Running it like a business

[Hillbillysmith]

I would think that you could keep the costs down by making a list of several projects that you could do, everything that you need for those projects, calling around and getting the best price for the supplies, get them all in one trip/one shot, making more than one project at one time, and buying things such as grinding disks, sandpaper, belts, etc in bulk saves too. Sometimes at first, you may just have to dog it on the pay for your time. Like any other business, you may not do so hot for the first little bit, but stick with it and never give up.

I think that this is a great post b/c I am currently taking a small business management course and these are the things that we are learning about, and no one every thinks about things like this and when you put things into perspective, you really don't make squat unless you know how to utilize your time properly and stretch that penny/dollar. Great post Glenn!!!

[Glenn]

Many years ago, Bill Epps said something to the effect that to sell, it has to be less than $20, and look good in a double wide. He also said that you should have a lower price group, a mid price group, and a couple of high end (high priced) items. The high end items are not expected to sell, but then again they may. It is to show what you CAN do if given the chance.

If you think about it, Wendy's Hamburgers did just that with the single, double, and triple hamburgers. How many times have you seen items advertised at $19.95, $19.99? We all know it is still a $20 bill but we see the 19 and think it is less. Or gasoline at (remember when) $2.99.9? That is just 2 drops away from $3.00, but we see the 2 and think it is less.

If you set your pricing to match the currency, there is no time lost trying to make change. If your items are priced at $4.99, $9.99, $19.99, you can keep a bowl full of BRIGHT NEW pennies and speed up the process of collecting money and making change. You will have invested $1 per 100 sales to speed things up.

[metalmangeler]

I have been following this for a while. One of the big questions in my life is how to set my price. I don't like the formulas listed as they assume that my skill is stagnet if when I started forging gidgets I spent an hour to make a gidget, but now I can make 2 in the same time I don't think that they are now worth 1/2 as much. Also if I spend $10,000 on a power hammer that is an investment, and I should be makeing money on that not just producing more for less. Basicly what I do is try to make things that look like they took longer to make than they did, the people want to think they are paying me $5 an hour I want to think that they are paying me more. Then I try to find what the market will handle this seems to be a real guessing game. The problem is that a hot item at one craft show is not the same item at the next show, so if you change prices that may not be the reason that your hoofpicks are not selling at the flower show.

[Covforge]

Glenn, I borrowed your wisdom for our website. I've given you and IFORGEIRON credit. It was too good not to use.
Thanks Travis Business Management

[Glenn]

Covforge, You do need to put a copyright notice on it. (c) IForgeIron 2007, Used with permission
And a notation that if others would like to use the material, contact IForgeIron.

[Covforge]

will do Thanks again
Travis

[R Funk]

I am not a professional smith and have purposely never sold an item as I do not want to deal with liability of a business. In one of my past lives I was involved in expert witness work for legal cases and I can tell some real horror stories of our riduculess court systems. And unfortunately my current employer has placed golden handcuffs on me and I can't really afford to blacksmith semi-professionally until I retire.

I wish to share a little different perspective on pricing and costs based on my experience in the business world and regularly dealing with suppliers and interacting with customers.

Instead of looking at pricing and costs from the standpoint of manufacturing cost perspective, look at them from the marketing perspective.

Who is the customer?

How much money do they have? How much do they want to spend? Do they appear to be "moneyed" or do they appear to middle class or "financially challenged?" Are they a business? If so your product may be worth 2 or more times than the cost. (maybe even 10 times) if it solves a critical problem for them.

What is the competition or alternatives?

I know of blacksmith who got an order of low volume specialized tools as the customer's current source of these specialized tools had gone out of business. He charged the customer about 60% of the price they were paying. He should have charged them at least 120% of the cost they formerly paid as he was essentially the only option they had. He still did very well on the project from a cost of materials and labor viewpoint, but walked a from a large pile of money that could have been his. Charge the market price if it is greater than your cost of production. If it is less than don't make it.

Does a forged product offer unique advantages?

Sometimes blacksmith or forged products offer unique advantages. With the price of nonferrous metals currently so high, could a forged part save a substantial amount of raw material that would normally be converted to chips? For example a part with a thin body and larger diameter end would normally with today's technology be machined from bar stock the size of the largest dimension. However this machining may convert well over half or even 3/4 of the barstock to scrap (chips). If the item can be made from small stock and the end upset, the material costs could be substantially reduced. When evaluating and bidding a job like this, look at the materials and machining costs of the machined option. Then compare those costs for the forged part. Bid the price of machined part not the price of the forged part if the machined part is substantially more.

What are customers willing to pay?

This is hard to determine but here are some thoughts.

I liked the philosophy of one smith that flat out asks his clients, "What sort of money do you plan on spending?" This helps calibrate the customer and the smith to the realities of the market. Then the smith can conceptualize and sketch a $500 or a $5,000 rose trellis for the client as they request and not have a disappointed client when the project cost 2 or 3 times more than their expectation and a re-conceptualization of the project is required before forward progress can be made.

Is it a business?

Most large businesses have a labor cost (including benefits) of at least $40.00to $50.00 or more per hour (except retail and food). This includes the janitor sweeping the floors if they have not outsourced this task already. Look for opportunities to solve problems for a business. They will pay handsomely for this! I know of a situation where a small shop rebuilt fixtures for a larger company. They had a fairly uniform workload over the year. It may not be blackmithing work, but it leveled the work load and provided an almost steady income. And at $50 or $75 per hour we can be contaminated by this non-blacksmith work as it subsidizes our true love and could keep our kids fed if we run into a dry spot in smithing.

Another situation I know of involves a very small fabrication shop. They have a contract with a local warehouse were they do the basic building maintenance and minor repairs to the building. I know its not generally fabrication work let alone blacksmithing but it is money.

Work to sell art and not just practical or utilitarian objects

Art often has more perceived value than practical items. If you can break into the world of art you can even sell clinkers as a unique artistic pieces (well may be not but you get my drift.)

Never let a sketch or a set of plans leave your shop unless no other options exist.

You have 2 primary assets as a blacksmith:
1) Your design or artistic ability
2) Your ability to produce product.

Don't give either away.

If you must let drawings or sketches leave, make sure that you are paid for the artistic elements of the design at shop rates and mark them as "confidential" and better yet include verbage that the "design and design elements contained on this drawing is property of XYZ Forge and must not be reproduced by any method".

In most cases they will now think twice about "shopping the plans." If they reproduce the drawings or the piece they can be prosecuted in court and in most cases you can prevail. (but the lawyers will always win )

I am sure that many of you can relate bad experiences where someone took your sketch or design concept and "shopped the plans" and someone else built it. They can always find someone who can do it for less if your work is priced appropriately.

Bottom Line: I am not suggesting that we should take advantage and overcharge. What I am suggesting is that we understand the market and charge market price. If we can move to the upper end of the market and increase our pricing that is great.

I have a story I like to tell of a friend of mine who had a business "detailing" used cars for dealers. He complained about being too busy and not making enough money. I told him "raise your prices" but he was scared to. Finally he listened to me and raised his prices. I asked him if he was still busy and how many customers he lost. He said lost a few and that he was still too busy, but making more money than previously. I said you did not raise your prices enough, you can't raise them again right away but next time you do remember, your experience and raise them until you have an appropriately decreased work load.

Trust my ramblings have not been too long....

Thanks for Listening.

[Mills]

Just a couple of years ago that would have sounded greedy and money grubbing. No longer. I have been faced with the same choices of make it myself, do without or buy at a price that allowed my production to increase and cover the cost of the widget. I realized after a time or two of struggling with the decision, it really came down to whether the tool would assist me not whether somebody was 'gouging' me. And I like quality tools.

That made it easier to apply what you have said to my pricing, will I deliver the quality and service that is justified by the price and vice versa? If I can then I am worth what they are willing to pay. Bargain hunters will roll on by, as I did, grumbling about how proud I am of my stuff. Conversly though When I am too cheap I loose some sales since 'I obviously don't have the quality necessary' .

Good post R Funk.

[philip in china]

I pick the brains of the smiths here mercilessly. I am a qualified accountant and accountancy graduate. If anybody needs a bit of help with business or pricing by all means PM me and I will see if I can help. I have plenty of spare time these days!

[steveh]

the hardest part for me is trying to figure out what i think will sell ,then how many can i make in an hour.i have a predetermined minimum rate per hour that i wont go below,so that gives me a starting point.if you can find something you love to do and make some money all the better.during the day i run my shoe repair business and i base my prices on a fixed hourly shop rate plus any materials.my goal is to repair shoes in the morning and blacksmith in the afternoon.im getting close to that,my shoe repair shop is on my property next to my blacksmith shop,im totally homebased.the wosrt part of it is the commute.