Business Pricing Question(s)

How many run a business with their respective CNC?
I have seen several YouTube vids explaining how you should price your product.
How do you price your product?
Material + Labor + Machine Time + Profit % + ?.
What do you charge for machine time?
What else do you charge for?

Eric

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I wrote a bit on this at:

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What Will wrote, pluss electricity, inflation and earth’s declination in percent :laughing:

Or you could go by the “wow, really” effect, which is if a potential customer says: “wow, really…” and takes a step back.
Then reduce the price by 10% and see if the reaction is more positive.

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$64,000 question right there, Eric. Over in Fort Wayne, what is the local sales tax percentage? All your overheads will contribute to the final landed cost of an item. That may make the item too expensive when compared with the products from other local vendors.

Start by looking at your fixed overheads… the ones you cannot escape and must pay regularly. Take your shop - it may be your own building but you still have to provide light, heat and energy to make your machine work. This cost is fixed (not in terms of amount) but in terms of you must pay it just to keep producing whatever you make.

Your machinery in your shop may all be deductable but in the UK only 10% annually is permitted for depreciation. You may of course buy things on some sort of lease purchase agreement that will give you tax advantages. This may mean you get less for your machinery as a deductable because the lease purchase is deductable.

So now you have your premises and you have your basic machinery. The machinery will need a constant supply of consumables, be it planer blades, sandpaper, saw blades, drill bits, endmills, glue &c. Then you will need your raw materials and the transportation to get it to your shop and to distribute the final form of item. Advertising, sales effort also has to be paid for and of course the bank account, banking fees and accountant’s fees.

At this point with everything in place, you can start to make stuff. You can choose to cost your time as a skilled machinsist and whatever hourly rate they make. If you cannot work fast enough or the machinery does not support the production environment demands, you wont make enough money via an hourly rate to cover your costs.

It may be simplistic but if you decide that you will not mind making twenty widgets a day and you can cost the materials and your time and make $150 daily (with the proviso, you work every day and do not stop) and the market for what you make is healthy, then you may make enough to live on but you will hate your work.

It may be easier to decide what sort of money you want to earn and then see if you can make enough goods at the right prices to bring in the earnings you want to see. You will not be making anything in isolation (this means looking at having a unique selling point that other people will not have) and you will be competing with folks from miles around and any folks who have an online presence. Having an online presence may help you to reach far and wide or you can look for local hobby clubs and interest groups that want what you can make.

Online presence and PDQ machinery or shops online take another slice of your fixed costs and you will find it tough to run an online shop without them. Web design and SEO are a part of that too and you may look for students who are studying web design who can work to a brief and want the experience rather than being paid a lot. It goes towards a useful CV.

Whatever product you make, when you set your selling price your product has to be as good if not better quality than any local product you have seen and it must be affordable, unless you intend to only sell to royalty. The sales price has to reflect the labour but it still needs a small component to cover tool replacement and all of your fixed overheads.

My suggestion would be to decide what you are going to make and then price that item from other vendors. Examine the quality and see if you are able to produce the same thing. Check the time it takes and the work resources such as electricty, heat in winter, tooling and materials and then see what you think is reasonable for price. Ask yourself if you would pay that price, given the competition, because if you think it is expensive, you are likely to be costing the job wrongly.

Some people I know use a formula that adds the same amount to every job. e.g. 5% of cost for rent, 3% of cost for lighting, 10% of cost for materials and so on. I guess that may work well providing you don’t spend more than you are collecting to run that job. Take care not to undervalue your craftsman’s time and don’t overvalue what you do because that can leave you without a customer base.

People will generally pay fair money for fair work. If you produce great work, you can ask top dollar. Do your market research and take a couple of weeks to look at the stuff you want to make. You will find it in local malls and online and that should help you to find a suitable starting price for your goods. Good luck!

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On cost to make, Jeff and Will have covered that.

On what to charge, the only real connection to cost is that you should charge at least enough to cover all your costs plus whatever margin you need to make. If you don’t, it’s not good business and you probably won’t do it for long.

A produced good is worth what somebody will pay you for it today. For a commodity good, as Jepho says, this will depend mostly upon what other similar goods are selling for, competition will drive a market price. For an unusual, unique, artistic type good then it really is just what the customer is willing to pay. For example, consider the ‘designer label’ clothes that people pay $100s or $1000 for despite them coming from the same factory as the supermarket own brand. The only difference is the marketing and artifical scarcity causing the consumer to be prepared to pay more in order to be seen to have paid more.

For services you have a similar process, if there are others providing a similar service, e.g. ‘CNC my logo into a wood sign’ then you have a market setting the price for you and your job is to produce at lower cost. If you are doing design and creative work which the customer perceives as being unique to you, you’re back in the what they will pay territory. I would not expect to pay an artist the cost of the canvas and paint.

So, are you planning to offer a commodity product or service, or have you found a niche where your skills, location, service etc. allow you to charge what the customer perceives the product to be worth to them?

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I was actually looking for ways to tweak my price setting I have currently. I see nothing new here accept for Jeff Cable’s comment regarding a percent to cost of Machine. At least that is the way I read it.
I like it!
I’ll add that.

Thanks to all that contributed to this post!
Eric

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What are you making?

Wall Art.



These are pics completed on a 3018 Sainsmart Genmitsu CNC.
I am looking to be able to produce these and more at a fraction of the time.

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If and until we, as a nation, quit buying everything from somewhere else (China e.g.), then you’ll have to price your product to compete with that labor market. (I once had an eBay merchant fight me for months over an $8 item that I didn’t receive. A Chinese friend explained that the $8 meant a lot to their finances.)

The only (and that’s iffy) market that really makes good money is custom work where you can apply all of the aforementioned formulas to determine a price. Even then there will be some haggling to come to a mutual solution.

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You have a valid point.
I however my thoughts are that there is a customer for every price point for any given product, you just need to be creative in where to find them.
Plus, I do not HAGGLE. Not that over time I haven’t adjusted my price. Giving into haggling just gives the customer the perception they can do it the next time as well.
I have also adjusted my formula if it seems to total out to more than I feel the value may be.
I try to be fair, but not under price my product.

Thanks for the reply.

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No doubt, Eric. Customer behaviour may supervene though. Unless you are working to a brief that was commissioned, your customers are likely to be of the opportunistic ‘passing trade’ variety. In other words they left home with no thought of buying wall art but on seeing your lovely pieces, they decide to make an impulse purchase. Good for you both at that point because you made a sale and the customer is happy.

I think that business model lacks appeal because it does not mean the sale will be made for every piece you display. Now you could be having to deal with unsold stock and that involves transportation and preventing its deterioration while it is in your care. Unless you are specifically selling your work at a craft fair, where the passing trade is already looking for what you make, some of your work will not sell on the day you present it to potential customers.

How to grab more custom is to offer something that your competition do not. At one time, I used to offer professional photographic services along with many other competitors. I figured that I had to go the extra mile and I found a niche that I was good at and my customers sought me out and commisioned my work. Many companies offered baby photos (a popular area of endeavour) but I offered a book of baby photos for that first year of development from 0 ~ 1 year culminating in the pictures of the first birthday.

My books were all on fine art paper, with me making monthly visits to the home, playing with the child, establishing a good working relationship and my competitors were unable to put in the time to follow my lead. The icing was that only very wealthy families wanted such a service which they were prepared to pay for having.

My baby’s first year books were usually around 200 pages long and all of the photos were artistically arranged. The books sold from between $800 to $4,000 each and the customers created a user base by telling their friends about a bespsoke baby photography service for baby’s first year.

The illustration is just so you are clear about what it may take to establish your own brand and to make it unique and desirable. It is a fact that the wealthy are always going to be wealthy and they do not have reservations about spending money on works of art. Poorer families may like pretty things but the money will always be spent on daily living expenses. The only way you can encourage non-essential purchases in poorer families is to make your work cheaper than dirt and that way lies madness.

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One great way to price something is to figure out your “day rate,” aka how much you’re worth. Divide your day rate by 8 hours (or 10 hours if you work in tv and ad production), and then add up how long it took to create what you’re selling, including design time. Add your cost and 10-25% for expendables, wear and tear, etc.

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Additionally, for me, it’s important to charge for design time. As a video producer/ graphic designer/ video editor, I work many hours in meetings conceptualizing and designing, and it’s what I primarily bill for.

YMMV, especially if you’re using a predesigned element, add time for setup as a rule of thumb.

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With the greatest of respect and with no wish to appear combative; I think this only works when there is no market price to judge by. In a manner not intended to be derogatory to machinists… if the going hourly rate is say $40, the opportunity to set a day rate that is much higher than $320 (8 hours) is going to be limited.

Designers aka creatives; in the video, graphic design, web design, photographic or film industries can set their fee at whatever level suits them. There is no yardstick by which their interim design processes can be measured.

In design work, can you add computer electricity as an expendable? Probably not but you can factor in your time and your next electricity bill without delineating them in the final bill. Overall my work for this job came to… think of a number, double it, add your birthdate, multiply by pi and you get some sort of idea where I am going.

There is not really a comparison to be made for work which everyone has had to seek out and purchase; which means that the going rate is a known. While creative work is not understood by many ordinary people who have never commissioned a creative work of intangibles.

Today I hired a tree surgeon to do a small job. At the end of the conversation, I knew what was included in the cost and which work would be completed as well as how much it would cost. He had no opportunity to add anything that came under the head of creativity.

"I work many hours in meetings conceptualizing and designing"

Yes, this is precisely the point I am making. I would not know what you are doing at these points. You billing for your time using this nomenclature would make me ask what have I paid for.

Not because you did not do the work but because I am not a person who attends meetings for any reason whatsoever. Not even when I was running an intensive care unit, a surgical theatre suite and an emergency room service with a budget of $18 million. I wanted to work rather than talk about my work or rehash last month’s meetings. If you want me to know what’s going on, write to me.

In your work, talking about what is being done or will be done is important. In my work doing the work is far more important than an expressed intent to do the work, hence for me; meetings have no value at all. I suspect that many machinists in a production environment would face the same challenges asking people to pay their day rate.

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No combativeness perceived, and I get where you’re coming from. I’m only speaking about my thought process in the pricing situation as a designer first, creating something anew, verse cutting a templated design.

From a technician (machinist) standpoint, your argument is 100% valid. For cutting templated designs, I couldn’t see a justification for charging anymore or less for what the market is willing to pay.

@ehendrix said he was making art, thought my calculation gave a little guidance (and empowerment) to an artist.

I think the examples shown are CNC renderings of other people’s designs, if that factors into your narrative.

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OK, I understand that position well.

This is the major imponderable when starting out to create something either practical or artistic. What can the market stand to pay for this item? Without a unique selling point, the answer for any product is always going to bump up against whatever is the going rate for similar products.

Yes, of course it will have done. I guess the clarity you have just provided is all that was missing for me. Thank you!

:grin:

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You basically have two kinds of customers that you have to price for: experienced and not.

You’ll know them before much conversation has passed. The “not” will either just click the BUY button or engage you with “Wow, didn’t think it would be that much.” and end up clicking the BUY button anyway.

The other one will first offer you half of what you specify you need for the product, engage you with much back and forth, make you wait for the “maybe” decision and then its a 90/10 chance that they’ll go buy the cheapest similar item they run across. (And, they’ll promptly inform you that they’ve done the latter.)

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TANSTAAFL
:smile:

When the customer does not want to pay what you have reasonably asked for, it means they do not value your work or your time. At that point, I don’t value them as a customer. No discussion needed. In other words, you can pay and you want it or you want it and don’t want to pay. There is the door if you are unwilling to pay for my work.

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I have found that today’s folks simply ghost you when they decide not to buy. Somewhere along the way, it has become acceptable to simply ignore people. I blame electronic communications on that one.

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