Invoicing for custom work

[Szymon Balasz]

Hullo,

So this hobby is slowly gathering getting some momentum and I'm finding myself doing more and more custom work. Thought it's about time I get my bookkeeping in order and was wondering if anyone had any input on how to invoice for custom furniture?

I do some custom built-in work and I typically separate items on my sales invoice like materials, labour, design, delivery, subcontracting, etc.

Now I have to quote for a coffee table and not sure if I should use the same approach for custom furniture (as I have done a few times now). Do I just invoice for 1x coffee table or do I itemize on the quote for materials (just wood in this case) and labour (about 16 hours worth) and delivery fees.

Mostly asking for what would look more professional. Not having any luck with trying to search for an answer either so apologies if it's been asked before

[glenn bradley]

I quote for the finished piece as a "product". How I get to the finished piece is not the customer's problem. I price installation and/or delivery separately if provided. I use a simple "non-refundable half up front, balance on pick-up or delivery" model for getting paid. To avoid wrinkles I also put the "available" date on the order and be sure I don't cut myself short on time. Say what you'll do and do it, right? I prefer to have the order paperwork signed and this has never been an issue since almost every household seems to have a scanner. I'm sure there are plenty of variations on the process.

[Steve Rozmiarek]

Two normal choices, time and materials like you've been doing, or bid (which is the full product price as one). T&M is useful if you don't exactly know what it'll cost to build and need a little flexibility in price, but it doesn't allow more profit for better time efficiency. Bid pricing has more risk to the builder in case something unexpected comes up, but if you came up with the price expecting it to take 20 hours and it takes 10, you double your rate. There isn't one best way, you have to decide which is right for you and the customer in each circumstance.

[Phil Mueller]

I don’t sell custom furniture, but write quotes for products regularely. I think the answer is that it depends. In some cases, I want the customer to know what is driving the price. In the case of wood, a cherry or walnut piece is going to be different than a solid mahogany piece. By specifying the cost for materials, it helps the customer understand the cost differences in the choices of wood they make. Separating labor would show it stays pretty consistent regardless of wood choice.
Separating costs also helps the cusotmer understand the differences in say turned legs, vs. tapered legs, or the addition of inlays, for example.

My general thought is that customers will often mentally compare your custom costs to what they may pay for something at a better furniture store. The more you can indicate the reason for any premiums, the better, IMO.

[Jim Becker]

If it's a business, it's a good idea to use a business level accounting system like QuickBooks or an alternative of your choice. These applications help with the quoting and invoicing tasks you are immediately concerned with and also help you understand everything surrounding that.

As to what you show and what you don't show, at first I thought about itemizing things, but have scaled back a lot from that outside of a few categories, such as showing design/software work separately from production tasks, installation/delivery, specialized finishing, tasks that have a different labor rate than your normal work rate, subcontracted work, etc., unless I'm doing something that's purely based on labor hours, such as an "odd job". Too much detail can be a negative thing and make for questions you might not want to answer.

For estimates, there sometimes needs to be detail on alternatives like Phil speaks about relative to options. What I do there on my estimates is provide the estimate for the project and include separate lines for optional things. Case in point...a quote I have active now has the option for a welded steel railing for a top bunk bed over a wood construction in the "base" quote. The number represents the increase in cost if they elect to take that option.

[Tim Bueler]

I quote for the finished piece as a "product". How I get to the finished piece is not the customer's problem. I price installation and/or delivery separately if provided. I use a simple "non-refundable half up front, balance on pick-up or delivery" model for getting paid.

Exactly how I invoice also, clean and simple. No materials get ordered before 1/2 down, no product leaves before balance paid in full.

[Szymon Balasz]

I don’t sell custom furniture, but write quotes for products regularely. I think the answer is that it depends. In some cases, I want the customer to know what is driving the price. In the case of wood, a cherry or walnut piece is going to be different than a solid mahogany piece. By specifying the cost for materials, it helps the customer understand the cost differences in the choices of wood they make. Separating labor would show it stays pretty consistent regardless of wood choice.
Separating costs also helps the cusotmer understand the differences in say turned legs, vs. tapered legs, or the addition of inlays, for example.

My general thought is that customers will often mentally compare your custom costs to what they may pay for something at a better furniture store. The more you can indicate the reason for any premiums, the better, IMO.

Makes sense.

I think that for "standard" builds I'll keep it simple and not itemize. When someone asks for something a little out there, like with a particular finishing process or if there's installation I'll then add on separate fees - but typically won't have a normal labour charge. I'll try and find another way of indicating to potential clients that sometimes the quote is high because their project is very labour intensive.

Two normal choices, time and materials like you've been doing, or bid (which is the full product price as one). T&M is useful if you don't exactly know what it'll cost to build and need a little flexibility in price, but it doesn't allow more profit for better time efficiency. Bid pricing has more risk to the builder in case something unexpected comes up, but if you came up with the price expecting it to take 20 hours and it takes 10, you double your rate. There isn't one best way, you have to decide which is right for you and the customer in each circumstance.

Thanks, though I would typically estimate my hours upfront and charge for that. So far, I've always horribly undercharged but I'm getting better So I've never been in a situation where my conscience told me to discount an invoice because it took less time than quoted.

If it's a business, it's a good idea to use a business level accounting system like QuickBooks or an alternative of your choice. These applications help with the quoting and invoicing tasks you are immediately concerned with and also help you understand everything surrounding that.

As to what you show and what you don't show, at first I thought about itemizing things, but have scaled back a lot from that outside of a few categories, such as showing design/software work separately from production tasks, installation/delivery, specialized finishing, tasks that have a different labor rate than your normal work rate, subcontracted work, etc., unless I'm doing something that's purely based on labor hours, such as an "odd job". Too much detail can be a negative thing and make for questions you might not want to answer.

For estimates, there sometimes needs to be detail on alternatives like Phil speaks about relative to options. What I do there on my estimates is provide the estimate for the project and include separate lines for optional things. Case in point...a quote I have active now has the option for a welded steel railing for a top bunk bed over a wood construction in the "base" quote. The number represents the increase in cost if they elect to take that option.

RE Accounting Systems - that's what started this whole exercise. Now that I have an accounting package I sortof need to figure out how to standardize my bookkeeping so it's consistent. My previous setup included some templates on MS Word, but now with a system, SKUs, item codes and especially financial reports I realize I need to put some thought behind why I do some things. At least to help keep my accountants blood pressure down

[Lisa Starr]

I quoted and invoiced for items in a low volume machine shop for years. Be careful how much you break down the information. If, for example, you provide a price for the materials, you'll sometimes get a buyer that decides he can purchase the materials for less. You'll end up getting sub-par materials and use a ton of extra labor hours (uncompensated) while trying to make a silk purse out of their junk. Or someone, who knows nothing about your available equipment and workflow, decides to provide their own "design service". You end up with a useless sketch, not working drawings.

Our basic formula was ((labor hours x labor rate)x profit margin) + (materials x 10%).

We felt the 10% mark-up on the materials was for placing the order, dealing with any supplier problems and paying for the materials prior to receiving payment for the end product.

[Andrew Hughes]

My way of bidding commission work is how much materials will cost + how much does the woodshop need to make+ how much do I want to get paid. The more you bid work the better you get.
Good luck

[Zachary Hoyt]

Mostly I sell musical instruments. If the customer is buying a stock instrument the invoice reads sonething like 'Banjo #___' and has the price. If it's custom built the invoice will say 'Banjo #__ base price' on the first line, and then each item that costs more is another line. My website specifies the cost for each option like different types of wood, tone rings, binding and on and on. Sometimes there are 10 lines, which is a little cumbersome, but I figure that way the customer can see my math and won't feel like they were overcharged.
Zach

[John TenEyck]

I give one price for the piece delivered, picked-up, or installed, as agreed upon up front. I always provide a written quote with a dimensioned drawing, what the piece will be made from, the type of finish to be used, and an estimated delivery date. I sign it and the customer signs it. Equally important, I always provide a finish sample(s) for approval before finishing the piece to make sure everyone is on the same page and to correct it if we aren't. Much of my work involves matching an existing piece so it's key that the customer feels the match is good as much as I do. I collect 1/3 to 1/2 down before buying anything and the balance on delivery. Never had a problem.

Now, about pricing. Yes, you need to figure out how many hours it's going to take to build something. Use that number as part of calculating your gross margin. Do Not use that number, or any other, in setting your price. Price has nothing to do with cost. Price has everything to do with how much someone is willing to pay for something. Why else would anyone buy a Rolex when a Timex tells time just as well? Figuring out what that price is is not easy, but the better you are at it the more profit you will make. Is there a limit to how much you can charge? Of course, and you'll know when people consistently turn down your quote. But an occasional rejection is confirmation you are getting good at understanding how much people value your work. Competition, if you have any, may also impact your pricing, but I haven't seen much. In my area, no one wants to do small scale custom work. It may be different where you are and you'll have to adapt, but that doesn't necessarily mean having to sell for less.

I did all the cost calculations when I first started making stuff for sale. I almost always underestimated how many hours it was going to take to build something, often by a lot. After awhile I realized it didn't really matter. I have the luxury of not having to eat from what I sell, good thing, too, so the hours don't really matter. What matters is making something that someone is willing to pay me for at a price we both think is fair. When I realized that's what was truly important to me I stopped stressing about how much time it was taking to build something - and the quality of my work took another jump forward. YMMV.

John

[William Hodge]

I just charge a price per unit, like any manufacturer would. When one buys a piece of furniture, a door, or window, the labor and materials are not broken out. The only time I breakout prices is in the quotes, to give options for hardware, design, or materials.

For high end products, the price is more what the market will bear. This is not charity work, raising the price will not cause children to go without. If you have to explain all the overhead and cost of materials, the customer probably can't afford custom work. Or, you can't afford to build it. I buy wood for between $3. and $10. (US) a board foot, and sell it for up to $550. a board foot. Putting all that on an invoice could cause fatal sticker shock.

[Richard Coers]

I've found that most customers have a problem with paying a living wage for hand-made work, especially if your shop is at your home. Break it down into time and material and they freak out. Charge them one price and they don't mind it. Each state may have a different law about reporting sales tax on custom work. Some don't require sales tax on labor.

[Bob Michaels1]

John, you are spot on in that cost and price are not directly tied to each other.

[John TenEyck]

John, you are spot on in that cost and price are not directly tied to each other.

My Marketing colleagues beat that into my head early on in my corporate engineering career. Of course we had to make a certain minimum gross margin to be able to get the go ahead to launch a new product and sometimes it was a challenge to get there. But every now and then we hit a real winner and the gross margins we could make, as a result of charging what customers truly were willing to pay, were almost embarrassing. Almost.

John