How I calculate knife prices

[j.w.s.]

Some of you may know that along with making videos, teaching classes and making blades, I also blog on the daily occurrences at the forge. It's not terribly entertaining most of the time, but it's really therapeutic. lol Anyway, I wrote a post the other day I thought I'd share here that may be of some use for some others looking at selling their work. Keep in mind, I've been blacksmithing for almost 20 years as a hobby/part time job and doing this full time for about 6 years once I finally thought I had something worth while to sell. The following was written as I was making a san mai trail knife for a client.

The past two weeks I’ve been rather busy, working on getting our booth back up to shape for the opening weekend of the Pennsylvania Renaissance Faire, spending time with my kids, tidying up my demo area, getting it ready for a few new additions sometime in August, weeding, painting and all that other fun stuff. I also took another custom order and figured I should do it now, before the hustle and bustle influx of orders comes in from the opening weekends. While doing this order I was emailing the client frequently with updates and pictures as I typically do, but it got me thinking about what really goes into one of my knives and how I arrive at price. So here’s a little insight into my process:

• Steel: $12.50
• Brass: $3.00
• Wood: $6
• Abrasives: $16
• Adhesives: $2
• Miscellaneous Materials/ Consumables: $2
• Fuels (Propane and Coal): $6
• Leather: $10
• Total Materials Cost: $57.50

So there’s a rough estimated breakdown of my basic materials bill for this knife. I don’t keep complete track of everything used on each knife, but I’ve made more than my fair share over the years so I feel as though my estimating is just about on. So $57.50 was my total expense, basic retail wisdom would say take it to 300% and you’ve got the price – $172.50, close, but what about my hours?

• Making the billet: 1 hr
• Forging to shape: 0.5 hr
• Profiling and rough grind: 1 hr
• Heat treating: 5.5 hrs
• Initial sanding: 2 hrs
• Final polish and etching: 2 hrs
• Buffing and sharpening: 0.5 hr
• Assembly: 2 hrs
• Leather work: 1 hr

So that’s 15.5 hours. Now, just in case there was some doubt, I’m not located in Pakistan or China, so I can’t live off $0.20 an hour. I’ve been doing this 20 years, and the first few years I’d take a rough estimate of my materials and double the cost to arrive at my price, it was good for making my bones, but $3.70 an hour is not exactly a way to support a family, but for the first few years as you’re establishing yourself and your skills, it’s faire. As I wrote earlier, most retail markup is 300%, but that markup only comes to around $7.42 an hour; decent for a teenagers summer job or a weekend hobbyist, but again, not for supporting a family. $15 an hour would seem fair for a skilled artist hand making a unique one of a kind blade, but the truth is, I actually come in a little lower than that at $12. I’m not out to make a killing on my knives, I’m out to make a living. Sure, I could charge $15 an hour and sell this knife for $290, but instead I’m selling it for $244. Why? Well, I know my skills, I know where they’re going to improve. In the future my materials will go up, as will my cost for labor, in 15 years even $20 an hour probably wont cut it, that’s just inflation. As of this moment however, the way I look at it is that if I want to make more an hour then I need to become more efficient and better at what I do, or even make more than one knife at a time which I often do. When estimating, I can also use this to arrive at a general price for a custom piece, provided I’m using similar materials or nothing too exotic – to do this, I simply take the length of the piece and divide it by my price to arrive at $25.70 an inch and while not perfect, and probably more in the customers favor than my own, it’s a good way to arrive at a price when giving a quote to a customer.  There’s a lot of little variables that can come into play, but I hope this helps to understand a little more of what goes into making a custom knife and how I arrive at my prices.

Regarding the estimating using price per inch, I have a slightly lower price for monosteel blades and several other higher prices for damascus, depending on layer count / complexity of the pattern - I use these as a guide, but I've found once you've done a done a few with proficiency that this data can be used to calculate prices and that I have never taken a noticeable loss on a project - unless it was just from me slacking off.

I know some may look at the $12 an hour and say they can't live on that, but you also have to look at how many knives I'm making at a time. Normally I work on at least 2 to 3 knives at a time, but sometimes I've worked on half a dozen or more at a time. This morning I've got 15 knives on my workbench in various states, 3 in the heat treat oven and 5 more to forge before the day is done. Tomorrow I'll spend the day doing handle work and Wednesday I'll get to the finishing - it becomes rather "assembly line". Thursday I've got demonstrations all day for a camp, but in my downtime I'll be busy stitching sheaths and Friday will be more of the same. By the weekend I should have close to 60 knives on the counter for the opening of the Pennsylvania Renaissance Faire. By this time of year I don't have time to track hours, I'm normally cranking out 20 knives a week for the next 3 months, so the pricing by the inch helps me when I place something new on the counter.

-J

[Charles R. Stevens]

Interesting veiw into your world. I bet your acountant is about as happy with your price structer as is mine! Lol, no profit, no retirement, no insurance...

if he had his way I would be charging $100 to trim and $300 to shoe. I imagine yours would insist on you trippling your prices. Bean counterw have a rather loose grip on reality (no offence to any accountant/smiths here)

[JME1149]

That is a very thorough and insightful summary and contains a lot of good information for beginners to consider what the cost to produce actually is. I do have one question though. You're showing 5.5 hours for heat treating. To me, heat treat would be considered unmanned hours rather than fully billable. If you put the piece in the oven to bake for an hour, you are not going to stand there watching it heat up for the entire time. I would think the actual hands-on time where you are actively participating in the heat treat process would be significantly less than the 5.5 hrs, but you may need to factor in the cost of the gas/electric to run the furnaces as part of your overhead.

[Charles R. Stevens]

When you figure shop rates for other profetinals (machinests, welders etc.) run from $60-85 an hour your getting a steal. Even if you were only billed .5 for heat treat. At $12 an hour he is being genurus. 

I count 15.5 hours (10.5 if you discount heat treat) at my count $600-900 is the market rate for custome meatal work of this calaber. Will the market baire it? Pobbably not at that price would be sell the 1/5 the knives he dose now to make the same living?  

Edited July 27, 2015 by Charles R. Stevens

[j.w.s.]

Here's why I charge for heat treating time the way I do. Firstly, I do a thorough normalization process involving ramping down my temperatures each cycle. Second, I can't walk out of the shop when a piece is in the oven. Even then I ramp up temperatures based on steel composition, thickness and desired results for each cycle. The way I look at it, does your mechanic charge you for draining fluids or flushing a system? You bet. Sure he could walk away from an 'unmanned' chore and come back once the oil is drained, but that time is most definitely calculated into his price. I'm probably only charging for a portion of the time I actually spend. Lastly, I still have to pay the electricity to run the whole operation.

I look at the $12 an hour as part of my pay, really I'm working on 3 pieces at a time so it's more like $36 - but really, when it boils down, hourly is all based on perception and really only makes my wife happy because that's something she can understand. When I'm in the middle of my show season, I'm doing 20 a week. That's about 310 billed hours for those knives on average but somehow I'm doing it all in 60 hours. Yeah, my accountant just scratches his head. The biggest factor in all this is my family. They need to eat, live and thrive. Can that happen when I'm selling $1200 knives? Sure, but am I still moving the same amount? No way. I rather place my bets on selling 20+ knives a week at my current prices than hedging it all on 3 knives at inflated prices. I've got 33 weekends of shows that I depend on, and they happen over a 16 week period at 4 primary locations. Whatever I make outside of that time frame, teaching, knife shows, internet sales, etc is just nice to have. I also look at the market and I think there's a price point over which knives become less of a tool and more of a collectors piece. I make tools, I want them to be used as much as they're admired. When I retire I'll drop down to making a few dozen knives a year at much higher prices that collectors can swap and trade, but until then I want to make a great blade at an honest price and let that be the foundation for my reputation.

J

[Judson Yaggy]

You missed the time required to source/order/pick up your materials.  Also electricity, phone and internet, INSURANCE, etc.

 

Around here the local auto mechanic is in the $65/hour range, welding shops approach $90, machine shops (if you can find one that takes walk in business) well over $100.  I wouldn't (couldn't) even answer the phone for $12/hour.  Good for you for being able to make it work for that, but whatever you do don't get hurt or let a family member get sick, your cushion is probably quite thin.

Edited July 28, 2015 by Judson Yaggy

[SnailForge]

Yes, your price per hour is quite low. I calculates shop time as the time I am actually doing something, so I would not count the HT. But I would count a higher price per hour. My plumber is not working at 15$ per hour, nor is my electrician or anyone else who ever came by my house to do work. I see no reason why I should charge just 25% of what a plumber earns. And that is WITHOUT the cost of materials.

That knife is definitely worth more than what you asked for it, and if you have to live off of that, you probably have no cushion at all. Especially considering that that amount still needs to be taxed with VAT and income tax.

If, as you say, you can put 310 paid hours in 60 actual hours, then it means that your timekeeping is completely wrong, and your actual price per hour is much higher and the 12$ is just a nonsensical number and you are actually closer to 50 - 60$ per hour of actual labour, which is also where I am at. 

 

Edited July 28, 2015 by SnailForge

[Kette]

"it was good for making my bones, but $3.70 an hour is not exactly a way to support a family, but for the first few years as you’re establishing yourself and your skills, it’s fair."

"I make tools, I want them to be used as much as they're admired. When I retire I'll drop down to making a few dozen knives a year at much higher prices that collectors can swap and trade, but until then I want to make a great blade at an honest price and let that be the foundation for my reputation."

Thank you for sharing. Being a young guy that needs to build a reputation I agree with your pricing, but the trick is knowing WHEN to start charging more. I'm not very far into the business end but a teacher gave me some good advice on pricing that was something like "if you're selling everything, your prices aren't high enough", the goal here being to sell MOST of what you're offering, but not all, netting you a price that agrees with demand. (Mostly applies to trade shows and booths really)

For 20 years of experience you should be charging WAY MORE. I sell rough prototype pieces for $10 an hour to my friends and they think i'm giving stuff away! People who know a thing or two will understand what they're paying for, and those who don't won't appreciate the work you've put into the things anyways. It seems easy to forget just how rare of a skill set any kind of smithing is when you do it so often and for so long. $60-70 an hour for (efficient) work seems like an excessive amount of money to me, but in the real world seems to be pretty normal. 

[j.w.s.]

I was giving an example here for one type of blade, the San Mai steel I do in particular and giving the price per piece, but really I'm forging however many knives I can out of a particular billet all at the same time. My per knife hourly charge X the number of knives from that particular billet (normally three) = what I make per hour (sort of). If you really look down at my breakdown I actually make $19 (personally after materials and expenses are subtracted) for every inch of a knife I make. So a blade that's ten inches nets me $190 in pocket, I get on average 26 blade inches (1"x1.25" so not exact sq/in) per San Mai billet, or an average of $500 per. It's by all means not a perfect formula, but if I happen to make a blade that uses the entire billet I know how much I should charge for it as a base price. I know, it's confusing and not for everyone but it works for me.  and just because there's 20 years of experience here doesn't mean I was doing it well for that long, it took time for my skill to catch up with my knowledge. Lol

J

[Alan Evans]

I have difficulty understanding your calculation that you are only on 12 per hour if you charge an hour for each of the three knives you are working on in that time. That's 36 per hour not 12 surely?

After material consumable and overhead costs of 57.50 you are charging 186.5 (244-57.5) for the labour content on 20 knives that total 3,730. 

If 3,730 is generated in a period of 60 hours, that means you are charging 62.17 per hour or have I totally misunderstood your reasoning and figures?

Where does this figure of 12 come in?

Alan

 

[j.w.s.]

By dividing the number of knives I get from the billet but it's all fuzzy math now. Lol if I was sitting at my computer I'd try to make some sense of what I was saying (trust me, it really made sense at the time) but quite frankly I'm on my phone at the moment and it's been a very long brain draining week - which I am capping off with an ice cold beer before I put myself back in demonstrations mode for the weekend. 

J

[Alan Evans]

Ah right, it is the text description not the numbers then…12 dollars per blade per hour or 12 dollars per twenty minutes….hmmmm.

I still get that at just over twenty dollars per blade per hour…or twenty dollars per twenty minutes…Hmmmm!

Maybe it is the fact that you are still using the imperial system whereas we have had to go Metric over here, and that there is a different dialect meaning to "calculate" and "per hour" in US English as opposed to English English!

Of course you will be fine making knives for Bakers. They have an intriguingly non-numerate way of counting a dozen also….

Alan

 

Ah right, it is the text description not the numbers then…12 dollars per blade per hour or 12 dollars per twenty minutes….hmmmm.

I still get that at just over twenty dollars per blade per hour…or twenty dollars per twenty minutes…Hmmmm!

Maybe it is the fact that you are still using the imperial system whereas we have had to go Metric over here, and that there is a different dialect meaning to "calculate" and "per hour" in US English as opposed to English English!

Of course you will be fine making knives for Bakers. They have an intriguingly non-numerate way of counting a dozen also….

Alan

[ianinsa]

I believe that there is a technical term for the way you are calculating your hourly rate, its referred to as 'Voodoo economics '

[Frozenforge]

Sounds to me like you have your pricing structure right where you want it and its worked successfully for a long time, thats the ideal outcome for a small business!  

One thing we all have to remember is that only a small percentage of the people will appreciate the craftsmanship of a handmade piece enough to pay the increased cost. Other people just compare the price to the mass produced items which we can never compete with. 

[pike3e]

Your entire first post is misleading. Do you tell your customers you only work for 12 dollar per hour but are really at 65ish? I have no problem with any amount large or small that someone charges but either be honest or dont talk about it, dont waste our time with xxxxxxxx. 

This post is rude and pushing the limits on treating each other with respect and kindness.  Just because you do not understand a thing, does not mean its evil intent.  Why not ask, rather than accuse.

[Glenn]

I am sure he DOES NOT discuss his business with his customers. Walmart certainly does not, McDonalds does not, so why should he?

As to sharing his business costs with us on this site, we need to read the whole thread and use what is applicable to our business.

[Kette]

Sounds to me like you have your pricing structure right where you want it and its worked successfully for a long time, thats the ideal outcome for a small business!  

One thing we all have to remember is that only a small percentage of the people will appreciate the craftsmanship of a handmade piece enough to pay the increased cost. Other people just compare the price to the mass produced items which we can never compete with. 

Sounds rather bleak when you put it that way, but hey, paying the bills while doing something awesome is better than being rich and doing something boring (right?).