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How to know your market?

6/3/19       
Logan Member

Hey everyone, first post here.

I recently opened custom furniture business. I run a one-man shop, part-time from my garage, and have put in a few quotes recently however I'm struggling with being "comfortable" with my price in terms of what others might charge in my market. To determine my rate I use the following method:

materials + labor ($35/hr) + overhead (20% of labor) + profit margin(40-50%) = minimum sale price

The major thing is when I get a price I'm comfortable in saying I need that much to make a the job worth it to me, but what I don't know is if I'm over valuing my time and the finished piece. So what I end up doing is checking places like Etsy, Crate & Barrell, Pottery Barn, West Elm and Restoration Hardware. Understanding that Etsy varies drastically on the same piece and the other higher end retailers can still be cheaper than me due to their volume. So I'm still left slightly uncertain.

I would appreciate any advice you have on researching your local market when pricing out a job. Also if you have a standard shop rate what that typically is as well as your standard profit margins. I originally was at 20% but after researching further I had seen a few places online talk about 30% and some even 40-50% to really help grow the business at a decent rate.

I also read that if you get every job you bid on then your price is too low. I'm just struggling to see if I don't get any jobs, does that mean my prices too high or my potential clients expectations unrealistic.

For context, I'm primarily focused on custom furniture and cabinets on occasion in and around the Cincinnati, OH area.

Thanks in advance for your help.

6/4/19       #2: How to know your market? ...
rich c.

Overhead is a real calculation based on expenses, not a percent of something. That's quite the profit margin for a garage shop. I've never sold my work based on a market price, I price is so I can make a good living. For what I see on Etsy, I assume they price the work so they can stay busy, not make a living.

6/4/19       #3: How to know your market? ...
D Brown

If you are in a small under equipped shop it may take more time to complete a given job.
Furniture work is more difficult to bid accurately than cabinet work where we use a formula based on footage doors and drawers and such. Personally I think you would be better off giving a firm bid as opposed to hourly rates plus plus plus.
Learn your business and what it takes to make it successful . is your profit of 40-50% on top of the other costs ?
I also learned keep bidding until you start losing jobs but that may not always be true. At one point I prolly did not lose a bid for several years whether I was high or low so when your in demand price becomes secondary. good luck

6/4/19       #4: How to know your market? ...
Logan Member

Rich:

I'm considering overhead costs to be things such as glue, screws, utilities, tool maintenance, gas, etc. I read a good rule of thumb for these costs can be covered with about 15 - 20% of labor because that would be the amount of time I'd potentially be using those things.

Yeah, I think that's a good outlook for Etsy, you can see a table for a couple hundred bucks from one person then see practically the same thing for close to two grand from another. That's what makes it difficult for me to reference because some people selling on there don't seem to value their time at all.

D Brown:

I actually have a decent outfit of machines to handle a build from rough lumber to a finished piece. The limiting factor for myself currently is shop space. I basically have to pull each tool out from the wall when I want to use it which does cut down on efficiencies so I completely understand that part.

What do you mean by firm bid? The method I described is strictly for myself so I can come up with my price. When I present the bid to the client I only provide them the final cost. Should they accept I would provide a rough timeline (2 - 3 weeks, a month, etc.) on when I would have it completed. I'm not sure if that's what you mean by firm bid. They wouldn't ever see a breakdown in terms of material vs labor hours and all of that.

Yes the 40-50% is a gross profit margin that is added on top of all my hard costs (materials + labor + overhead).

6/4/19       #5: How to know your market? ...
D Brown

logan, Was not sure how you were quoting a complete price is great. Your overhead costs are not 20% of labor. If you raised your hourly rate to say $50 would your overhead go up ? Overhead is all the costs related to operating a business but not specific materials for each job , that's materials. Rent, lic, insurance & bonding, business lic if required, energy fuels van and insurance, website, phones are just a few of the real items that your overhead consists of. It is not hard to write it all down and take a hard look at what your costs really are. Hope this helps a bit.

6/4/19       #6: How to know your market? ...
rich c.

"Overhead definition: The indirect costs or fixed expenses of operating a business (that is, the costs not directly related to the manufacture of a product or delivery of a service) that range from rent to administrative costs to marketing costs"

Insurance, Federal self employment tax, accounting, and utilities are some examples of items that make up overhead. Not glue, screws, and machinery maintenance. Machinery maintenance is calculated into the cost per machine hour and is part of your shop rate. Glue and screws are part of the project material costs.

https://www.entrepreneur.com/encyclopedia/overhead

6/6/19       #7: How to know your market? ...
David R Sochar Member

We probably all started out on starvation wages. Self-imposed, due to the inherent 'woodworker as slave' mentality so many of us have.

If you know what you are doing technically, and can make a superior product, build your self-image on that. Tell the world you offer a superior product with no hesitation, qualifiers or apologies.

You must have something that sets you apart. Even if you are the most expensive shop in town, you still need to justify it.

Take the IRS business course if it offered in your area - one day, immersion into what your obligations are, and how to determine overhead, inventory, etc. Be sure to be 1,000% of whatever you say you are. No holes in the fence.

10/3/19       #8: How to know your market? ...
Nick Cook

I like David's answer. There are enough people who will buy your furniture without shopping for price. The want custom, personalized furniture, by personalized I mean a transaction based on knowing you. They're not looking up at a board that says "Chair-$275.00" Charge enough to make money, good money. Think of Bob Loveless, or Sam Maloof, or Frank LLoyd Wright.

10/7/19       #9: How to know your market? ...
Phillip Mitchell Member

Website: http://www.stillwaterwoodworks.com

As others have stated, your overhead is all of the costs associated with running your business that aren't specific to that job and is something that you can calculate and turn into a real number as in "I need to allocate "$ x each day/week/month/year for my overhead expenses simply to cover them in full." It is the folks who have very little actual overhead, and most likely a less professional operation as a whole that can undercut pricing compared a more well equipped, space efficient, full scale business that operates as a professional. I personally fall somewhere in between those 2 ends, yet am constantly trying to raise the level of professionalism in order to provide more value to the client.

Your shop rate seems low, but may be just right if you have a shop that's not very efficient and don't need to pay yourself very much (moving stuff around constantly in order to move through the steps of production because you are spaced compromised can kill your production...been there.)

You need to be able to quantify your actual overhead as well as upcoming / planned overhead if you're in a new business / growing stage in order to begin to charge for the overhead you really need to run the business in the near future. Then you assess each job and determine how much overhead burden to assign it (a job that takes up your shop for an entire month would likely be assigned at least a month's worth of overhead expenses, give or take depending on details.)

Your profit margin is unlikely to be 40-50% of the price of the project. There are different ways to arrive at all of this and I wont pretend to know the best way, but I personally shoot for around a minimum of 10-15 % of the final price of a job being my actual "profit" at the end of the job. Depending on how you define it, how you arrive at your shop rate and if it's padded out to cover other costs other than your own labor costs, the formula can vary widely, but nobody is consistently making 40-50% of actual profit on their jobs in this trade...at least nobody that I know.

11/6/19       #10: How to know your market? ...
Redneck

The next job I take on, I'm tacking on $1000 for my 2 hrs of time I spent on here doing business research, seriously..... I'm also going to tack on for the time I spend talking to them on the phone, getting prices on materials, driving, designing, etc... and building, finishing and installing the job, all at the same hourly rate, plus expenses.

If I could figure out how to charge for my time spent fishing for trout, I would....

1/7/20       #11: How to know your market? ...
Eric

Website: https://www.boltoncarpetcleaner.co.uk

yeah i really think its a matter of evaluating your time you spend making it with the addition cost of the materials of course, but me personally i focus more on producing more of my products while i keep the bid going for my existing products, I notice this way the quality and value of my stuff rises and becomes more in-demand..

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