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  #1  
Old Wed 21 May 2014, 10:00
darren salyer
Just call me: Darren #101
 
Wentzville mo
United States of America
Pricing your work

This has come up from time to time, and I'd like to share my thoughts on it.

We are all worth what we think we are worth.

Give away your time, and everybody will think its a value and jump at the opportunity to send you work and keep you busy for their benefit alone.
Charge too much, and no one will see the value, and you will sit idle.
I say charge enough from the start that some people will be turned away by the price.
Cheap people have cheap friends, and if you charge too little, its hard to raise your price for their friends, because they will know what the referrer paid.
Better to be busy half as much as you can be at the start for the same net income, filling your free time with marketing and building a portfolio, gradually building business at the profitable price, than to be slammed with break even stuff from the outset.

Ever give a buddy way more gas money to ride in his boat than he put in the tank, knowing it was way cheaper than owning your own boat?

Same with CNC....Charge for your time knowing the end user gets way more value in the form of better parts and faster turnaround versus doing it themselves.

Consider this: People want me to do stuff for 20-25 bucks an hour all the time, saying they've paid that in the past.
Digging deeper, its 25 an hour for a guy to trace 1 part on a sheet cut with a jigsaw, sand to the line, and hope it matches all the rest of the parts....
probably 3 hours at 25 an hour, but yet they balk at my 50 dollar minimum...until its explained to them.

Its Apples and Oranges for comparison, and the only one at fault is us, when we don't educate them on why we are a better value at a higher price.
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  #2  
Old Wed 21 May 2014, 13:20
servant74
Just call me: Jack
 
Nashville (Tennessee)
United States of America
Some Pricing Scenario's

If you are in business to make money, you must not work regularly for less than the cost of doing business and stay in business.

We can do some quick calculations for 'rule of thumb':

Know the price of materials as $1
Double it for 'shop costs' $2
Your time is at a reasonable rate $3 -- if you make $50K/year, then $25/hour is rough
Marketing costs $4
Customer hassle factor $5 -- 0 or up depending on customer 'issues'
Desire to do project $6 -- 0 or up
add it up -------------------------------------------
Direct costs $$
Profit $$
-------------------------------------------------------
wholesale price $W
------- double it for retail price ------------
retail price $R


Another tact seen is just double or triple perceived direct costs.

The one Apple uses is determine what it is worth to the CUSTOMER, then place it in the upper end of their price range. Again perceived quality and function to the end customer is the focus.

...

If you consider $25/hour reasonable for your work by 'hand' or with normal power tools, then price your services as if you use that equipment.

But just use your CNC to reduce your manpower effort.

...

I have heard others that charge for design, CNC programming and layout, at one rate.
CNC usage at a separate rate (typically 2 or 3x that of an employee fully burdened costs).
And another rate for assembly and/or finishing. Typically design/CNC programming & layout is 2 or 2.5x the rate of 'shop workers'.

...

Remember that labor rates should be calculated fully burdened. Normal burden is the cost of supervision, providing 'desk, phones, computers, office space, employment taxes, insurances, etc', etc. ... This runs about about 1.5 over cost of salary, to 3.5 for higher end companies.

That being said if you want to make $25/hour. That is roughly $50K/year. But burdened it is between $75K/year ($37.50/hour) to $175K/year ($87.5/hour) fully burdened.

...

I have an old computer geek consultant that priced on being out of work 6 months of the year, but with a low burden since he was self employed and was on his wifes insurance from her job. So if he wanted to make $50K/year, he burdened it to $75K/year and priced his time at a $150K/year rate (so he could spend 6 months marketing to work 6 months) and he charged (tada!) at $75/hour.

Eventually the marketing was hard enough, he gave up and went to work for someone else.

...

What you and others choose to do will probably be something completely different!

...

I never said it would be easy, or one answer on how to price your output.
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  #3  
Old Wed 21 May 2014, 13:20
IMMark
Just call me: Mark #119
 
Columbus Ohio
United States of America
You are singing to the choir (as you know).
I think a base minimum is a must. And there are so many "unseen" expenses and work, tool wear, electricity, clean up, overhead...and god forbid, actually making a fair profit so that I am still in business next year (when you need another part made).
Mark
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  #4  
Old Wed 21 May 2014, 13:54
darren salyer
Just call me: Darren #101
 
Wentzville mo
United States of America
Know all about preaching to the choir Mark, just thought it was a good topic we could all weigh in on. (As Jack did, with some great insight.)
Any other thoughts from anyone on the subject?
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  #5  
Old Wed 21 May 2014, 19:32
ger21
Just call me: Ger
 
Detroit, MI
United States of America
I've worked in a medium sized commercial cabinet shop for almost 20 years, the last 15 programming big CNC's.

Our shop rate is about $60/hour.
If I get a job that requires 3 hours of CAD programming, that's $180.
We charge $100-$125/hr machine time. If it takes 2 hours to run the parts, that's another $200-$250.
We mark up materials around 25%.

With machine rates, you have to be competitive. Cutting cabinet parts, our Morbidelli is probably at least twice as fast as a Mechmate. So to be competitive, you'd only be able to charge half as much. But other jobs, the Mechmate would be comparable speed wise, and could get the same rates. Rates can very quite a bit by location, and your skill level also plays a role.
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  #6  
Old Wed 21 May 2014, 20:04
darren salyer
Just call me: Darren #101
 
Wentzville mo
United States of America
I agree with you completely, Gerry.
Around my area, though, unless you are looking to do 3k a month, companies with 150K machines aren't interested in talking to you. Definitely won't give you the time of day if you ask them to cut materials they don't supply (and mark up.)
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  #7  
Old Wed 21 May 2014, 20:46
ger21
Just call me: Ger
 
Detroit, MI
United States of America
Yeah, we probably fall into that category, although we really don't get many requests. Mainly because we do commercial work only.
We really wouldn't be making any money on a 2-3 hour job, and we usually have to stop something else to squeeze it in.
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  #8  
Old Wed 21 May 2014, 20:54
darren salyer
Just call me: Darren #101
 
Wentzville mo
United States of America
Exactly my point.. There is a niche to be filled.
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  #9  
Old Sat 24 May 2014, 07:12
Tom Ayres
Just call me: Tom #117
 
Bassett (VA)
United States of America
Gerry, thats the exact model I use here for my shop. Its correct for our area. The guys who are laser cutting are charging $250-350/hr plus plus. Plasma cutting $175-225ish. Some of the smaller router guys charge a per sheet fee of $50 for cab parts (which if cab parts could equal $200+/hr, not bad), but most follow a similar rate you mention, some more, some less. There really aren't many machines running here for general services, most are dedicated to their jobs. Like Darren said, There's the niche.
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  #10  
Old Sun 25 May 2014, 08:30
Richards
Just call me: Mike
 
South Jordan, UT
United States of America
Use OpenOffice Calc or some other spreadsheet program and do a Break Even Analysis (look it up on the Internet) on your business. A Break Even Analysis will show you how many "widgets" you must produce per hour or day at "X" dollars.

In the mid 1970s, I started a professional photo lab. We processed hundreds of rolls of film per day and printed thousands of "proof prints" per day. At the time, I charged $0.35 per proof. After finally buying SuperCalc for my computer, the first thing I did was to run a Break Even Analysis. I was totally shocked to learn that I was only making 2-1/2 cents profit per proof print. I raised my prices three-cents and doubled my profit. From that time on, the lab was successful and I was able to buy the additional equipment that I needed. And, from that time on, the first thing I do when contemplating a business is to run a Break Even Analysis to see how many "widgets" I would have to produce to sell them at "X" price.
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  #11  
Old Sun 25 May 2014, 17:35
pblackburn
Just call me: Pete #98
 
South-Central Pennsylvania
United States of America
There are many businesses that fail because they cannot manage cash flow and fail to plan for capital expenditures. Most businesses have a great product and sell at a good price but fail on the other side. Money has to go back into the business. I watched this through a family business. So there is more to it than what the beginner ever takes into account. Remember the quote 'Fortune favors the prepared mind', and how true it is. Just my two cents.
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  #12  
Old Mon 26 May 2014, 06:18
Robert M
Just call me: Robert
 
Lac-Brome, Qc
Canada
Send a message via Yahoo to Robert M Send a message via Skype™ to Robert M
Throughout my several yrs beeing in business (25++ys), I can say that pricing your services is still difficult task ( and must be fine tuned regularly) for anyone !
Pricing machining services without added ‘special’ value is something MechMate-ers should avoid.
Added value, added services....added....added....will make you stand out and put you in a position where you ‘may’ be in a lesser vulnerable market comparison position.
To many offers "regular cutting CNC services !!

As for cutting pricing this service, I never disclose that price alone ( it’s always a “package”, part of an added value package) when the potential customer ask for it !
To calculate this I have adopted and tune a formula of pricing per inch of linear cutting length for 2d simple cut.
For 3d cuts, I price it per minutes of cutting time.
Both methods are obviously added by many other factors as disclosed before ( Price of raw mat + material mark-up + price of programming + price of handling + price of tool wear, overhead, price of......and on, and on.....)
Price per inch ( or price by time) are part of a variable that depends of many factors, as Mike ( Richard) said so well , BUT I CAN SAY.....pricing at the end MUST be done with some BEP ( Break-even point) calculated ( Also known as “ P & L” by some other financial jargon – Profit & lost balance sheet report ).

Build up a spread sheet with those basic “P & L – BEP” with some “flex factors” allowing you to....adjust the final output to remain.....in focus with what.....at the end truly counts.......what is the customer ( new potential prospect or repenting one) is truly willing to pay !! ( the real had part to feel, find...know !).

Best.....Robert

Last edited by Robert M; Mon 26 May 2014 at 06:26..
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  #13  
Old Wed 28 May 2014, 12:40
dbinokc
Just call me: DB #118
 
Oklahoma
United States of America
Would it be useful to attend something like a Small Business Administration type of course to learn more about the business part.
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  #14  
Old Wed 28 May 2014, 14:01
Robert M
Just call me: Robert
 
Lac-Brome, Qc
Canada
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In my opinion and experience......you always win learning business...from a business environment and those attendees !
YES, go for it....if time permits
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  #15  
Old Wed 28 May 2014, 14:25
pblackburn
Just call me: Pete #98
 
South-Central Pennsylvania
United States of America
DB,
You may get a different opinion on this from most. When I was in college I took several semesters of small business oriented courses to fill in my credit load. I was able to see it from both sides from growing up in a family business. I will say that getting any information and learning is always a good thing and is irreplaceable. But with anything, the right choices at the right time will prove you to be a success or fail miserable. They talked about this and even my professor said the principles we were taught are only a tool in your toolbox that need to be utilized. I am glad I took them. I do not think you would regret it either.
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