Running it like a business

[Travis Covington]

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 :mad:)

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.

[tzonoqua]

R Funk has hit it on the nail for me.

When I started out here, I began by thinking, how much time it takes + materials etc, to give me an end price. There are lots of good formulas out there to begin to try to value your time and costs etc. which is good to have an idea of what your hourly and daily rate should be. When I am pricing up things like say Hooks or simple candlesticks, and other work like gates and handrails etc, I tend to use this pricing structure, and compare with other Blacksmith's work, just to make sure that I am NOT the cheapest out there.

Then I went to see a specialist arts business advisor, who pointed out to me what he called ''Top down pricing'' rather than the former ''bottom up pricing''

As in - how much can you get away with charging for something, how much will the market bare. I do a lot of fine art sculpture, that just is impossible to price with a ''bottom up price''.

There is the old saying that if you have to ask how much it is you can't afford it in the first place. I LOVE the handful of my customers that walk in and just WANT this or that item I have sitting there, or sometimes before I have finished pieces they have already sold, as I give these people the full treatment, they get a tour of the workshop and cups of tea. Perhaps it is a bit mercinary, but they don't even ask for a price, they just get their chequebook out. It doesn't mean I rip them off- it just means I can actually charge what I want to for my skills and my 'artistic vision', and they are very happy to pay. I wish I had more customers like this as they are the ones who buy the fine art sculptures- which is the why I got into blacksmithing in the first place. In a perfect world I would only do this kind of work, but these customers don't come into the shop every day, or even every month sometimes, so the other stuff is filler in between! The only problem is that too often I find myself busy with the ''filler'' and having not enough time for the fine art stuff...

[jayco]

One of the problems of 'pricing', ( in my opinion, anyway), is that old traditional capitalism is largely a mechanical system.....based on numbers and measurements.
It doesn't take into account the 'beauty' of a hand forged element, but is rather good at breaking things down into pounds, gallons, inches, etc.

The original tenets of capitalism would hardly recognize much difference between a pound of 1/2 in. rebar and a beautiful handmade rose that weighed one pound.
Much of that kind of economic thinking is still with us.

I guess the larger question is: How do you put a price on Beauty?