personalized stuff, here and there but it just seems like a hard market especially in todays climate but your right, with a good machine you can crank stuff out fast. When we do make small simple signs and so on, the run time on the machine is 2-5 minutes max but there is still a lot that goes in after that. Dont forget depreciation on your machine, replacement costs for tooling/sharpening, and so on.

As a side note, and you may have already looked into it or may be licensed, but its a hotly debated subject in many places, but the issues regarding branding, brand licensing, and copywright issues. Going back to Etsy all you have to do is a search to find many people who are rolling the dice with regards to reproducing sports and commercial logos but it can get sketchy. I know of two shops personally that were issued cease and desist orders one with regards to Harley Davidson and one with regards to Caterpillar. I also know a photographer who won a $90,000 judgement against a company who used his images without authorization or paying royalties. I know it happens everywhere, we all see it every day, but its something that has always concerned me in my work.

[Jim Becker]

Mark, you raise a very important point about trademarked and other protected things that anyone doing this kind of work has to be careful about. While you can pretty much cut anything you want for actual personal use, say in your own home or shop, things like sports and product logos are a whole different kind of animal and generally require licensing (if you can get it granted by the owner(s)) before you can sell things that have those logos contained in or on them. And licensing (if you can get it granted by the owner(s)) isn't usually an inexpensive thing, either. As much as I'd love to create things like that, I'm totally steering clear of it for sure. I'm even concerned with "free" images and vectors that are generally downloadable from the Internet in that respect. One has to be very careful about "fine print" as running afoul of it can be very costly as you point out.

[Mark Bolton]

I'm even concerned with "free" images and vectors that are generally downloadable from the Internet in that respect. One has to be very careful about "fine print" as running afoul of it can be very costly as you point out.

You and me both. I do the same thing when looking at images and lineart for projects. We deal with it quite often in requests from locals and social media inquiries. I too tend to look pretty deeply into any images I find on the net. If you look at most any of the "free" image sites they state plainly that the images are free for personal use. Most of the generic ones seem to carry a $100-$200 fee if you want to use the image commercially in a product for sale. Then of course you get into the bigger images and they want percentages of future sales. The photographer I mentioned found the image being used and in the law suit the company had to show its paperwork as to how much product had been made with the image, how much was sold, and how much remained in inventory. The use of the image likely would have cost them a one time charge had they purchased use of the image but in the end the lawyers went back and went after the percentage of all goods manufactured. That had to hurt.

Ive been accused many times of being a worry wart about stuff like this but something like that would close my doors and have my entire operation on the auction block.

[Brad Shipton]

I have been looking at this craft market type stuff and unless you can do it in large batches (10/20 or more) it seems like more work than its worth. The one off customer that will pay the hourly rates works well, but so often you have to do a lot of up front leg work before you are at the price. By the time you figure in the time to create a model that suits whatever picture they show up with, cut out the rough part, tool path, machine, sand, and slap a finish on you can't make many one offs for much less than $50 - $100. The market for $100 craft stuff is not very good. Batches make it feasible, but then you need a method to sell it so it is not sitting around forever.

I am experimenting with some Corian signs now after Jim made the suggestion of the equestrian market. That seems like a good idea because that is a group that has money and loves accessories. Pet stuff and man cave things seem good too. The craft beer trend makes the bottle opener saleable and with a cap catcher those go for $60 or more.
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Esty is a great site for research. If you click on the user name you can find out when they signed up and how many sales they have made. I have found way too many that have been on Esty for years with few sales.

It will be interesting to see how the Esty market changes with your new court ruling on taxes.

[Mark Bolton]

You can find a lot of YouTube vids, blog posts, and interviews with some of the early heavy hitters on etsy that have said they've pretty much left the platform because it's become so diluted and the work involved to improve your rankings isn't worth the effort any longer. To me it seems to have just become another shopify site that gives you a storefront and handles your transaction for you for a fee but its going to be completely up to the individual to bolster their market (not that that's any different in the real world).

I agree that finding a target market that spends freely is great. Horses, pets, guns, kids, weddings, on and on, if your chasing the craft market.

[Joe Pelonio]

Joe,

Can you clarify "industrial work" i'm interested in what that entails? I'm not trying to compete with the Chinese stuff mostly one of a kind items personalized etc that i have recently been flooded with. do you use the program time to justify the "time aspect" of the hourly rate or how do you keep track of your time. Just curious
Since I got a full time job I only kept a few regular customers that order 75-2,000 items at a time. They are manufacturers, and I just make one part of their products that is best done by laser. Naturally I have to give them a wholesale rate, but in one case, they provide the material, and it takes me about 16 hours, so about $125/hour which is my time plus laser wear and tear/electricity. In all cases the initial setup cost was billed at $100/hour, but that has remained the same for several years now. was never into the personalizing because of the many different materials that could be easily ruined without extras to test on, and most were one-off. The last one I did was the glass top on a flag case, but the glass settings I know well. Turned out to be a state patrol officer who pulled up to the house in the patrol car to pick it up, and got the neighbors talking.

[Rodger MacMunn]

I come at this from a completely different angle .... all custom work, & mostly dimensional signage. The "Etsy" stuff would just bore & frustrate me ....
I have a base price, & then a square foot price in addition, both based upon complexity. The base price is for nothing in particular, other than a way to keep people from making their sign smaller to save money.
There are so many variables .... I liken it to buying a new pickup. You have your base price, & then your options. With these formulae, I can give reasonably accurate "off the top of my head" estimates, so people know right off if it's within their budget or not.

[Adam Bullington]

Thank guys a lot of good information here. I mainly used the "craft" stuff as filler work to fill in between the larger jobs and I agree there isn't much money in these items unless you selling a ton of them in batches or in a specialized custom market but the way i look at it is if my time and expenses are covered 100% and i make 1 penny more than that, that is 1 penny more than I had right? because if not my shop is sitting idle which is boring in my mind and also it gives me design practice and software practice so when the larger jobs come thru the door i'm well versed in how it needs to be approached. Also I guess I'm in a unique situation "very thankful how my cards fell" as I had the opportunity to purchase a Shopsabre IS408 cnc 10hp spindle 10 POS ATC, 4th axis, vac table etc and don't have a payment on any of my equipment in my shop so for me sitting idle for a month does not hurt me at all as the only overhead I have is the electric bill but thats boring right?, Again Very Thankful for that and I guess thats why i am able to do these little items as filler work and practice without much worry about the bank coming to get my stuff. thanks again for all the responses as i now have a great basis to get the most out of these small items.

[Mark Bolton]

Right, you just have to make sure you dont allow the convenience of not having a loan over your head let's you fall into under pricing or under valuing your work.

That machine you paid cash for still cost you dearly. That money could be in your 401k, it could be in your retirement account, it could be anywher earning you some compound interest for your retirement. It's not free money. You still need to come out of the end of the investment with a profit as opposed to treading water.

I hear from so many in this business that the key to success is a spouse with a good job and health insurance. I've never had that luxury. You have to look at it with clear eyes.

[Rodger MacMunn]

What Mark Bolton said.
If you have no overhead to speak of, that's a bonus, but it's pretty easy to fall into the trap of making stuff "cheap" just to stay busy. Then, all you're doing is hurting the guy who does that stuff for a living, by driving the price down. "Selling" generally comes down to "wants" & "needs" ........ if you need something, you'll pay more for it. If you only "want" it ..... well, you'll buy it if the price is right.
Unlike Mark, my wife had a good job, & in this country, everyone has basic healthcare, but I still sell relatively high-end signage. It works for us, living & working in the wilds of Frontenac County, because there's no way I could make a living selling cheaper signs ..... the closest city, Kingston ( pop 110,000) has several dozen shops fighting for the "coroplast - vinyl- digital print - backlit" market & I can't ( & have no desire to) compete with that.
In summary ..... low overhead should mean "higher profits"' ..... not undercutting prices.

[Jim Becker]

..... low overhead should mean "higher profits"' ..... not undercutting prices.

This is really, really important!

[Mark Bolton]

To add to what Rodger said, if you imagine that you had 100K cash money today, option 1 you buy a cnc and ancillary equipment, market, sell work, build, etc... OR you take that 100k and invest it...

At 8% annual compound, in 15 years your earn $217,000.00. So over the life of the 100k investment in the cnc youd hope to come out with that as a bare minimum (a net break even).

Making 15K a year cash in the bank from the cnc sounds easy but it needs to be 15k clear after you've paid yourself. Because youd have made the 217k sitting on your duff with the money in the bank lol.

[Rodger MacMunn]

Mark Bolton ... that's really bad advice .... IF I had $100k sitting in the bank, & I was sitting around doing absolutely nothing, I'd invest it in some fine single malt scotch whisky. 10 years later, I'd be completely broke ........ LOL
My oldest grandson went with me on an "install" a few years back when he was about 9. It was 85 miles from here, & we ate twice. He had pancakes & maple syrup TWICE! I said "you have a sweet tooth " ..... he replied "you have a scotch tooth". No respect LOL

[Mark Bolton]

he replied "you have a scotch tooth". No respect LOL

Kids.. they just dont get it lol.

[Adam Bullington]

Thanks for the added information guys. I really didn't mean to sound like I was just doing the little things at bare bones minimum, in my area i feel i'm charging what the market will bare but i guess that's the whole point of this thread to get insight from those who have done this for awhile to verify that i'm not the low baller. One because its not fair to other shops " which there aren't any that I know of " besides Marks shop and he is a good ways away from me" and two even though i have low overhead i am still in business, to stay in business and don't want to leave money on the table. But at the same time I don't wanna be greedy and price myself out of the market. Its a balancing act and then you throw in pancakes and scotch and who know what will happen lol.

[Jim Becker]

I hope a really good red wine is an acceptable substitute for the Scotch... :) :D

[bobby milam]

I had problems with pricing myself with one offs. I didn't want to lose money but was always concerned about sounding greedy and scaring people away. I finally settled on figuring out what it was worth to me if I were buying, knowing the work involved. Sometimes the margins would be small and sometimes things would demand a higher margin than if I had just based on costs and a markup percentage.

I stopped working if my price would scare them away because most of the time they have no idea what all is involved in making the item. If they questioned my pricing I would tell them all the things that add up the amount of time spent plus in a polite way tell them that they could always but their open cnc, spend months learning software and throw dollars away in what became firewood while I was learning.

People are cheap. If nobody walks away after you quite a price then you are probably to cheap.