While working on a post about a project I’m finishing up, I managed to wonder off onto the rabbit trail of pricing. I had to come up with my own system since there isn’t much online. After some debate, I managed to come up with a “formula” for setting prices. Using a formula isn’t a perfect solution, but it’s the best I have for now. I think it’s also important to note that it’s not set in stone, I actually built some flexibility into it so that I can keep my income managed and working for me.
I’ll share my pricing formula. I think it’s fair. My goal is to make $30/hr for my labor. For materials, I add to the spreadsheet the cost of whatever materials I buy. For bulk things, like sand paper, I figure out a fair cost ($1 per sheet in my case). I then add my total labor and my expenses together. This gives me my cost. I then take that number and multiply it buy 1.5. So I mark up my cost by 50%. This helps me reinvest in tools, my next project, internet fees, etc. My labor is divided up into the family budget, and a little extra spending money for me.
For an example say I’m building a bench and I spend $100 on materials. I’m paying myself $25/hr for four hours, so another $100. I now have $200 cost/labor into this bench. Now I multiply it by 1.5 for profit so my listing price is now $300.
In the real world I adjust my pricing based on what I actually sell a product for. In my spreadsheet I will change my hourly rate so the formulas recalculate to the actual sell price. Doing this way seems to work for me and keeps the money going to the right places, even if it’s not as much as I would like.
No matter what I sell an item for I keep the formula the same. The variable is always my hourly labor rate. It varies based on what I think is a fair listing price and by what I actually sell it for. For the Dresser from Avenue D if I paid myself $30 and hour the list price would have been $731. Realistically I knew that in my area $400-450 would be the selling price. I sold it for $400 making my hourly labor rate $11.20. While I’m not getting rich woodworking, my hobby has been self supporting most of this year. I hope to keep it that way and keep growing.
What’s your pricing method?