Have you ever wondered what to charge for something you made? In a gallery? Selling to a neighbor? Virtually every handmade product has a “right price.” Charge more and it won’t sell; charge less and you’re losing money.
Finding the right price requires five separate calculations to determine costs for materials, labor, overhead, profit and selling expenses. You can calculate these by hand, or use your computer and a spreadsheet. For instance, let’s price the round-top table featured in the October 2005 Woodworker’s Journal. For starters, it took two and one-half hours to make. The materials consist of the actual parts used to make the product: the cost of the wood, plus any mechanical parts, such as hinges, mechanisms, etc. The table has 12 board feet of oak, at $3.25 a board foot, so the material comes in at about $39.00.
Labor is calculated by the hour. Suppose you want to make $75,000 a year. If you take four weeks vacation a year and work 40 hours a week, then you will work 1,920 hours a year. Divide 75,000 by 1,920, and you get $39.00 an hour. The table took 2.5 hours to make, so multiply $39.00 by 2.5. The labor cost for the table is $97.50. Add this to the materials cost for a total of $136.50.
Overhead consists of the rental and utilities of your shop, tools, glue, nails, sandpaper and finishing materials. An industry average is 15 percent. Multiply your total (of materials and labor) by 15 percent. For the table, multiply $136.50 by 0.15. Add this amount, $20.50, to $136.50. The total cost (materials, labor, and overhead) for the table is now $157.00.
Profit is the amount added to cover business expansion. Add 10 percent of $157.00 ($15.70, but round up to $16.00), and you have a price for the table of $173.00. This is the value of
the finished table sitting on your workbench (the “workbench price”). If someone comes to your shop and picks up the table, you could charge them $173.00, because you haven’t incurred any selling costs. At your workbench price, all of your shop costs are covered. However, if they bought the same table in a store, it would cost them $400.00 because of selling expenses.
Selling expenses consist of two calculations. The first, the cost to put the table in a store, amounts to 15 percent of the workbench price. This could be used to pay a sales rep, have a booth in a trade show or to advertise the table in a magazine or newspaper. Add 15 percent of $173.00 ($26.00) to $173.00, and you get the wholesale price of the table: $199.00.
A store or gallery will mark up your wholesale price to cover their expenses. This is called the retail markup, usually 100 percent. To calculate the (suggested) retail price for the table, simply double your wholesale cost, $199.00, and you have a final price for the table, displayed in a store or gallery, of $398.00.
If you create a spreadsheet with your computer, you can calculate the price of many products quickly. You will only have to enter the number of hours to make a product, the salary you want to make in a year, and the cost of materials. The spreadsheet will calculate the workbench price, wholesale price and retail price instantly. Once you know the right price for your work, stick with it. Don’t settle for less.