Besides working on the actual project, most woodworkers often struggle to determine the right price. This is primarily due to the fear of overpricing (and scaring clients away) or underpricing (and hurting your business). Determining the right cost for building furniture will allow you to keep clients happy without harming your business. So how much should you charge for building furniture?
How much you should charge for building furniture should depend on several factors. It would help if you first considered the total cost of the materials. Next is to estimate labor costs before determining overhead costs. You should then determine your profit margin based on the market value of the item.
If you’re still reading, then chances are you want to know a thing or two about pricing your woodworking projects. Read on as we provide an in-depth discussion on some of the key considerations to make.
Consider the Total Cost of the Raw Materials
The first consideration you should always make when looking to price a piece of furniture is the total costs of the raw materials needed. Before you make estimates, start by listing down all the materials required to build the furniture. The last thing you want is to quote a figure without factoring in all unit costs.
How much is the cost of the wood you intend to use? What is the client’s preferred finish? What materials will you use for the handles? Will the furniture require any other materials like glass, aluminum, or metal frames? All these are questions you’ll need to ask before calculating the price of the raw materials.
When determining raw materials cost, it is highly advisable to work with the market average. Marking up the cost of raw materials might not be the best idea as some clients might opt to buy the raw materials on your behalf.
Therefore, the rule of thumb is to determine all potential costs you’re likely to incur when buying the raw materials. This will help you determine the base cost of the entire project.
Estimate Labor Costs
After calculating the total costs of acquiring raw materials, you’ll need to estimate the labor costs. Unfortunately, estimating labor costs isn’t as straightforward as it sounds. You should first list down all the tasks required in completing the projects.
For instance, will you outsource some of the work to other experts? Will you need to transport equipment? How long will each task take? How many people will work on the project? All these are important considerations to make when estimating labor costs. You should also add your hourly charges when calculating the total labor cost.
After you’ve determined the total tasks required to complete the project, you’ll then need to highlight the cost of each task. This will help you understand the total labor costs of the project. Don’t exaggerate labor costs as they can end up making the furniture too expensive.
Determine Overhead Costs
Unfortunately, most new woodworkers often fail to factor in overhead costs. Unlike operating expenses, overhead costs cannot be traced to a particular task. However, calculating overhead costs is essential as it is likely to affect your business in the long run.
Overhead costs include expenses like tool maintenance costs, utility bills, rent, and even tool renting prices. In short, these are expenses that can easily be overlooked but will affect your earnings as you’ll still need to offset them.
Therefore, consider the amount of electricity used, the equipment you’re likely to lease, and other costs that might not be direct. Counting overhead expenses is a sure way of protecting your business. It ensures you don’t need to use your cash to offset some of the bills incurred when completing the project.
Consider Miscellaneous Expenses
Any experienced woodworker will know the importance of factoring in miscellaneous expenses when pricing a unit. On most occasions, you might need to incur additional costs that you perhaps didn’t include in your initial total cost calculations.
But by adding miscellaneous costs to your overhead, labor, and raw material costs, you’ll be well placed to avoid losses. Miscellaneous expenses should be a small percentage of the overhead and raw materials costs and shouldn’t be too much. It should act as a safety net for any emergency spending you might have incurred when working on the project.
Include Marketing and Selling Costs
Depending on where you’re selling, you might need to pay for your product to be listed. While the costs might be negligible, it’s still important to consider them part of the total costs. You should also add marketing-related costs. Suppose you’re running a marketing campaign or want to hire someone to advertise on social media. In that case, these costs should be included in the total cost.
The trick is to distribute advertising or marketing costs among all your products. This means each item will pay a portion of the total marketing or advertising costs. Once you’ve included the marketing costs, next is to compare the price with other sellers.
Compare With Other Sellers
While it isn’t compulsory to compare your total cost with that of competitors, making comparisons helps you to know the right profit margin to set. For instance, if the total expenses amount to $1000 and competitors sell their products at $1100, you’ll get a rough idea of your product’s final pricing based on market behavior.
Comparing with other sellers helps ensure you don’t undercharge or overprice the piece of furniture. Moreover, it allows you to tweak your profit margin depending on your professional goals or targets.
Establish Your Profit Margin
The whole idea of building furniture is to provide value and make a profit. Ideally, your profit should be a percentage of the total cost incurred when working on the project. The time invested in the project, the quality of materials used, and the project’s complexity should help you determine your ideal profit.
Profit margins for luxury furniture can be high. But if you’re selling ordinary pieces of furniture, you won’t have too much flexibility when it comes to setting your profit margin. The more common a unit is, the more you’ll need to price it close to the industry average.
But suppose you’re working on a rare piece that needs expensive, high-quality raw materials. In that case, you’ll have more power in regards to determining the profit margin. When citing your profit, try to leave room for bargaining or price discounts if you want to entice clients.
Review the Pricing
It is always important to review the total cost of a unit after you’ve factored in the profit margin. This will allow you to determine if any areas need tweaking and make the necessary changes. If you feel you undercharged a specific area, now is the best time to edit the costs and set the desired price.
Reviewing the pricing is especially important when you’ve completed the project and are no longer working with estimates. Reviewing costs after completion can help you lower the retail price of the unit and therefore have the edge over competitors.
Now that you have a rough idea about how much to charge for building furniture, you should be well placed to set a price that will neither hurt your business nor scare away potential clients.
Remember to always start by calculating the total cost of all raw materials needed. Next is to estimate labor costs before factoring in overhead costs. You should also add miscellaneous expenses and include marketing or sales-related costs.
Always calculate the total costs before determining the profit.