Pricing, Mark-Up, Profits - What's your method?

[Mayo]

I'm curious how other shopbotters figure out a price for any given cutting job.

I've recently been asked to supply 3000 identical pieces, cut from 6mm Baltic Birch plywood. He wants them FAST - like 2 to 3 weeks. The company wanting the estimate is a distributor who sells to retail stores, who then sell the item retail.

I've figured out my cost per piece based on the following:

Cost of plywood = $21.11 per 5'x5' sheet
I get 66 pieces per sheet, so I'll need 46 sheets.
I'll get 10% off for buying that quantity of sheets. That makes the sheet price $18.99. ( $18.99 x 46 = $873.54) I pay sales tax on materials, 7.5% so that's $873.54 x 7.5% = $65.51
for a total of $939.05

At this point I figured I should mark up the material cost 25% but having never taken business courses, I don't know if this is enough or appropriate. It will more than cover the cost of me having to pick up the materials. I've heard of some companies marking up materials 2 to 3 times.

If I add in 25%, the total is now $1173.81

The parts need to be clearcoated on one surface only. I'm not sure how much clear will actually be required but I'm estimating $200. for it.

I have a home based shop so, overhead is difficult to estimate, although I know an hourly shop rate should be figured into the estimate. If I had a commercial shop I'm thinking my shop rate would be around $75 an hour and it would include electric, insurance, rent or mortgage, and labor.

I have not done a dry run of cutting the parts yet to determine the actual shop cutting time. I'm fast with a paint roller, so if I can coat out the boards before I cut them on the router, I estimate about 4 hours to coat one side of them.

I only have a 4' x 8' shopbot so I'll get the sheets ripped to approx. 30" x 60" and I'll cut 33 parts per sheet. I hope I can get a clean enough cut using a down spiral bit, and hopefully this would keep the parts in place without tabs. After the first few cuts I'll know if I will need to insert the tabs or not. The objective is to do as little sanding or clean up as possible.

Based on all this, I have come up with my cost per piece. It does not include labor yet because I'm not sure how much time it will really take.

I should also figure in the cost of a few router bits, but I haven't yet.

Having said all that, so far my cost is about 45 cents per piece. So let's say 50 cents each and I'll more than cover the cost of a few bits.

I'll also have to add in the cost of some shipping cartons - quantity unknown at this point.

Now the question is,
if your cost per part is 50 cents (NOT including labor), what do you do next to add in your profit? Even though some of you have shopbots just as a sideline or hobby, you don't work for free all the time do you? If you don't add in something extra here, you're running a non-profit business.

What would your selling price be and how do you arrive at it?

After I get a few responses, I'll tell you how much the customer said he resells these items for.
I think you'll find it interesting.

[elcruisr]

Most people are pretty quiet about this but I can give you my general bidding lines. I mark up materials 20% - 40% depending on the cost and competition. I charge for my computer time for setting up the files. I charge anywhere from around $55/hr to $90/hr for CNC time. That's one man and the machine. I charge cost plus around 30% on tooling. I have to be pretty flexible on prices because I've got a fair amount of competiton. It really dosn't matter what kind of money your customer makes. He's got alot more overhead to meet than you can probably imagine. Now figure into that I've got four people on payroll here and 4,300 sf of shop to pay for every month which is why the 'bot is only a part, not my whole business. Sometimes I wish I was back in a home based shop!

Eric

[kfitzgerald@graphicmetalsinc.com]

Hi Mayo,

Either you are up very early, or you are going to bed very late ;-)

Sounds like you have the material costs pretty well covered. You need to list all the operations involved and do a time study to determine actual labor costs. Put it in a spreadsheet.

As far as your profit, taking into account what the market will bear, in my opinion a very reasonable, simple starting point is 100% markup over your costs.

Regards,

Kevin Fitz-Gerald
Project Manager
Graphic Metals, Inc.
P.O. Box 31
715 E. Perry Street
Bryan, OH 43506

V 419-636-5757
F 419-636-6404
kfitzgerald@graphicmetalsinc.com (mailto:kfitzgerald@graphicmetalsinc.com)

[gerald_d]

You have to be near to 50% of what your customer is going to resell for.

[mdebruce]

Presently I do estimating, engineering and design for Job Shops. I have been in other business’s and sold them for a profit and have learned that there are Many variables to cost, too many to fully cover here. In general though I feel the most successful method is to make a fair profit on each aspect of your operation. I mean you have to make money for “each” action or why be in business. I also believe in NEVER gouging a customer.
Below are some brief thoughts oriented to a 1-2 person long-term shop expecting competition.
First I think you have material about right / 25 percent is good, don’t forget any time you spend in getting material to your shop / handling.
Establish a fair rate for your ShopBot 45.00-65.00hr., anyone else have thoughts? (In this area CNC machines costing 85,000.00 up rate at 50-105.00hr.)
Figure all secondary operations at a fair, to you, rate again in hr. units. The lowest job shop rate in this area is 40.00hr., and this area is low. (45.00CNC plus 40.00Labor, if you are doing secondary operations = 95.00 hr.)
Charge for shipping plus profit. Including shipping materials.
I figure tooling in the machine cost unless I see excessive wear.
Charge if you have to carry on your books over 30 days. Be sure you do this in initial cost, as most customers will refuse to pay add-on charges.
Agree to payment terms with customer before any work begins.
Never agree to carry more debt than you can lose.
After all that’s said while periodically I still use formulas/databases to check myself, for day to day I quote a 10,000.00 job to plus or minus 3 percent off the top of my head.
If you lowball, do it only on the first job for a major customer. Be careful as you are setting up a perception of cost. I let them know I’m a little low and want their business.
All of above does not apply to a product you develop. That would be whatever the market will bear.
I also agree with the other posts, they have good messages.
Every situation is different and general common sense rules are good to check your prices with.

Sincerely,

Mark DeBruce
Hardesign

[sheldon@dingwallguitars.com]

All are good points above, although I'd like to see you mark up your materials a little more. I'm in an industry where things are a little less price sensitive, but not much. So YMMV.

A 25% markup (20% margin) doesn't leave you much room for spoilage. If your plans for coating before machining don't work out, or only work out if the bit is fresh, you will have to run out and pickup more materials at your cost. I would say 50% markup (33% margin) should be your minimum and 100% markup (50% margin) should be your goal.

[gerald_d]

We quote the material and cutting seperately - this way the client has the option to either supply the material himself, or to start a discussion where the material price can be negotiated to a better level. Normally, our clients know more about the materials that they specify (and get better discounts than us) - we know more about the programming and cutting than they do.

[papadaveinwy]

I fully agree with Sheldon, 50% markup (33%margin) min. and shoot for 100%markup (50% margin) you need to remember you are starting with raw material and producing a finished product, your customer will wholesale based upon his cost at a keystone markup that is to say 100% markup (50%margin) and the retailer will do about the same but ranging from a 50% (33% margin) to a 100% (50% margin) remember everyone down the line makes money or why bother. Also instead of rolling your finish get a HVLP sprayer you can order one from harbor freight tools for about $100.00 one that hooks to your compressor at 50 PSI and out puts at 10 PSI 2 Qt. great rig.fantastic finish and very fast plus less amount of Clear coat product. David in Wyoming

[papadaveinwy]

Sheldon to go along with my other post I manufacture and wholesale a line that I recieve a mark up of 600% I am cutting out the middle man unless I find someone to rep my product at trade shows, then I will do a 200% markup and they can double their cost for a keystone for their profit, and the customer (retailer) gets a better price. They actually only save about 20% or so and they retail for a keystone markup also, but I will get more coverage at more shows. David in Wyoming

[Mayo]

Thank you everyone for your comments so far.

I have done a dry run of the file and I've now estimated the cutting time, including loading, unloading, and cleaning off the table, at 44 hours total provided there are no major problems.

I estimated 4 hours to clear coat.
If I have to do a light sanding on the edge, both sides, I estimate 20 seconds per piece and that will add 16 hours for 2880 pieces. So now we're up to 64 hours.

Packing into shipping cartons will add time but that probably shouldn't be figured at the same shop rate - or should it?

So let's figure this out.
Agreeing that my mark up on material is low at 25%, I'll instead make it 50%.

I really need only 2880 finished pieces, so that's 44 sheets at 20.41, (including tax) = $898.22
Clear coat add $200. = $1098.22
$1098.22 + 50% mark up ($549.11) = $1647.33
$1647.33 divided by 2880 pcs. makes it 57 cents per pc. not including labor/shop rate.

64 hours labor (not including packing into cartons) x $45 per hour = $2880.00 which conveniently comes out to an additional $1.00 per pc. I'm figuring since it's just me doing the work, I'm going to charge the same labor rate for CNC work as I am for sanding work. Compared to what other trades charge, I'm a bargain at only $45 an hour!

So now we have a total of $1.57 per pc.

The customer puts a color label and adds a pen to the package and shrink wraps it. It's a novelty/gag gift.

He told me ahead of time that he charges $2.00 for these (his original source was from China). I cannot verify if that's true or not, but I did call a retail store which carries this item and they said it retails for $7.00. Figuring if they marked it up 100% then the store may have really paid $3.50 ?

[papadaveinwy]

Mayo, I can tell you for allmost 99% of the time that they will have paid $3.50 for the item. unless the wholesaler gives a discount for larger quantities, that is common practice. I would say your price is about right. and if he dosen't want to pay that then tell him to go back to China,Dave in Wyoming

[beacon14]

I have seen a few products which were imported from China, and was privy to the wholesale cost to the importer - you would not believe it if I told you , but I'll try anyway.
A simple item which sells in the mall for $3-$5 cost only 10 CENTS (!) including freight to the USA.
A handmade box with inlaid plastic bits which looked like jewels (if you didn't look too closely), sold for $15 and up, cost only a couple of bucks, if that.
The prices of these items from Asian countries is INSANE. There is no way we can compete, even with frieght, our materials cost more than their finished product.
However, if he really needs it in 2-3 weeks, China may not be an option (sounds like he ran into some kind of problem with his usual supplier). In that case, you figure your price, and he either wants it or not, but it's not worth it to you to work for fifty cents an hour so he can make a buck.
And yes, you charge for packaging at the same rate; if you weren't doing that task you could be doing something else at your usual rate, it's part of the job. Only exception I could see there is if you can hire a school kid or homeless person at minumum wage, so it doesn't tie you up, as a way to get this guy's business (personally I wouldn't want this kind of work, but to each his own, right?). You still have to charge enough to cover the employee's cost, taxes, etc.; like Mark says, every aspect should make you money or it's not worth doing.
Just my 4 cents (I'm very expensive).
Also, think VERY carefully about how long it will really take to do this job. 4 hours sounds very optimistic to paint (or spray) 44 sheets - do you have a way to stack them while they dry? It's not the spraying time, it's the handling that will get you. I can almost guarantee that it will take longer than you think, especially if you don't do this kind of work routinely, and you are just basically guessing at the time estimate.

[valensign]

I wasnt going to get involved with this thread as I have a real sore spot with Asian Imports but I didn't want you to undersell yourself.. All the posts are a great so I wont repeat all that. I have also seen what china can do to an american supplier as I do alot of molds and resin casting for a company that also imports from china so I know the competion.. (There is none they will kill you..) I just wanted to reilertate what David was saying about coating out your wood. As a sign maker I coat out alot of panels and I can tell you coating 44 sheets in 4 hours would be an incredible feat(If you can please call Ill hire you)
you should plan at best about 10 to 15 mins a panel by yourself cause of the handeling and moving unless you have a huge shop where you lay them all out.. Ill stop here or I'll ramble on all night over this..

[Mayo]

Regarding coating out the panels - they are not 4'x8' panels, they are 5'x5' panels which will be ripped to 30"x5'

They will be coated with clear on one side only.

And having been a sign painter for over 20 years,
I can coat out panels fast. Admittedly this 4 hour estimate comes out to only 2.75 minutes each piece, but the goal is not to produce a perfect finish like I would want on a painted sign background. The goal is to seal the wood on one surface so that it cuts cleaner and so that they can use a marker on it without it bleeding into the wood fibers.

The handling and drying of these boards is a good point though and I didn't think it through regarding where I would put them all to dry.

I have a poor man's drying rack, which consists of several 20' long ladders laid across sawhorses, and a huge back yard. And I can set up some additional make-shift drying racks by cutting slots into 2x4's and placing the panels into the slots. Of course this all depends on good weather too...

Even though this job could result in a nice profit, and repeat business, I can see myself running around like a chicken with it's head cut off due to the deadline. And because of some changes he asked about in an email today, I'm going to pass on the job.

Well it was a nice exercise in pricing anyways, and I appreciate everyone's input.

[papadaveinwy]

Just a quick response to David B's post, It is true that the price to importers from China are really unreal but then you have to relize that they buy in full containers (With something in the range of a size that Mayo is doing) the container would have about 500,000 or so pieces, the Guy that he is dealing with more than likely is just some wholesaler that buys from an importer and believe me they jack their prices up once they have it in the U.S. I had the chance to buy a lot of clamp parts (for a clamp that I patented) through an importer but to get a good price I had to buy two containers for a total of 2 1/2 million parts!!!! needless to say I own the patent but still do not produce, Plus if it really took off then someone would have China make it anyway and sell it from an off shore site. David in Wyoming

[mdebruce]

Found this thread if anyone wants to get more info on this subject
Let's Talk ShopBot: ShopBotter Message Board: Hourly Rate

Mark
HARDesign

[stickman]

Thought I'd throw this on the table.

I was working on a price for cutting materials out of 1/2" baltic birch plywood. My cost on the material is 20.00 for a 5 x 5 sheet. My shipping costs are about 15 - 17 a cut set, using ups Less than pallet load. 25 or so a month.

The parts are as follow:
10.5 x 22 - 1-22 edge rounded (1)ea
9.5 x 22 - (1)ea
4.25x22 - (2) ea
5.25x24 - three sides rounded (1)ea
11x39 - 1-39 side rounded (2)ea
22x20 center will be cut out. (1)ea

Edges routed to create bullnose edge, light sanding.

Little math out there for you all this morning. Take a look at it and I'd appreciate hearing from you guys at what your price would be.

Thanks,

[Brady Watson]

Jay,
It's hard to quantify how much time was spent on cutting from your list.

Generally speaking, you charge people by the hour for 2D cutting, and by the square inch for 3D. Within your hourly rate, you should factor in your overhead, labor and profit. Material costs are seperate, at least I keep it that way so that my hourly rate doesn't get skewed.

You have your hourly rate, what you'll charge the customer for materials, and other misc. charges such as a setup fee. I charge for doing the initial setup of a job where I need to input the design in CAD. I even charge if they give me a DXF and I have to run toolpathing on it. If it takes 15 min to verify and toolpath, then I'm charging for it.

It's the time that is the major factor. It may be possible to use the control software in Preview mode to estimate how long it will take to machine. You will have to verify this against actual cutting time and write it down so you know how close it is. From there, factor in bit changes and material loading. It's all part of the job.

-Brady

[jay]

I agree with Brady, but I also add on additonal item. For every job, I charge out for each bit I use. I know this sounds petty but I have yet to find a customer to balk at the cost of bits to do their job.

[garbob]

I have found that for cutting out parts it is a very simple matter to calculate a cost per inch of cutting. Obviously there are differences for cutting different materials due to material type and thickness.

I have a price in my head for cutting 3/4" ply (or mdf, plateboard, real wood, etc.) and one for 1/4" acrylic(or pvc, cab, etc) then I can easily come up with a price on the spot after adding up the lengths of cuts and adjustments for a particular material.

Add to this your setup fee and labour costs for other processes such as round over, finish sanding, etc.

In the case of simple jobs, as this one sounds, the customer is probably paying someone minimum wage or less to do the work by hand or is using a sweat shop now and is looking for lowball pricing.

I know how much larger shops charge for set-up, so I also know that a customer like this can't use them, as there isn't enough volume to justify it.

You may want to adjust your quote up or down depending on how busy you are.

[Roger Read (Unregistered Guest)]

Gentlemen
The computer you use is not IBM. It was made in Korea or Taiwan or some such country.
You can not compete head on against any import from these countries on price.
You have to provide something these countries cannot supply.
Speed of delivery. One offs or short runs. Direct customer contact. Originality. You can (and should) think of other solutions of your own.
It is not only the USA who suffer. In Europe, and particularly in Britain, all manufacturing suffers from this problem. And, incidentaly, over 50% of British manufacturing is owned by American companies!