One of the biggest challenges for makers is what to charge for your work. I remember when I decided that I wanted to try selling the items that I was making, I had trouble figuring out what I should charge a customer. You'd think this would be simple and straightforward, but this is the most popular question that I get.
Over the years, the way that I calculate my pricing has evolved somewhat drastically. In the beginning, I used to outsource some of my work before I bought my own machinery. In the simplest way, I would take the cost I paid to get something made and double it. This was usually higher than competitors, but it was the only way I could start to make money from what I was doing. For things that I made by hand, I barely charged a labor rate! Ridiculous I know. The truth is, when I was starting out, I wasn't an expert. I barely knew what I needed to know to make my products, I was just trying to cover my costs to have my hobby fund itself, and I lacked the confidence to charge what I was probably worth.
Fast forward to today and my mindset has changed quite a bit. Instead of just funding my hobby I am attempting to build a successful small business. Instead of outsourcing I now attempt to make everything in house. Instead of barely knowing what I am doing I have had years of practice and continual learning. Instead of lacking confidence and sacrificing profit to get business I charge what I am worth with confidence. You get the point. It's time to change your mindset and do it with confidence!
To help with this process, I have created a custom quote spreadsheet to help you identify your costs, your rates, and everything you need to quote a job.
Let's get started!
Key Factors to Consider
First and foremost, feel free to download my free template that will help you build your own quotes. If you do not have Excel, load the file into google drive and it will convert it into a google sheets document that you can use.
When building your quotes it is important to identify all of your costs. When I say all, I mean every single item from sheet goods down to the piece of tissue you blow your nose with. Everything you use in the process of making a product has to be accounted for. If you don't do this, you'll be surprised at how much incidental items start to add up and eat into your profit. Don't be the person who lets sandpaper eat into your paycheck.
Let's start by breaking all of our costs down into smaller bite sized chunks that we can work with. I've categorized these chunks into the following categories:
- Marketing Materials
- Packaging Supplies
- Machining Costs
- Labor Rate
- Shop Fee
When you look at the quote template, you may see some of these items combine together for calculation purposes. With that in mind, let's talk about each of these categories in more depth.
Materials are anything that is going to be shipped as part of the sign. When I am building my quotes, these will be things such as wood, acrylic, paint, mounting parts, screws, etc. When you are thinking of these items, think about anything you can physically see as part of the product. When you consider materials, make sure you account for the amount you need to purchase, not necessarily the amount that you'll use. What I mean by this is for wood, you will have to buy a full sheet, not just a small rectangle. Be sure to account for the whole sheet.
Example Product: Keychain (Materials: Keyring and wood)
Example Product: Sign (Materials: Acrylic, Wood, Paint, Sign Hanger)
On the quote template, add these items to the Materials/Consumables Needed section.
Consumable are any items that are used in the process of making the sign but are not shipped nor visible on the product itself. These will be things such as glue, sandpaper, shop towels, gloves, etc. These are the items that you really need to think about because they will quickly add up and eat into your profits if you don't account for them.
Example Product: Pin (Consumables: Masking for material, glue for the pin, shop towels to clean them)
Example Product: Home Decor Sign (Consumables: sandpaper, glue, gloves)
Marketing materials are items that you add to the product to help promote your business. These will be things such as business cards, stickers, etc. These can add up over time if you don't account for them. You can attribute these costs to a marketing budget if you have one, but if you're running a small business like myself, you may not have a marketing budget that can absorb these costs.
Packaging supplies are items that will use to package the final product. These will be things such as packaging tape, boxes, tissue paper, etc. These are typically items that buying in bulk will benefit you the most. For example, buying 100 boxes from Uline is typically going to be cheaper than buying 1 box at a time from FedEx.
Example Product: Ornament (Supplies: Tissue paper, small box, shipping box if needed, tape)
Example Product: Clock (Supplies: Bubble wrap or foam, packaging box)
Machining costs are the costs associated with running your machinery. There is a good formula for this to help you break each component down into known variables.
Max Power Wattage
This is the maximum power wattage consumption that your piece of machinery could be using during operation. This number can usually be found in your product manual or through a quick google search.
Power Cost per kWh
This number comes from your power bill. This is the electrical cost associated with your utility company. For me, this cost is $0.10698
# of hours
This is the number of hours you plan to run the machinery for. If your project is going to take you 1 hour, use the number 1. If your project is going to take you 2 hours, use the number 2, etc.
Make sure you account for this cost for every part of machinery you plan to use. For laser machining, this will be the laser, the computer, the exhaust blower, the air compressor, and water chiller if applicable to your machine.
Labor rate is by far the hardest cost to come up with in my experience. When you work for a company, they tell you what they think you're worth. Regardless of whether you think differently, they've set a price on what your work is worth. For your quotes, you need to set your own labor rate.
For me, I make this rate equal to or greater than what I make at my day job. This is important for a couple reasons. If I ever want to have a hope at making this my full time pursuit, I need to make as much as I do in my current role to cover our expenses. Another reason for this is to make sure that I am getting paid what I am worth. Whether you like your current salary through your job or not, it can be a good reference for coming up with your labor rate. Ultimately, this is a number that you need to come up with based on your experience.
When I first started out, my labor rate was less than what I get paid in my day job because I didn't really know what I was doing. Over the last few years, I have raised this rate as I gained more experience. To be honest, when you are first starting out you won't be able to charge as much as you most likely want to. As you develop your knowledge and skillset, you will be able to charge more as you go.
A shop fee is a fee to help cover any cost fluctuations you didn't account for. These can be things such as wasted materials, miscalculating how long it takes to do something, or needing more paint that you thought. Think of this fee as the oh sh*t fee. When you're making a product and you go oh sh*t I cut this board the wrong length and need a new one. This fee will help cover you. This is often overlooked.
A good example of this would be like buying new flooring. When you're buying flooring, they recommend that you buy 20% extra in case pieces have issues or you need more than they calculated. Same goes for your materials. You should buy 20% more than you expect to use.
When you are applying a shop fee, only apply it to the items that you could vary based on waste or miscalculating. For me, I add the shop fee to my materials, consumables, machining cost, and labor. I do this because I may have material issues or misjudged how long it would take to do something. However, I do not apply it to shipping or marketing supplies as I buy those from suppliers and I don't typically have to worry about any issues with them.
Building A Quote
Now that we've covered the different parts of the quote, lets walk through an example to show you how the process works.
For this example, I'm going to build a quote for a custom sign. For this quote, let's use the following details:
- 1/4" MDF material
- 2 colors
- 24"x36" size
- Sign will be assembled with glue
With these details in mind, we can break the quote down into the following elements:
- 1/4" MDF: $12
- Black Spray Paint: $4.27
- White Spray Paint: $4.27
- Primer: $4.98
- Sandpaper: $4.97
- Glue: $10.50
Shipping Supplies Needed
- Shipping Box: $7
- Bubble Wrap or Foam: $5
- Business Card: $0.30
- Sticker: $1.45
- Laser Operating Cost: $0.20/hr
- Exhaust Fan Operating Cost: $0.19/hr
- Air Assist Operating Cost: $0.03/hr
- Computer Operating Cost: $0.01/hr
- Your labor rate: $40/hr
- Assume 20% rate added to the following:
- Machining Cost
- Labor Rate
Now that we have all of our items identified and the cost associated per item, we need to plug them into our quote template with the proper quantities to get our costs. I've already done this for you as an example. Feel free to download the file below.