Pricing question

No, it's not "how much should I charge".
Here's a (somewhat) hypothetical question.
One good way of pricing items that don't require a lot of technical expertise, fancy joinery, mixed media, etc... is to charge 3 times materials. 1 part for materials, 1 part for tooling costs (sharpenings, maintenance, etc...) and 1 part profit. So, if someone wants an outdoor piece, a *large* outdoor piece, made out of teak and you quote it, and the customer doesn't faint, but then, later, but before you purchase materials, decides they want it out of ipe', do you keep your labor charge the same and just pass on the materials savings to her? By the way, teak is going for $20+ bf and ipe is, well, not.
Well, what would *you* do?
jc
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I've got no idea what I would actually do. However, in respect to your question, what would you do if your customer asked for Ipe and then changed her mind to Teak?
Puckdropper
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Generally I charge 4 to 5 time my total cost of materials and supplies with Oak being the base price material for the wood for furniture and PT lumber being the base price material for out door materials. If they want better.more expensive materials I charge the same labor price and charge more for the material.
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##################################
What is IPE material ? First I have heard of it.
Smitty
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Ipe is a hardwood from Brazil. Often used for flooring and decks. It should last a very long time, about 50 years, on a deck.
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*trim*

*snip*
IPE is an acryonym. It means "It's Prohibitively Expensive". ;-)
Hm... if teak's kinda knotty, it could stand for "Terribly Expensive and Knotty". I don't know, never seen anything identified as teak. (and I don't want to SOG -- Search On Google.)
Of course, PINE means "Probably Is Not Expensive".
Puckdropper
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Actually, in the Houston area Ipe is priced between Red Oak and Walnut. Very reasonably priced.
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*snip*

"It's Pleasingly Entertaining"? "Interesting Plus Exciting"? "It's Priced Expertly"?
Puckdropper
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"That's" better.... ;~)
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An Ironwood from South and Central America and Mexico. Dark brown wood with a yellowey green dust that turns blood red when your sweat touches it. Very heavy and dense and hard. About 2.5 rimes harder than Oak. It is reported to last 50 years outdoors with no protective coating and is a popular material used for decking. It is commonly found in 5/4 x 6" dimension format. When sanded there is little chance for splintering.
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Very easy to answer. Pricing at 3X material is just plain wrong, stupid, and I'd never do it. My industry used to do that as a practice. The ones that continued to do so are no longer in business. Your theoretical question is a perfect example of how pricing strictly on material cost can get you into trouble.
Using your example of materials, lets say Ipe is $5 versus the $20 of teak, versus $2 for pine. Actual labor will be one hour. What do you charge? Material should be marked up since you have to lay out your money, your time to order and receive the material is an overhead factor. Add in labor. Your labor rate has to include all costs, including taxes, health insurance, etc. Put all of this together and you can have a price.
Using your 3X method, if the job used one board foot of material, you'd charge the customer either $15, $60, or $6. At $6 you'd certainly go out of business and be broke. At $60, it may work out.
Change this to the same one hour of labor, but now we need 5 board ft. of material. Using the 3X methods, you'd price at $75, $300, or $30. Both the teak and pine could put you out of business. Why the teak you ask? The market for the $300 item is very small so you'd have no orders to bill.
Getting back to your original question, if you know your costs, you know how much is material, then your customer asks for a change. Do you give it all back? Probably not, but certainly there would be an adjustment. I'd be confident though, that I'd still be making a profit based on my quote that includes actual labor and overhead.
Not considered here is another material factor to introduce. Teak is tough on blades so I'd factor that in also. Same with any other wood that may have workability issues.
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Ed
http://pages.cthome.net/edhome/



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Tue, Apr 24, 2007, 9:41pm snipped-for-privacy@snet.net (EdwinPawlowski) did say a whollle load of stuff that pertains:
Plus, labor costs in different parts of the country will vary - widely at times. Wood prices can vary widely in diffrent parts too. Loads of vaiables.
JOAT Expensive tennis shoes won't cure a sore toe. - Bazooka Joe
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Joe wrote:

Add a 15% surcharge to cover change order.
Lew
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Joe wrote:

No, it's really not.

I figure out my fixed shop and production costs (tooling, taxes, insurance, utilites, hourly labor, and the rest) and add a profit margin to develop an hourly "loaded rate". This is the billed rate which is added to materials costs.
Business 101, it's done every day.
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I don't have a remote, earthly clue why in the world someone would price a project that carries labor, taxes, site overhead, (sometimes) insurance, tool maintenance and repair, office rent, office costs, tax preparation and bookkeeping costs, fuel, vehicle cost and maintenance and on and on on just materials.
I would love to have someone do that for me.
I would have to try it out. I could buy a bunch of seconds of PT 2X4 and have them make prefab trellis for me. Rip all the wood down to 1/4" and put them all together for the price of a couple of 2X4s and some brads.
Cool.
I hope you can spread that method down here...
Robert
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RE: Subject
What is the selling price of a 100W incandescent lamp these days, $0.75 or so.
Think there is more than $0.02 worth of material involved to make that lamp.
Must be an easy way to get rich. Should be lots of competitors, but there are only a few.
Wonder why?
Maybe it is the fact that you need a very special chain to be able to cast the glass envelope at a competitive price, and you better have a spare to install and run during a turn around.
That special chain had a cost of over $800,000 in the early 70's.
Today it is probably closer to $1,250,000.
Need to sell a lot of lamps to recover that type of investment.
3 times material cost doesn't get the job done.
Lew
Lew
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wrote:

I completely agree. If you are doing this full time, you need to consider all costs you identified above, plus one more - If you are doing the work yourself, you are not going to be able to do 40 hours of billable work a week, since you need time for sales, picking up supplies, doing administrative work, etc. If you have staff working for you, their labour cost has to include overhead, including you. (See, you get big enough to have staff and you become overhead!)
So, if you wanted to earn $X a year, you need to figure how many actual hours you will spend directly on projects and how many you spend on other things (including vacation). Also consider your mark-up on supplies and materials. Then figure out a reasonable rate. Then throw it all out and charge as much as you can get away with. Just kidding, but there is some truth to it. Your cost analysis you use to establish a price should just be a guideline. The price will depend on other factors such as market, competition, your reputation, etc.
Michel www.woodstoneproductions.com Woodworking Portal
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Michel wrote:

Absolutely!
The most important reason to know the true cost of doing business is to be able to know when a job isn't worth doing. You can sometimes mark up a price to what the market will bear, and when you can, you probably should, but when you need to seriously compete, you need valid cost data. Sometimes, a job (or even the entire business) might not be viable at all, even though the gross numbers can be huge.
Another stupid business mistake, almost as bad as blindly linking labor cost to material cost, is price adjustments at the wrong time. Many people, especially trade and craftspeople with no business background, will raise prices when they need more money and don't have enough work. The best time to raise prices is when you have too much work, and lower them (to a point, based on your data mentioned earlier) when you want to attract more.
I would suggest that people wanting to operate real businesses who still don't really understand this stuff seek out the local Chamber of Commerce, community college small business courses, and S.C.O.R.E. (Service Corps of Retired Executives).
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The higher cost material must be passed on to the customer. However, I would not charge 3x material cost. Teak wears down cutting tools quickly, so there may be additional charges there. Material costs vary greatly depending on location, shipping costs, supply, and vendor. I'd advise customers about wood that exceeds $10/bf, unless the project uses very little wood.
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