Review of Don Meador's "Pricing Your Work"

[JHCC]

In an article in the Fall 2005 Hammer's Blow, Don Meador of the Blacksmith Association of Missouri lays out his method for pricing his work. Here is an overview of that method, along with some observations of my own.

Meador asserts that the price of an item can be broken into two parts: the value of materials, and the value of the smith's time. He includes within the value of materials both the cost of the metal itself and the cost of the fuel needed to shape it. While the latter can be difficult to calculate for each individual item or process, he argues that one can reach a reasonable approximation by simply assuming that the greater the volume of metal, the greater the amount of fuel needed to forge it. The forging process itself also adds value. Therefore, to get from the cost of the metal alone to the total material value, Meador multiplies the cost per inch of the metal (including any cutting and/or delivery charges) by a factor of 3.

Meador's method for calculating the value of the smith's time is quite interesting, and is based on the amount of time it takes to execute the individual forged elements. One element is assigned a unit value, and other elements are assigned fractions of that unit based on how much time they take to execute compared to that unit. In the example he gives, Meador uses a forged leaf as his basic unit (value of 1.0) and from that calculates that a small tapered end is 0.3 units per element; a tip curl is 0.1 units; small, medium, and large curls are 0.2, 0.3, and 0.4 units respectively; twists are 0.2 units per inch; and flattened and split sections are 1.5 units per inch. Having then determined that the value for the time it takes him to make a leaf is $1.50, he can then calculate the total value of a forged item from the values of its elements.

Meador gives two examples of using this pricing system. The first is an S-hook made from 10" of 1/4" square stock, with both ends tapered and given a medium hook and a tip curl, and with a 3" twisted section in the middle. He assumes that the cost of 1/4" square stock is $0.06/inch (remember, this was in 2005!) multiplied by his fuel-cost-and-smithing-value-added factor of 3, so the material value comes to $1.80 (10" x $0.06 x 3). Tapering the ends is 0.6 (2 x 0.3) time units, curling the tips is 0.2 units (2 x 0.1), making the medium curls for the hooks is 0.6 units (2 x 0.3), and the three inches of twist is 0.6 units (3 x 0.2), for a total of 2 time units. With the value of each time unit being $1.50, that brings his time value to $3. $1.80 material value + $3 time value = $4.80 total value, which he rounds up to $5.

The second example is a roasting fork made from 28 inches of 3/8" round stock, which he assumes to cost $0.064/inch. Four inches of the fork end are flattened and split, and the other end is tapered and given a tip curl and a small curl. Using his method, 28" x 3 x $0.064 = $5.38 material value. The time value calculates to 6.6 units (0.3 for the taper + 0.1 for the tip curl + 0.2 for the small curl + 6 for the flattened & split section (4" @ 1.5 units/inch) x $1.50/unit = $9.90. $5.38 + $9.90 = $15.28 total value, which he rounds down to $15.

One very interesting aspect of this system is that it creates a great deal of consistency across one's product line. Meador observes:

Quote

Once you have decided on the factors to use, all your other prices will be relative to each other and reasonably priced with respect to each other. I don't think the price of an item is as important as the price related to the other items in your inventory, and this method allows you to do exactly that. In addition, as you develop new items for your inventory, you can confidently come up with a reasonable price. You can also easily adjust your prices for all items in your inventory as the price of coal and metal change.

The article contains a number of other thoughts about how to arrive at the material value factor, how Meador sometimes increases the price on something that he's willing to sell but really wants to keep, and the like. There is also an excellent observation based on his experience selling at craft fairs:

Quote

After you have set your price, be very reluctant to change it and especially reluctant to reduce the price. You don't want to have the unpleasant experience of explaining to a customer that bought in the morning why the item cost $5.00 less in the afternoon after this guy has been lugging your wares around advertising for you all day. You also don't want to have a 10% off after 5:00pm. When you get a reputation for reducing your price towards the end of the day, you may find no one will buy from you because they are waiting for 5:00pm and they may very well be too tired to return to your location at the end of the day to get the 10% off price.

This brings me to my main reservation about this method. Meador describes himself as a hobbyist who decided to sell his inventory at the local farmer's market, and his method is clearly based on his own craft fair experiences. It's not clear to me how well this would work for custom pieces, especially for those whose elements do not fall neatly into a time-unit framework such as he describes.  Furthermore, this system as presented does not take into account the incremental costs of rent or mortgage payments, utilities, insurance, and such like overhead. To quote Jennifer/jlpservicesinc from another conversation on this subject, "It's amazing how expensive it really is, when you start to account for everything related to doing business." 

That said, one could presumably calculate how to account for all those additional expenses within the material-value factor or even to include them as a separate factor within the overall calculation. I could also see how breaking down a custom job into its component parts and having a pricing matrix for those elements could help make one's custom price both more consistent and more realistic, especially if one were to include an additional factor for the job's custom nature itself.

In short, Meador's pricing method as written seems well suited to smiths making production inventory for craft shows and similar retail sales, and it may well have potential for expansion to price larger jobs and custom work as well. It's certainly an interesting starting point for any smith thinking about how best to go about pricing their own work.

 

Meador, Don. "Pricing Your Work." Hammer's Blow, Fall 2005, pp 17-18. Hammer's Blow magazine is published quarterly by the Artist-Blacksmiths' Association of North America (ABANA).

[anvil]

Pretty interesting. 

im pretty similar to this, but I dont have the patience to go by the inch. I go by the detail as a stand alone object. I know how much time it takes to make a tenon, drill a hole, drift a hole, do a picket with two tenons etc. For a twist, I know how long it takes to do a full twist on say 8" or less at the same heat. I know that a one off twist costs more time than doing multiples. It takes about the same amount of time to heat up one 8" piece as it does say 6 pieces of half square in my fire at one time. Too few irons in the fire is as bad as too many. Now its simple math. x amount of tenons, tapers, whatever multiplied by time for each. 

To answer the rest, this is only the base line costs. I know how much materials are and the time to completion. Now I put on my businessmans hat and add in all the rest. Now I have a complete bid. This works for anything from "S" hooks to railings. 

So this man and I are basically working on two variations on the same theme.

Heres some advice for those who do crafts fairs and flea markets. Flea markets items are usually sold cheaper than crafts fairs. So dont sell the same product for less at a flea market for the reasons above. At least label them as seconds. 

[rockstar.esq]

There are a few pitfalls in this methodology.

Simple stuff like taxes, licenses, and fees. can dramatically affect the cost of doing "the same" business in one location versus another.  

While I can appreciate the desire to simplify things, it's really important to know what is getting simplified, and how that will affect the answer you get by taking that shortcut.  

JHCC pointed out that overhead costs could be factored into the material cost in this methodology to render a more complete answer.  This is technically true, however it would only be possible for each individual case, for a single point in time.  Overhead is driven by time, not material parameters, nor percentages of sales, nor hours worked.  There's another wrinkle here, that is somewhat hidden for most businesses.  Sales are seldom constant or consistent. That means that there will be stretches of time where overhead costs are adding up, with no income to pay them down.  

If there are relatively few sales per year, those sales will have to pay a greater share of the annual overhead.  Seasonal businesses need to pay down the entire years worth of overhead within the period of time they're open.  Conversely, during a boom time, it may be possible to pay off the annual overhead with the first few sales of the year, which may make it possible to reduce prices while increasing profitability as you push competitors out of your market.