How to Price Your Work

Calculating your shop rate is like any other project. There are clear steps to take, one at a time.

When I started to charge for my work I had no idea what to do. I couldn't find any online guides and most people I talked to said they didn't really know either. So, this might sound boring but this is how I do it. I love making fine furniture, but I also have to run a business, so I have to treat the pricing the way any other business would. This would be different for a hobbyist because they are not necessarily earning their livelihood from this.

The short version is:

1. I calculate my monthly fixed overhead.
2. I calculate my monthly administrative/non-productive overhead.
3. I figure out what I want to pay myself.
4. I figure out my profit margin.

Then I do some simple arithmetic and I find out my shop labor rate. This is the rate I will charge my client in addition to the cost of materials (plus 20% extra to the materials cost to deal with waste). I used to struggle with this because I wanted to charge everyone the bare bones minimum because I'm a nice guy and want to give everyone a good deal. But the thing is, you can charge a fair rate, make a profit so your business can grow, and it doesn't mean you're not a nice person. I used to think making a profit was morally wrong, but you can't survive or grow without it.

So with all of that in mind, I can walk you through how to use all of this information to figure out your shop labor rate.

Fixed Overhead - If you're running your shop from home (like me) this is a percentage of your mortgage, your gas, water, and electric bill, your phone, your taxes, and your insurance. If you're renting a space this is easier to calculate, it's just whatever your expenses are at that space. I'm going to use my actual numbers for this so you can get a feeling for this. All of that added up for me is about $1,600 a month. About 15% of this is for business purposes. So to calculate my fixed overhead, I multiply 1,600x0.15 and get $240. This is my monthly fixed overhead. Now I take the amount of hours I spend in the shop per week, which for me is about 40. I multiply that by 4 to get 160, the amount of hours I spend per month in my shop. Then I divide my monthly overhead, $240, by my monthly hours in the shop, 160, to get the hourly rate of $1.46 (rounding up to the higher cent). This means I need to charge $1.46 to cover the fixed overhead for each hour spent in my shop.

Administrative & Non-Productive Overhead - This is basically everything that's not your fixed overhead. This can be highly variable, changing month to month, but you can get a pretty good ballpark idea of what you're spending here. This is your cost to maintain your vehicle and fill it up with gas to go deliver a piece or drive to the mill, your advertising costs, your marketing costs, office supplies, tool maintenance, web hosting fees, etc. It's hard to pin a number on this but generally it's about 20% of your fixed overhead, so to keep this simple we'll keep it at that. You'll figure this out with time and experience. So 20% of my $240 fixed overhead is $48. So now we're going to add those two together and divide them by our monthly shop hours to get our general overhead cost of $1.80/hour.

What to Pay Yourself - This is something only you can answer, but I suggest you pay yourself a livable wage. Don't plan on paying yourself $4 an hour because you think your love of the craft will sustain you. Trust me, passion for 17th Century New England carving and French marquetry won't help you when you can't pay to keep the lights on in your shop. In fact, your passion, knowledge, and skill should be what gives you the confidence to pay yourself a fair wage. Furthermore, most people now equate high price with high quality. You will lose out on far more jobs by charging too little than by charging too much. When I first started I paid myself $8 an hour, after a few years I moved up to $15, and now I'm paying myself $30 an hour. This sounds high, but when you develop niche skills and can deliver you should be confident in paying yourself a good wage. I remember telling some clients I hadn't seen in a few years I had raised my rate. I was so nervous it actually made me feel sick. The first thing they said was, "We're happy to hear that! You always charged too little." Don't be afraid to ask for what your time and efforts are worth. So if we go with $30 an hour, that now means I am charging, with my overhead worked in, $31.80/per hour.

Profit - All businesses need a profit. Without it you cannot grow, which mostly means you will not survive as a business. By grow I don't mean start an international furniture conglomerate. I mean you can buy better tools, put some AC in your shop, put up more lights so it's not so dim when you're working nights, pay for some advertising or marketing. It also means when something breaks you can have it repaired, it means you can put a little cash in your savings account for once, and if you have to take sick time or attend a wedding you can do that without putting yourself in the hole. Hell, you may even be able to take a vacation, like a real person! The average profit margin for a cabinetmaking shop in America is 15%. That sounds like a lot, but if we take 15% of our $31.80 hourly shop rate and add it up we see that we only have to increase our hourly rate by $4.77 to run a profitable business at $36.57. I recommend rounding up to the next dollar, so that puts my shop labor rate at $37. That sounds like a lot. But if you're just starting out and want to charge say $10 an hour for your work, that puts you at $11.80 for your hourly rate + overhead, then add $1.77 for your profit, for a total of $13.57 ($14). That's really not much, and now you can save up and buy the tools you need so you can continue to hone your craft. Or take a class!

Almost done, we just have to finish a few things up.

Materials - Some people mark up the cost for the materials. I think that's pretty lame and don't do it. However you do need to charge for the waste, otherwise you are just paying out of your pocket for odds and ends you may not be able to use again. In general you will have about 20% waste on a project. So a real world example: I needed 30 board feet of 8/4 mahogany for a table. 20% of 30 is 6, so I charged for 36bf of lumber. At $15/bf, that's $540. Without charging for the waste you're taking about 6bf worth of mahogany out of your own pocket, that's $90.

So now we've figured out our shop labor rate ($37) and how we will charge for materials. I know it will take me 40 hours to build the table by hand, I know it cost me $540 for my 30bf (give or take) of mahogany, so now I know I need to charge $2,020 for my handmade mahogany table. This is a perfectly reasonable cost for a high quality, hand-crafted table. There are MANY people who are more than happy to pay this price. Now if you want to talk about finding those people that's a whole other topic...

I hope that helped anyone looking for some information on this. I know it was long winded but I have not seen a very good answer to this before. If anyone else would like to pitch in please do!