Running it like a business

[Glenn]

What do you do to keep your cost affordable? How do you run your smithy in order to keep costs under control?

Take your next project, what ever is next in line, and track every item that is used in making that project.

1. Time on the computer finding the idea for the project you want to build, (30 minutes),
2. Design time figuring out how you want to build it (the sketch etc), the materials needed, etc (60 minutes at least)
3. The trip to town to get the materials ($0.50 a mile)
4. The cost of the materials
5. The time on the road and the time to unload the truck and put the materials in the shop.

Now comes the actual labor part.
7. The time you worked on the project, from when you opened the door to the shop until you closed the door of the shop (lights on to lights off). This may be several days so keep count.
8. The cost of the consumables you used, welding rod, sand paper, grinding wheels, abrasive belts, all the consumables. Estimate the cost of each item and write it down. (welding rod at $2/pound so $2, grinding wheel $1 each, etc.) Use the cost total replacement cost of that one item, and yes I know you did not use all of the abrasive wheel but still count it as if you did.
9. The trip back to town to get something you need or forgot, the cost of the item, the time and the mileage.
10. What ever you used to finish the project, paint, wax, oils, etc and the cost of the rag or brush you used to apply the finish. For our purposes, purchase the roll of paper towels, box of rags, etc. and use that cost.
11. Now that we have the project finished, add the cost of packaging, shipping, and the time involved in getting it ready to ship (lights on to lights off). Add the cost of the roll of sealing tape, the cost of the box, the cost of the foam peanuts, etc.
12. Add the cost of the trip to town to mail or send the package out, mileage at $0.50 per mile and your time. (No you can not count the time you have to wait till you receive the check in the mail)

Minimum wage is about $6.00 per hour so multiply your total time by 6.

Now all up all the numbers. Calculate the mileage cost, miles times $0.50 per mile. Calculate the total time, drive time and actual shop time, times $6 per hour. Total up all coats on the project. Your total for this project is ? (enter your total here)

Sit down for this one, the total you just calculated is the COST of the project. You have not paid rent on the building, the electric bill, the phone bill, the computer internet bill and a whole bunch of other bills that you will receive in 30 days. This does not include the cost of the tools, replacements for anything broken etc. That cost will have to be added in also.

What do you mean "You can not charge that much for that item, or people will not pay that much". Sit down again as that is YOUR COST, you are not making any money, just paying costs, and not even breaking even as most likely we have overlooked something in the process. IF you only charge the amount calculated, you are taking money out of your wallet and giving it to the fellow buying the item.

Now that we know the true cost of that one item (project) we come back to the original question.


What can we do to keep your cost affordable.
How do you run your smithy in order to keep costs under control?

.

[Glenn]

Eliminate waste
Design or redesign projects to use multiples of the total length of the stock size.
For instance 20 feet of steel can be cut to
5 feet (4 pieces)
4 feet (5 pieces)
40 inches (6 pieces)
30 inches (8 pieces)
24 inches (10 pieces)
20 inches (12 pieces)
16 inches (15 pieces)
12 inches (20 pieces) etc.

When you cut multiples, there is no waste. This has the advantage that if you need a 12 inch piece you can use a 24 inch cut, or a 4 foot cut and still have no waste.

If you need a 16inch piece, cut a 4 footer and get 3 each 16's.
If you need a 15 inch piece, cut a 30 and get 2 each 15's.
If you need a 8 inch piece, cut a 16 and get 2 each 8's.
If you need a 36 inch piece, cut a 5 foot piece and get a 36 and a 24

Combinations of cuts should cover most lengths you need, with zero waste.


Make life easier
Clean off the work table so there IS a place to work. Put the tools back where they belong. Build storage racks for hammers, tongs, etc, build a point of use holding table for tools or whatever that gets in the way on the work table. Turn on some music, the kind of music you enjoy.

[Blacksmith Jim]

Making several versions of the item you are making seems to make sense to me. If you make 5 or 10 or 20 at the same time it seems like it would not take up as much time then if you just make 1 every once in a while.

[HWooldridge]

That depends on a few factors. A lot of this work is done by hand so it is not necessarily faster or more efficient to do multiples. However, any jig or assembly device that takes a while to setup might be helped by running more parts across it in a single run. Much depends on the part process.

For example, the per unit cycle time for me to produce J-hooks is no different to make 10 or 100 but it is more efficient to tumble 100 than 10 because the tumbler uses the same amount of electricity no matter how much material is in it.

[J W Bennett]

I have kept real good records for the last 2 years on every aspect of my shop. From supplies and consumables to Hours/Mileage. I keep track of how long it takes to make the first of something and the time to make the jig to make multiples. I include Books, Magazines, dues and donations. I keep track of freebies I give out and experiments that didn't turn out.
Last year I went in the hole but not real bad. But last year I kept track just to see if it was worth trying to run it as a business. I did not actually have an established legal Business. I am alot better at forging than running a business but I Have bought or upgraded equipment and tools this year and have kept the shop and personal finances seperate. Am I making a killing.... No but I have managed to break even this year although If I actually drew a wage it would be minimum wage.
With the cost of living continually going up I worry about next year. People just don't have money to play with. I pay cash for everything and if I can't buy it with what I have in the business account I don't get it. I do without on a regular basis.
I buy quality tools so I only have to buy once and I try to get the best price I can. I try to combine supply trips so I save gas. I don't pass up free steel but I also keep in mind that if I waste alot of time turning it into usable steel then I am better off buying new steel. Coal is cheaper than propane however I can do production work more effeciently with propane. I shop around for the best price on propane and steel. Coal I have a good local source and shopping around really isn't an option.

Sorry to ramble, just sharing some thoughts,

John

[tbrforge]

I pulled down a spread sheet from SCORE a non profit of retired businessmen how mentor start ups. This spread sheet tracks cost of doing business. Similar to quote sheets from my days in industry. I have fixed prices for all my consumables on a sliding comparison with volume of production. Process sheets for all projects typically starting out in the sketch book progressing to full scale drawing, then cut list. There is no way that I can charge what every project costs, but some I make out real well and some I break even. No losses yet. On the other hand, I can work through the night and sleep late if I feel inclined, I can stop for a coffee break with my wife, I can bend down and play with my dogs and cats when I want, No one tells me I am not "doing it the way they want it done in their shop". All in all, these intangibles seem to balance out the situation for me.

[J W Bennett]

I went to SCORE to help set up my business. My mentop is a former plant manager with a degree in metallurgy and fabrication back ground. He helped me get off on the right foot.
I would recommend them to anyone thinking about starting a small business.

John

[ThomasPowers]

I don't need another business. Business is *work*; Blacksmithing is my hobby. I get to spend US$20 a week on it and any other "fun". So I generally spend time hunting down cheap stuff; bought a used farrier file for a rasptlesnake at the fleamarket today for less than 1/2 the going rate! I use a lot of scrap metal.

My main expense is fuel and teaching a 1 day intro to smithing class at the local Community College filled my propane tank for the winter!

[oakwoodforge]

I gotta work a 40 hr week to support my blacksmithing habit. The way I figure it if I sell a knife & sheath for $250.00 I'm making about $0.025 per hour ...

Jens

[dief]

I never really consider the cost of materials. I first figure out what the project is worth to the client. Then I figure out if it is worth my time to do it. All my work is custom mostly functional but artistic. Once you enter the realm of art the cost of time and materials becomes a fraction of the job. That is why I can take a piece of steel that cost me $1.50 and sell it for $175 as a candlestick or a door pull. $60 of stock turns into a $1200 railing. I'm not a machine so I don't try to compete or price my time as a machine (pieces per hour, etc).

I started blacksmithing as a hobby and turned it into a part-time business. I have two other businesses that involve my other passion of climbing. For me success is when play and work become one.

[Ferrous Beuler]

Eliminate waste
Design or redesign projects to use multiples of the total length of the stock size.
For instance 20 feet of steel can be cut to
5 feet (4 pieces)
4 feet (5 pieces)
40 inches (6 pieces)
30 inches (8 pieces)
24 inches (10 pieces)
20 inches (12 pieces)
16 inches (15 pieces)
12 inches (20 pieces) etc.

When you cut multiples, there is no waste. This has the advantage that if you need a 12 inch piece you can use a 24 inch cut, or a 4 foot cut and still have no waste.


Make life easier
Clean off the work table so there IS a place to work. Put the tools back where they belong. Build storage racks for hammers, tongs, etc, build a point of use holding table for tools or whatever that gets in the way on the work table. Turn on some music, the kind of music you enjoy.

Glenn is THE MAN, doing a great job always in bringing all of us this great site. (FOR FREE!) In this quote I believe I will bring... a couple of quotes... from Benjamin Franklin (good advice is timeless).
1.) "The smallest of leaks, left untended will sink the mightiest of ships"
2.) "Look after the pennies and the dollars will look after themselves"
:)Dan.

[the_sandy_creek_forge]

I know I'm gonna catch all manner of stuffin for this but....

My general labor charge is $20 per hour. That is $20 worth of me working on a weekend, doing something that I ENJOY doing. If it needed to be done two weeks ago, and the person is calling me today (rush job) the price just went up to at least $45 per hour. Why? because I am gonna have to cut my overtime at my day job AND pay for a babysitter so I can work weeknights to get the project done ASAP. The base $20 plus what I make working overtime, plus the babysitter all adds up to at least $45. I know that $20 seems kinda cheap, but again, it is something I ENJOY doing. If it ever got to the point that I was doing this full time, I'd have to charge more, but right now it's a full-time hobby that helps pay for itself every once in a while.

With the railing project I am gearing up on right now (the materials just arrived today in fact) the client originally needed it done as a rush job. I was very up front about the situation of a rush job, and,when I explained my shop practice to said client, they quickly saw that, while it would be nice to have the railing in so they could finish remodeling the living room, they could probably live with the old railing for a month or two and work on the kitchen while I worked on the railing during the weekends. I get the job, make money, come out ahead, and the client gets their railing at a very reasonable price. Everybody's happy.

I also have various "set prices" for various things. Example: I know what a headache it can be to make something with all joints being riveted/tenoned and riveted, especially when it's an object that's hard to support while riveting. Therefore I charge a set price PER riveted joint.

As far as running it as a business: If you bid on a project with a deadline, make sure you hit that deadline. I've passed on things because there was a deadline that I knew might be difficult for me to make. I'd rather pass on a project than end up with the bad publicity for not hitting a deadline.

Multiples/ production work: While I wish that I could make every single piece as an individual piece, somethings really are more practical to make as a production run. Example: Steel roses. I've found that for me to mark out, cut out, drill out, texture, join, shape, and finish a single rose takes me somewhere in the realm of 1.25-1.5 hours. If I get enough materials to do a half dozen at a time, and do everything as a production run, I can cut it down to about 50 minutes per. AND I can get the same price whether the rose was a one off or part of a production run.

Sorry if that got to rambling too much.

-Aaron @ the SCF

[rthibeau]

dief has a valid point insofar as material is a fraction of the cost to do a project. His first example is close to my own calculation that material is about 10% of the project (YMMV) so if you can say there is $100 of steel involved, the charge should be in the $1,000 range; HOWEVER, some projects will require a lot more time than others to use that same amount of material dollar wise. So time is an important consideration in pricing. If you go into the artistic part of the calculation, then, in essence, you are looking at what vehicle did the client drive up in. A Rolls driver will pay a lot more than a VW driver. That is simply a fact of life. Every single blacksmith has a different set of circumstances and expectations to deal with. One size Will Not fit all. The simple version is that you must charge (and receive) more than you spend to complete something....how you arrive at that number is arbitrary to the extent of how well you wish to live off your blacksmithing efforts. A "hobbyist" has a lot of leeway...it's personal preference. A "professional", one whose sole livelihood is blacksmithing, and whose children won't eat if he don't make profits, has none of that leeway......a dollar here and there is the difference between feeding and clothing the children. So, one has to take into consideration at which level they are going to work in. If you wish to "make a living at blacksmithing" add every minor detail plus 25% into the calculation to survive. Some work you can take and some you can't do to pay the bills..it will not pay...you have to say No and walk away...You are not in this to give charity...you are in this to provide for your family and get paid justly for your efforts. It is not easy, but self-employment is not easy. The rewards can be great. Don't forget that you have to cover the cost of Materials, Time, Overhead, Intangibles, and end up with more Cash in your pocket than you started with.

Any questions, feel free to ask, consultations to blacksmiths is Free.

[rthibeau]

Dang (love that word) should have added that I have a degree in Accounting and Business Management, I do consulting for small business professionally, I am a blacksmith and do break even or better, and am willing to help anyone on IFI wanting to do better with the details of getting ahead of the power curve in this line of endeavor. PM or email.

[Daryl]

Quite simlar to Sandy Creek. Though I charge $27/hour for my time at the forge (I will explain later), I also charge a separate fee for design. Once my design is finished, the customer can not take it with them until they pay for the design - this way, if they choose to have someone else make it, I am not out money. I am very good at design and layout (and proud of it, too), and several of my designs have been done by a mass-production shop (with much of the details, rivets, collars and finials eliminated); one of my designs never has been done - the customer had the large sheet with the overall design framed and matted.
I charge that much for my time for several reasons: I am paid quite handsomely at my regular work (despite spending almost 40+ hours a week smithing too), I also like spending some time with my family, AND I will not cheapen my work just to sell it for less than the smith who IS full time and can't afford to have another guy undercut him just to make a sale. If a customer truly appreciates the handwork of smith, paying an honest price isn't a great concern.

[drogo]

My general rule is:
Time + Materials x 2 = Wholesale
Wholesale x 2 = Retail

There are certain things that vary. Sometimes the equasion is multiplied by 3 or higher. sometimes only by one. I do manly production work so I always make things in bunches.

The reason the prices vary is simple but wierd. I have found that if you raise the price rather that lower it the item sells better. It tends to work like that accross the board.

Drogo

[fat pete]

drago I have been told that alot about raising the price

[tbrforge]

one of the things from quoting in sheetmetal and heavy fab for years that popped into my head

when you get the job you quoted to low
if you didn't get the job you were to high
and if you get the job, its up to you to do it "profitably"(which is in the eye of the beholder)

[mtforge]

My shop rate is a little different. I make at least $25 an hour for wholesale and $50 an hour for retail. The retail is to cover the expense of going to an event and such. Most of my business is geared toward reenacting. I have maybe 10% custom work. Half of the work at a show and a little back at the shop. The rest are items I want to make. Part of the challenge is to come up with a procedure to make an item within my rate. I record stock needed and steps to make it (even pictures of setups). If I need to adjust the item later I can without guessing.

[Alan B]

I recently took on a rather unique job for a real estate company. I made an old fashion sign post with their sign on it. I kept close track of the hours, material and all other expenses. This is how it all broke down.

hours=27 ( this includes any help I recruited )
material= $183.00
Travel @ $.50 per mile= $62.00 ( 124 miles )

The job was bid at $950.00. When they went to pay me they had taken up donations, this was a gift for their boss, they had actually collected $1350.00. I wound up with a $400 tip.

Pictures are posted in the gallery.

[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.

[Travis Covington]

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. © IForgeIron 2007, Used with permission
And a notation that if others would like to use the material, contact IForgeIron.