Comments on: Confused About Pricing? It’s Because You’re Buying Into a Lie

By: Rob Bois

Rob Bois — Fri, 30 Jul 2010 14:18:17 +0000

I’ve been having some healthy debates on this topic since the question was initially posed. I’ve gotten both strong agreement and disagreement on my position. What I’ve found is that the formulaic approach seems to apply better the more you build production line pieces, commodities, or reproductions. They are relatively known values where manufacturing cost is a large factor in the price. On the opposite end of the spectrum are custom pieces, where there may be nothing else comparable on the market, or delivery date, special materials, or special skills play a large part in valuing the final product. It’s custom made pieces that I think the old cost+shop rate+margin really falls apart. You need to do that math to determine if your bid is profitable, but that shouldn’t hold you back from pricing much higher if you are bidding on a project where you have a very unique offering that nobody else can duplicate. Then you charge purely based on perceived value, and not at all based on your own costs, time, or material (assuming the project is profitable at that price).

By: Joe

Joe — Fri, 30 Jul 2010 13:20:58 +0000

I love the discussion, and there are a lot of good points. Shannon: My wife is a blossoming artist, and recently found her starting pricing model:
( (Hourly rate * Hours to create) + Cost of materials ) * 2
This leaves a little wiggle room for negotiations, which seems to be important in the art world. I also beleive that more woodworking should be approached from the ‘functional art’ perspective, and priced with that in mind (non commodity).

By: Shannon

Shannon — Thu, 29 Jul 2010 18:37:16 +0000

It has been said a few times above but I think many woodworkers need to stop thinking of their stuff as products and more as art. Adam, the pricing “model” you espouse is the same that an artist would consider for a painting or sculpture. After all isn’t fine furniture just another decorative art? Museums around the world certainly agree with that statement and thus they have entire wings dedicated to decorative arts. It would be interesting to have a sculptor or painter comment here about how they price their work. I’m pretty sure they do not consider how many hours they put into it and materials can be almost negligible when you consider the value art adds to a room.

By: Marc

Marc — Thu, 29 Jul 2010 18:10:14 +0000

It think J. Hitzig summed it up nicely. While the time-based formula is definitely not perfect, its usually a heck of a lot better than cost plus, which I see a lot of folks using. Drives me nuts.

If everyone were calculating based on time, with a reasonable shop rate ($40-$50/hr), there would be plenty of profits to go around. Again, not perfect, but a step in the right direction. So I definitely don’t think it should be dismissed unless we have a better, equally simple and systematic method for pricing.

Remember, in most cases, you need to set the price well before you put a chisel to wood. Combined with a little market research, the time-based approach can be very effective.

It would be great if we lived in a world where everyone valued the amount of work and skill that goes into producing our works. It would be even better if those that did value our work, were actually willing to pay for it. But those customers are not easy to find. At least in Phoenix, most people are NOT willing to pay what I think I am worth. So I have no choice but to charge what I think the market with bear. And in most cases, its LESS than my calculated time-based estimate. So this is why I think the time-based system is a great starting point. But if you start to build a name for yourself and the calls keep coming, its time to raise your prices and perhaps ditch the time-based approach.

But I believe if you come out of the gate pricing your work strictly based on what you think its worth, you’ll have plenty of beautiful furniture to eat your Ramen Noodles on.

By: Adam

Adam — Thu, 29 Jul 2010 18:01:22 +0000

Normally, I try my best to reply to each comment, but in this case everyone’s making such good points and sharing similar expereinces, so there really isn’t much to add to your comments so far. You all are amazing and I appreciate your willingness to share.

Pricing is a tricky path to navagate soemtimes. These open discussions are what’s needed to help anyone struggling with the issue.

By: Larry Marshall

Larry Marshall — Thu, 29 Jul 2010 13:31:27 +0000

Adam, I agree with much of what you say but think it would be better said in conjunction with a bunch of other stuff you’ve said elsewhere about choosing your clients, aiming high, valuing yourself, etc.

What you’ve described above is one of the main reasons I stopped doing the miniature furniture work I was doing. I started out with the idea of doing high-end miniatures. Of the population in the “dollhouse” world, there’s probably only 3-4% of them who want the very best (meaning they’ll pay $$$ for miniature furniture pieces). The vast majority are simply not interested and happy as clams to buy imported dip-finished basswood furniture.

I made a mistake. I was making high-end pieces and enjoying it very much. I was also getting tons of email requests from people wanting ‘lesser’ products and “could I just make one like their grandmother had?” requests. I compromised my work, lowering quality to fit the price-point of the masses.

The daily work ceased to be interesting to me as all I saw were the compromises in my work. Had I remained true to myself I would have had fewer sales but each would have been higher dollar amounts. I also would have been happier.

Cheers — Larry “aka Woodnbits”

By: J. Hitzig

J. Hitzig — Thu, 29 Jul 2010 04:31:47 +0000

I agree with what you say here, but there is a good reason that most resources cite the “wage+cost+profit=wholesale” formula. That is, most crafts people start out
1. Unfamiliar with their competitors’ prices / market value and
2. undervaluing their own work– to the point that there is no way they could make a living at it.
That formula continues to be proliferated because gives newbies a practical starting point to make sure they cover their tails. Sure, they should also be doing research, but getting a finger on the pulse of pricing takes time and experience, and I’m all for crafts folk learning that very useful way to crank out a viable price that allows them to put their work out for sale.

By: Peter

Peter — Thu, 29 Jul 2010 01:38:06 +0000

In my short time running my own shop, I still haven’t come up with a specific formula for pricing the items I make. I don’t plan on ever using a time-based formula. I also don’t agree with Jeremy’s idea of using a market-based formula. It might work for him, but is in direct contrast to the way I think about my works as unique functional works of art. Similar to what Bob states, I like to think that the work I’m making is unique in comparison to that of anyone else, and thus basic size/material type comparisons are irrelevant. I would suggest you think about your work in this way too if you’re – hopefully – creating your own designs. If so, the value of your work should also be based on intangible factors that can not be specifically assigned a dollar figure, such as its aesthetic and intrinsic qualities. Perhaps these are similar to what Jeremy refers to with the term “iconic”. And if so, I think these are values that everyone should use to price their work. This allows for, as we grow in our experience, abilities, stature, innovation, “brand”, etc., pricing that reflects values beyond those that are fixed by time, price and the market.

By: Rob Bois

Rob Bois — Thu, 29 Jul 2010 00:53:57 +0000

I know I won’t be able to get all this in during #woodchat tonight, so this is just a good a forum as any. I went through this same rant on a forum not too long ago, so I find this post to be refreshing. Charging an hourly rate basically relegates your craft to a commoditized service. It ignores the fact that you are creating a service-based product that is actually providing some discrete value to a potential customer that values your unique capabilities, designs, or talent. If you use the equation Adam described above, you go right back to being a commodity – not a craftsman. I’ve done product marketing for some time now, and one of the biggest mistakes you could ever make is charging on cost plus. Instead, seek out the true market value for your product and service, and price based on that. This requires knowing your target market, customer, competitive landscape, and audience. I realize this is more complex than the formula Adam highlighted, but in the end will make you significantly more money and stop watching the clock.

By: Jeremy Kriewaldt

Jeremy Kriewaldt — Thu, 29 Jul 2010 00:47:08 +0000

Adam

I agree with you but only to a limited extent. The first and main point is that all prices have to be set by reference to your competition. That means that you need to know who your competition is and what their prices are. That means looking hard at what you are doing and who you are selling to and deciding which vendors are targeting the same market with similar products. Then put yourself in the position of the customer, distinguish your piece from that of your competitor and decide whether the differences make the product more or less work or more or less valuable and decide what that difference is worth, up or down, against your competitor’s product.

All other pricing is illusory if it doesn’t meet these criteria (unless you are recognised as selling iconic pieces – and most of us aren’t). I then would check the price against a ‘cost-cover’ formula, because there is no point doing the job if the price won’t make you a proper profit. If it fails that test, either don’t do the job or re-work your concept so that it has a different set of differences with different price consequences as against your competition.

PS Don’t choose WalMart as your competition. I reckon you should go to a high-end retailer of Italian traditional furniture.