Taking a hobby to a business

[EtownAndrew]

Oh yes I forgot: about counting beans.

For every single thing I make, I fill in a little report card I made myself. On that, I note down the cost of material, cost of handle material, cost of consumables (belts etc). And also the number of minutes on each step: forging, rough grinding, finish grinding, polishing, making scales, etc. All of that goes into a spreadsheet that takes those numbers an tells me how much I've made, and how much I've made per hour.

This way I can identify the areas where I spend the most time, and optimize there. And it also allows me to make better estimates. After all, a fixed handle hammer finish razor is a lot faster to make than a suminagashi razor. But regardless of what I make, this way I can come up with a realistic price for each tpe of razor I make, after a couple of razors, so that I make the minimum amount per hour I have set for myself.

This is after all a business. No matter how much I like this, a business has to be run by the numbers.

I have set myself a minimum rate of  dollars per hour. I am sure that many people would think that with that rate, I am getting rich. But those people have not thought about paying VAT, paying social security on the profit, and then giving the final pound of flesh to the IRS. If you can't gross 250 - 300$ per day, you might as well quit, because after paying all thos things I've mentioned, what remains is a whole lot less.

That is great detail tracking! I've sold just two knives so far and I figure I made about $2.50 an hour on them. I may not have sold any more since then since I've raised my asking prices when anyone asks but I'm still probably not asking enough.

[Michael Cochran]

Closest thing to HVAC in my shop is an exhaust fan and a couple windows and a door lol. I will definitely be doing more research on the sub metering and I'm in the process of breaking ground for a new shop so I'll have some in depth conversations with my electrician friend. I also plan to find out what power actually costs here since I haven't actually figured it out yet. Thanks for your help, Rockstar, and Snail, thanks for bringing this topic up. Between the two of you i have a better idea for future planning for the direction I would like to take things.

Edited July 9, 2015 by M Cochran

[DSW]

Many people are often surprised how little tools actually cost to run.

I'm showing the average electric rate in Alabama as around 11 cents a KWH. If we use my big stick welder as an example, at rated output of about 200 amps, it draws 50 amp of 230v power. That means it uses 11.5 KW per hour ( amps x volts = watts). 11.5 kw at  11 cents a KWH breaks down to  $1.27 an hour roughly. That would be running my machine nonstop full bore which isn't practical. I doubt something like a 230v power hammer would draw even that much.

 

Just something to think about when you talk about using a lot of electricity.

 

[Frosty]

I've been repeatedly Forbidden from your first thread   so this is the Forbidden one's thread. <sigh>

Rockstar: I'm really happy to see you jumped in on this thread, I couldn't remember your handle earlier. Snailforge has pretty good plan and practices going already but having a pro in on the planning is a real bonus. This can also  be a model for others who want to go pro.

Good to see you contributing.

Frosty The Lucky.

Edited July 9, 2015 by Frosty

[Michael Cochran]

Many people are often surprised how little tools actually cost to run.

I'm showing the average electric rate in Alabama as around 11 cents a KWH. If we use my big stick welder as an example, at rated output of about 200 amps, it draws 50 amp of 230v power. That means it uses 11.5 KW per hour ( amps x volts = watts). 11.5 kw at  11 cents a KWH breaks down to  $1.27 an hour roughly. That would be running my machine nonstop full bore which isn't practical. I doubt something like a 230v power hammer would draw even that much.

 

Just something to think about when you talk about using a lot of electricity.

 

thanks for that heads up. I still have a little more to look into but it looks like I'm not spending near as much as I thought.

[SnailForge]

That is great detail tracking! I've sold just two knives so far and I figure I made about $2.50 an hour on them. I may not have sold any more since then since I've raised my asking prices when anyone asks but I'm still probably not asking enough.

Probably not. I don't know if you are registered as a business or not, or whether this is required for you or not. If it is, then you're not even making 2.5$ per hour.

Now, that said, when you are still in a the learning and experimenting phase, it is normal to work at cost or just slightly above. The reason is you have no reputation yet, still need a lot of time, and still need to scrap a project now and then. My first razors all went at cost, at very low prices. In fact, I sold all of my early work unfinished, meaning they were heat treated and ground till final shape, but not polished or fitted with scales. This way I could do more of the difficult and fun work in the same amount of time. And since enough people were interested in a custom razor without paying full price, I sold them all.

I guess this is what you'd call a kit knife in the knife world.

The price per hour only becomes important when you have your process down and are selling things as part of a normal routine. Experiments and learning projects can be done at cost. Track your times, and see where you can optimize.

 

Also, people tend to focus too much on the cost of equipment, and decide to make things themselves. My first grinder cost me 2000$. Many people make their own no weld grinders, and pay about 800$ in materials, so they go that route.

I am lucky enough that my wife told me to just buy my first grinder (because I don't spend money on anything else) and since then I've noticed that it is often more profitable to buy quality equipment and make and sell a couple of knives / razors in the time I would otherwise have spent building said equipment.

 

Many people are often surprised how little tools actually cost to run.

Electricity for the lighting, the welding, the tempering oven, the power drill, the grinders.

Charcoal for forging

Sanding paper for polishing

Grinding belts for grinding

Discs for an angle grinder.

Flux

Acid

etc....

It is important to keep track of those, especially if you are running on low profit margins.

[Frosty]

Gotta admit a dungeon lit by a charcoal forge, fumes and vapors wafting and thunderous hammering by a . . . Snail? Oh no wait, a teddy bear. Okay, a Teddy Bear fits a dungeon setting better unless we're talking Alice in Wonderland scenes. . .

Oh yeah, very Indiana Jonesish. Cool.

Frosty The Lucky.

[SnailForge]

Well, my charcoal fire is in the garden where I built a semi-open smithy. The basement is where my grinders, drill press, bandsaw, etc all are.

Forging in a place without ventilation didn't seem like a good idea.

[Frosty]

Well, my charcoal fire is in the garden where I built a semi-open smithy. The basement is where my grinders, drill press, bandsaw, etc all are.

Forging in a place without ventilation didn't seem like a good idea.

Ah, a torture chamber then.

No it isn't unless maybe you have an induction forge and don't oil quench.

Frosty The Lucky.

[rockstar.esq]

Frosty,  Thanks for the kind words.

DSW, You're absolutely right about electrical costs for machinery in a small shop.

SnailForge, A lot of folks get fixated on pricing things based on what it cost them to do.  This mindset often leads to ever-increasing prices because it's all about "looking for stuff to add".  

Flip the problem around.  Define what is the "going rate" for the kind of stuff you're making.  Use that as your budget and figure out how you can do it for less.  Some things become much cheaper in bulk, with better tooling, or with a portion of the work subcontracted.  If you can figure out how to deliver market value at less than market cost, you will find buyers more readily.

Building stuff at a loss to develop a reputation for quality is a long game that requires funding to sustain.  

There's nothing wrong with delivering outstanding value on cheap/simple items to build your way up profitably. 

 

 

[ThomasPowers]

And don't forget: as soon as you pay off a tool you probably want to be saving for it's replacement! (if not earlier!)

[SnailForge]

Rockstar, what you are saying is not wrong. It is how I got started, when I still had to develop a number of skills and my work was basic.

However, a couple of thoughts. I have a good reputation and deliver quality work. I produce items for a luxury market, and I charge more or less market rates for my work. Slightly less actually, but I need a couple more years before my reputation is up there with the big names. I already make as much razors as I have the time to make, at the prices I charge for shop time. I don't see a reason why I should price my razors at lower prices when I am already constrained by how much razors I can make.

I work the opposite way to what you describe. Market prices more or less determine my prices. I don't look for stuff to add, I look for ways to be more efficient at making things so that the amount of time needed decreases. The end result of that is a higher price per hour for the same razor at the same price. For typical work, market rates now satisfy my shop time rates.

What you describe is indeed how I started initially when I first sold the fruits of my hobby. I've done that a couple of years; working my way into the market from the bottom. But that is not the point where starting a business is healthy because the overhead will kill you. Once you have established a reputation, you should be able to get market prices or better, and keep an eye on the bottom line. Especially for the things you make routinely.

I still take on projects where I don't make my shop rates, if the work is interesting enough or when it can be used to increase my portfolio

Edited July 28, 2015 by SnailForge

[rockstar.esq]

SnailForge,

When I suggested "working backwards" from the market price, my intention was to induce the budget for everything that goes into that.  The tighter the budget, the more room there is for profit.  If a part sells for $100, figuring out how to make it for $50 gives greater room for profit. That sounds like what you're describing.

I brought it up because "what does stuff cost" is typically answered by running up the tab of everything that goes into procurement, storage, production, shipping, labor, etc.  When you're new at all of this, the tendency is to miss stuff until it hurts, then add for stuff until it doesn't sell.

Estimating for competitive markets is a two part problem because once the individual has sorted out their prices, they must compare against market prices.  Market prices can be as brutal as they are nuanced.  Selling the same value per dollar to one set of buyers versus another can make a profound difference.

I advocate starting with the end of the process selling stuff in a competitive market because accounting is adding up what happened,  estimating is about planning for the future.  To that end, it's far superior to be picking a target cost and figuring out how you'll hit it.

The market price provides a budget answer which bounds your options as you consider different ways of getting things done.  We generally have a good sense of how much we'd like to make per hour, and  we have some notion of how long it's going to take.  Deducting the roughly calculated labor costs leaves you with a substantially reduced budget.  Lower budget, fewer options, less confusion, less chance for error.

If you're selling all your razors profitably, but you're limited by how many you can produce, you've limited how much you can make on them unless you change something.  Figuring out how to make things faster and cheaper will improve your bottom line.  Most businesses assume that fat margins are the answer to everything.  Products at excellent value rarely struggles to find a buyer.  Steady buyers solve a LOT of problems for a business. So the savvy business follows their clients lead.

 

 

 

 

 

 

 

[tormentchris17]

Thanks a million for the awesome thread. I've been smithing for over 5 years as a hobbyist. I have been a roofer for 25 years. At 40yrs old I'm done roofing, or at least trying to be. I'm sure I'll always do small roofing repairs on the side for extra $$. Currently I'm taking a "start a small business" class. It's a 6 week class. I'm also taking a beginning, intermediate and advanced blacksmithing class to refine my skill set and learn stuff that I don't know from a veteran smith. These classes are 12 weeks. All 3 hours per class. 

Anyway, enough about where I'm at. This is where I'm going with this.

I am in the start up phase of opening up a Blacksmith shop for the public to view and purchase items here in Longmont, CO. There are several shops in the region but none for the public to be able to view. I've done some research and know this isn't something a guy can do alone due to public interest and conversation. That's something I'll have to figure out. I'm NOT going to just find a building and go for it. I have alot of legal stuff and insurance stuff to get in line before hand. My plan is to start out as a semi- pro/ hobbyist first in my private shop. I plan to start targeting customers, finding my niche and figuring out my production expenses. Not to mention several other things that are required. It's going to be a minute before things really get rolling. But I got to start somewhere.

So right now I'm doing research and networking to get as much advice as possible from other smiths that have been successful in taking our craft to the next level.

Any help, advice or criticism is welcome. 

 

Thanks a ton in advance, Chris Freeman, Mad Hammer Forge

 

[Frosty]

Without pretending professional experience I can say a couple hopefully not irrelevant things. To open to the public, what do you have in mind. A storefront/showroom? OR are you thinking of opening the shop?

The first probably means an employee or working two schedules: sales and production.

The second is a HUGE kettle of worms if you're allowing the public to enter your production area. No number, color or volume of warning signs will: keep people from messing with things, Or mitigate your legal liability when they do.

It's been probably 25-30 years since I visited a blacksmith shop, showroom in the Tacoma I think area. Their solution was a sales staff in a separate sales room. The production area was in a section of the old factory building with separate access viewable through thick Lexan windows. And that was more of a demonstration area rather than production section.

The couple times I've visited successful blacksmith shops and was allowed into the work area, all work stopped and the owner stuck to me like glue and remained nervous the whole time.

Frosty The Lucky.

[Michael Cochran]

The couple times I've visited successful blacksmith shops and was allowed into the work area, all work stopped and the owner stuck to me like glue and remained nervous the whole time.

Frosty The Lucky.

I think the owner feared you were gonna steal trade secrets and open you own shop stealin his customers 

[DSW]

Hmmm considering Frosty's history, one might even wonder if there wasn't something going on behind that Birch attack. Maybe it was hired to try and get Frosty out of the way and silence the competition. You know sort of like an Alaskan Mob hit..

[Frosty]

I think the owner feared you were gonna steal trade secrets and open you own shop stealin his customers 

That was indeed the case on one visit. Like I couldn't look at a piece in his show case and make one? Sure it'd probably have taken me a few to get up to speed but you only have to look at a finished product to devise a way to make one like it.

I never challenge someone in their own shop I even keep my ideas to myself unless asked. I only want to look around maybe talk, not get in the way.

Frosty The Lucky.

[SReynolds]

I use a little different approach for hobby to business.  Teaching the skill.

If you make stuff and travel about to shows etc to advertise and sell; that is too much work.

If you have an established shop (or maybe not) invite folks to take classes. You only sell your time. You don't have to make stuff and attempt to sell it.

I dont have a shop. But what I did was learn the trade myself by volunteering to operate a shop owned by the state. I took over operations in a matter of months. Then soon began advertising the classes through a state publication and website. 

I have more work than I can pull down. I dont want to do it all the time so I limit the students to four and twice (maybe three) times a month. 

Find a shop owned by the state/county etc. Volunteer.  Offer classes. Make money with out being insulted by folks who offer you fifty dollars for a fire poker set.

[SnailForge]

On ‎8‎/‎10‎/‎2015‎ ‎8‎:‎05‎:‎44‎, rockstar.esq said:

I advocate starting with the end of the process selling stuff in a competitive market because accounting is adding up what happened,  estimating is about planning for the future.  To that end, it's far superior to be picking a target cost and figuring out how you'll hit it.

The market price provides a budget answer which bounds your options as you consider different ways of getting things done.  We generally have a good sense of how much we'd like to make per hour, and  we have some notion of how long it's going to take.  Deducting the roughly calculated labor costs leaves you with a substantially reduced budget.  Lower budget, fewer options, less confusion, less chance for error.

If you're selling all your razors profitably, but you're limited by how many you can produce, you've limited how much you can make on them unless you change something.  Figuring out how to make things faster and cheaper will improve your bottom line.  Most businesses assume that fat margins are the answer to everything.  Products at excellent value rarely struggles to find a buyer.  Steady buyers solve a LOT of problems for a business. So the savvy business follows their clients lead.

 

That is a good approach if you are interested in making many of the same thing, or if you need to make sales. However, I seek projects based around what I would like to make, or follow up on design ideas. The first one is usually the most interesting. I sometimes make more than one of the same if requested, in which case that person will pay for my shop time. Some people make a business of selling cost effective razors. Some of them even succeed. Good for them.

But me, I just prefer to chase design ideas, work with interesting types of steel, and have fun while charging prices that approach 4 figures. I sell everything I make and usually it is gone very quickly, so this approach is working for me.

If I wanted to go cost effective, I would need to focus on tool teel, and squeezing every minute from my process. I'd much rather work with Damascus, Wootz and tamahagane to name a few. Once you go into that territory, collectors and aficionados are who you are marketing at, and they could generally care less about cost. they want something unique. They want sizzle with their steak. Not just nutritional value.

[SnailForge]

I admit though, that I am in the comfortable situation that I don't need income. I make good money from my razors, and I just spend it all again on equipment and more steel. I have the luxury that I can take my time and the luck that people like my designs. In fact, several friends of mine are professional high end knife makers, and many of them have stopped taking orders altogether. They make the things they want to make and then just sell them. Occasionally they do take orders, and then the client pays a mint.