Are you in a quandary how to price your woodworking projects? Have no fear. This post will give you a tried and true solution developed over the past couple years that may help. This cost estimating model makes pricing a very simple process and generates a number in which you can be confident. I’ll give you the specific formula at the end, but need to explain a few things first.
The biggest wildcard for beginning woodworkers is how long will it take to make something and what the labor estimate should be. Before you get too far down the road, I have one piece of advice for you: document, document, document. If you don’t track your hours on projects, you will be shooting in the dark and working at great risk. If you are working for free that’s not a big deal, but if you’re starting a business you need to manage your risks. Once you’ve made a few projects, cost estimating becomes very straightforward. For example, my first gun cabinet took 100 hours. I made a prayer kneeler (pictured) which took 20. A picture frame, depending on how fancy it is, is about 5 hours. With the couple dozen data points I have, it’s easy to estimate how long something will take. If you are just starting out and have absolutely no idea how long something will take, try this. I’m finding that in general 60% of my projects are labor and 40% materials. This varies from project to project, but does not stray far from this median percentage. I would think this type of percentage (not the actual values) would apply to other maker startup efforts like photography, etc. So if you don’t know how much the labor will be, you can usually estimate very closely how much the materials will be because the dimensions of your project will require a certain number of board feet (see the post about buying lumber) then you can extrapolate to the labor hours by multiplying the materials cost by 1.5.
So now that you’ve estimated how many hours something will take (based on previous projects or the 60/40 split mentioned above), how much should you charge per hour? I give a lot of credit to The Wood Whisperer, Marc Spagnuolo, who wrote a post on this years ago that influenced my initial thinking. My current thinking is that the hourly rate should be high enough that you feel good about working on a project in the wood shop at that rate and don’t feel like you’re giving away your work. On the other hand, it would be nice to set a very high rate, but the market probably won’t bear it. A good way to get a feel for the going rate is to search on the Internet, but stay away from researching custom woodworking prices on sites like Craigslist, because custom woodwork is not a bargain basement proposition. We use Craigslist a lot to declutter and minimize, but it’s not a good fit for selling custom-made pieces. A better site for researching the price of custom made projects might be one like Etsy.
I had a client over to the shop the other night and we were discussing the wood type for their upcoming project. I like to give a range of woods and prices because some people are price insensitive and others want to stay within a certain budget. It’s all about what the client wants. In this case, the client decided to go with some nice premium cherry I had leftover from a previous project that had a beautiful grain pattern. We talked about dimensions and since I knew the price per board foot from having purchased this board before, the calculation was straightforward. If you’d like more information on how to do this calculation, check out our post on buying lumber.
So now that we’ve laid all of that foundation, here is the formula:
Hourly rate times estimated hours
Board feet times price per board foot
Any special tools or bits required for this specific project
Overhead Rate times (Labor + Materials)
What should your overhead rate be? All those tools you purchased have to be paid for somehow. The trick is to figure out a reasonable overhead rate to amortize this cost over your projects. I’ve been using 10%, which is probably a bit low, but it will give you a starting point.
Your Local Tax Rate times (Labor + Materials + Overhead)
Labor + Materials + Overhead + Tax
There you have it. If you are just starting out, this can be a bit daunting, but I recommend increasing your margin of safety by conservatively estimating the labor hours, making sure you’ve allowed for enough wood in the board foot calculation, and charging a high enough overhead rate. That should keep you out of trouble.
Other entrepreneurs out there–what are your lessons learned?