Custom Knife Pricing-Educational Discussion

[Kevin Jones]

While I don't recommend artibtrarily piulling a price out of the air, I do agree tha a spreadsheet can only tell you so much. Useful for understanding whether you are making or losing money overall - and for tracking shop expenses themselves, but it's not a reliable tool for setting a price on an individual knife in and of itself.

What happens when you factor in every possible expense and cost relating to the production of your knife, fugure out what a decent hourly rate should be, plug it into your spreadsheet and get an answer that your 4" hunter "should" cost $1,600? Hmmmm - think you will find any buyers at that price? No? Chances are you will have to travel beyond the spreadsheet to find a price.

Coop's point about getting paid to learn.
STeven's example of the Loerchner $5/hr.
Les' comment about the new business operator not drawing a wage but putting funds back in the business.
Les' point about the goal of newer makers being to get knives in the hands of collectors.

All good points to ponder.

Roger

I agree with your points.
While a spreadsheet with accurate data is not the total answer to creating a successful pricing structure most successful business plans start with an analysis of all pertinent information available to the business person.

If I were a knifemaker I would create a foundation for my pricing structure something similar to the below. I believe the perfect product "pricing" plan is a combination of the maker using a tool such as below while being fully engaged and knowledgeable of the market he competes in.

 

[RogerP]

^^^ No argument here.

Roger

 

[Lorien]

1) A problem would be that if you and I look at the same makers knives....what you think are apples to apples....may in fact be apples to oranges. Im going to see things you don't.

I can only speak from my experience, and the comparisons that I'm referring to are general.

1A) How do you compare two knives if one is forged and one is stock removal. How about a 400 grit finish compared to a 600 grit finish. Or a bead blast finish compared to a tumbled finish, or a scotch bright finish.

Well, forged requires, (I would guess, and generally) more space and more equipment which increases costs, but stock removal often involves higher cost material and possibly the additional costs of farmed out heat treatment. Blade finish will effect the amount of time spent building the knife and the more finely finished the steel the more time and therefore more $. For example, it is reasonable to assume that a 600 grit handrubbed finish is going to add more dollar value to a knife than belt finished. It looks nicer and takes more time.

1B) How about Fossil Walrus Ivory, compared to Elephant Ivory, compared to Mammoth Ivory, compared to Mastodon Ivory. How about coloring and checking? Are they all the same because you are using Ivory? Is Don Hanson known for OK Ivory? Can he ever get away with using OK Ivory again? Now you have people comparing one of Don't knives...next to another of Don's knives....and they may not be apples to apples.

That can be a difficult part of pricing....especially once you have built a fair amount of knives....you are not only competing against other makers...you are competing against yourself.

Not all material is equal and it takes a discerning eye to tell what makes each material good, or excellent. Developing a discerning eye I think would help a knife maker and a collector better at determining $ charged or paid. Don has a very developed knowledge about ivory, to the point where his collector's can trust in his judgment enough to not have to know too much about ivory. I'm speculating here.

I bolded your statement about there, Les, because I think it should be read over and over. Very interesting comment:thumbup:

2A) Various methods? What if they only forge, single guard and mortise tang construction? Not really much variety...so can they still be a "good" maker?

If a maker focuses on only one method of attaching a handle to a blade, then I'd say that limits their knowledge base. All things being equal, two makers side by side with one who will on do it one way and the other who masters various methods of handle construction, I'd say the one who develops a broader knowledge is going to be a better knife maker, in the fullness of time. Versatility should also be part of the equation here, because it shows a commitment to taking the time to do different things well.

2B) Ok, functional design is a plus. However, functional to who? You can get an argument that anything over a 3" blade is not necessary to dress out most game...as such a hunter doesn't need a "Hunter" with a 4 or 5" blade. That being said...most hunters have a blade between 4 and 5 inches.

If I bought a knife in the 5-6" blade length range, I probably wouldn't think of it as a hunter, since as you say a hunting knife is usually best equipped with a 4" or less blade. But I've seen knives that look, or have proportions, more like 'utility' or 'survival' or 'camp' knives described as hunters. If a knife maker makes a knife whimsically and sells it using a generally specific description, but it clearly isn't, that shows a lack of experience or understanding in using said knife and how can I trust in the knife generally if the maker describes its design incorrectly? (might have to keep the flame retardant on hand here, I don't know if I said that quite right)

2C) What if the knife is $300...how much can the grind line(s) be off? What if it is a $800 knife...how much can the grinds be off? What about the fit of the guard?

I often use production knife pricing as a guideline. If a custom knife is in the same price range as a similarly shaped production knife, then I look at it as a tool and so long as it meets my general criteria for quality then I can live with flaws. I don't expect perfection in that price range, and in fact many production knives in that price range are going to have flaws as well. For example, when I first started looking for a big knife for trail work, I stumbled across Busse Battle Mistress- a production knife. When I found out that Matt Lamey could make me a similarly sized knife for the same price, AND I had a role to play in its design, the choice was clear. I knew ALL the money was going back into Matt's knife making, and not to help subsidize Busse's marketing. There are many imperfections and flaws in this knife, but they aren't structural and don't negatively impact my joy in owning it, nor do they effect the usability of the knife and although it's 1095 and not infi or whatever they call it, I've never been more impressed with a knife's edge holding or resharpenability.

The size of the knife is really going to determine how I'd answer 2C Les.

It is very difficult to come up with "exact" criteria as most knives have some slight differences from the other. If it is no more than you like Golden Desert Ironwood as opposed to Darker Desert Ironwood.

To a large degree it is about knife education.

Exactly!

So, here's a knife which I bought. It cost me 600 bucks in total, and I wouldn't have bought it if I didn't feel it was a good value;

Now, I didn't buy this knife in order to get any more value out of it than simply using it. If I bought it for $600 with a sheath aftermarket in order to flip it for a quick profit, I figure I might have been able to make and easy 50 bucks, because I know that Terry Primos is no longer making knives. However one of the things which made this knife worth it for me to buy IS the fact that Terry Primos made it, and that he has a pretty good track record for making a quality forged knife. I also wanted to have a knife LIKE this to bring with me hiking to scare the bears away. To get a knife like this, with that hand polished finish etc direct from a maker now would probably cost at least 100 dollars more than I paid for this one. So, to me, this knife represented a good value, due in part to the fact that I use it.

I recently bought another knife, a Todd Kopp boot dagger for $350 bucks. It has a damascus blade, mammoth ivory handle and a stainless frame handle, plus a ostrich leather sheath made for it by the maker. There are plenty of imperfections, but Todd Kopp is still making knives and still winning awards. I don't doubt that the cost of the materials to make the knife approach the price I paid. So, as a collectible piece, I feel that I got good value.

I learn a lot about pricing and value from Bladeforums, (among MANY other things) but I also find that going to dealer's sites really helps understand value and pricing as well. I particularly like this one; http://www.robertsoncustomcutlery.com/

 

[MVF]

For the record, I personally like the knife of Kevin's we are discussing, but I would not be interested at that price....I would be interested at $975.00 for the knife, including a Nick Wheeler sheath. This allows me some upward mobility on the aftermarket. There are many makers who do work I find exceptional, and who were once fantastic values that have priced themselves out of my interest level. Obviously, in this case, there are numerous others that do not have an issue with Nick's price.

Who would give Kevin $1,500 or better if he wanted to sell this one today? Danbo, if you had the $$$ just laying around, would you?

Best Regards,

STeven Garsson

OK, let's see if I can say this right-

Are we talking about prices for collectors or investors? I am a collector, undoubtedly a dilettante (but wouldn't 90% of collectors also fall into that category?) and ROI is pretty far down on my list when it comes to buying a knife. I should qualify that by saying that I do require the expectation that if I don't use the knife I should be able to sell it at or near the price I bought it for.

My formula goes along the lines of: How much do I want it? Does the price seem fair? (based on F&F, materials, expectation of quality as far as heat treat and construction- and, of course, how much do I want it!) Can I afford it? Will it be a significant addition to my collection in some way? What are the chances it will just sit until I get tired of it?

So my purchases are more heavily weighted on emotion than logic, except for the "Can I afford it?" part, and even that has been stretched out of shape on occasion. Does this make me a sucker or a chump? Possibly, but I enjoy the hell out of my collection, rarely sell, am about even on profit/loss when I do and not by much either way. If I buy a knife and decide to sell it in a year or two and only get what I paid for it or even a few bucks less, I feel fine- I traded the time value of the money for my enjoyment of the knife and the chance to decide in a long term way whether it's for me. Once I've decided to use a knife, I pretty much figure on keeping it.

I guess I just wanted the makers to know that there are plenty of us who aren't making their decisions based on whether or not they can expect to make a profit. Feeling this way allows me to appreciate and value my knives based more on their qualities than their dollar value.

This is in no way meant as a criticism of those who are more dollar value oriented in their collecting, especially not Steven, who we all know is quite the aesthetician. I guess investment value would become more of a concern as the price levels rise, so I guess I should also mention that I do not collect at the price levels that many here do.

 

[Kevin Jones]

OK, let's see if I can say this right-

I believe you said it very well and represent a very popular view of how/why many collect custom knives.

Are we talking about prices for collectors or investors? I am a collector, undoubtedly a dilettante (but wouldn't 90% of collectors also fall into that category?) and ROI is pretty far down on my list when it comes to buying a knife. I should qualify that by saying that I do require the expectation that if I don't use the knife I should be able to sell it at or near the price I bought it for.

My formula goes along the lines of: How much do I want it? Does the price seem fair? (based on F&F, materials, expectation of quality as far as heat treat and construction- and, of course, how much do I want it!) Can I afford it? Will it be a significant addition to my collection in some way? What are the chances it will just sit until I get tired of it?

So my purchases are more heavily weighted on emotion than logic, except for the "Can I afford it?" part, and even that has been stretched out of shape on occasion.

I believe your purchases are based more on logic than you think.

Does this make me a sucker or a chump? Possibly, but I enjoy the hell out of my collection, rarely sell, am about even on profit/loss when I do and not by much either way. If I buy a knife and decide to sell it in a year or two and only get what I paid for it or even a few bucks less, I feel fine- I traded the time value of the money for my enjoyment of the knife and the chance to decide in a long term way whether it's for me. Once I've decided to use a knife, I pretty much figure on keeping it.

Definitely not. Sounds more like you have found a collecting philosophy that works for you.

I guess I just wanted the makers to know that there are plenty of us who aren't making their decisions based on whether or not they can expect to make a profit. Feeling this way allows me to appreciate and value my knives based more on their qualities than their dollar value.

I believe there's this misconception that many collect (anything) solely for profit/investment potential. I've been collecting cars/knives for 35 years and have yet to find a "pure investor" of any collectible. I find that even though potential for profit may be high on some collector's list of priorities, their primary motivation is always driven by the love and/or interest for the collectible.

This is in no way meant as a criticism of those who are more dollar value oriented in their collecting, especially not Steven, who we all know is quite the aesthetician. I guess investment value would become more of a concern as the price levels rise, so I guess I should also mention that I do not collect at the price levels that many here do.

No doubt for most, however I do know collectors who have so much money that throwing it away is of little concern.

 

[Les Robertson]

HI MVF,

Are we talking about prices for collectors or investors?

I have approached this thread with regards for how makers should price their knives.

What collectors pay is completely up to them.

I guess I just wanted the makers to know that there are plenty of us who aren't making their decisions based on whether or not they can expect to make a profit. Feeling this way allows me to appreciate and value my knives based more on their qualities than their dollar value.

You are in the majority of collectors.

If you weren't, pricing would not be such a big issue for makers.

 

[irbailey]

If making 6 -12 knives per year gets you out of the 'hermit maker' category, then that's good news.:thumbup:

Bad news is that making more than that when you have a full time job, house, two kids, etc, means you become a social hermit instead...:thumbdn:

A tired one at that....

Trust me...I know!


Ian

 

[Trent Rock]

Here is how I see pricing:
On a macro level...sorta

Labor theory of value (intrinsic value) vs. Subjective theory of value

Cost-plus pricing vs. Value-based pricing

Penetration pricing

Penetration pricing is the pricing technique of setting a relatively low initial entry price, often lower than the eventual market price, to attract new customers. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume, rather than to make profit in the short term.

vs.
Price skimming

Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price.
Price skimming is sometimes referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus. If this is done successfully, then theoretically no customer will pay less for the product than the maximum they are willing to pay. In practice, it is almost impossible for a firm to capture all of this surplus

If I were a new knife maker===>
Never sold a knife in my life
Have no idea what the "value" of my knife is worth
I would use,labor theory of value, cost plus pricing, and penetration pricing
I would price low, then get the feedback/transmitted information from the sales data, and adjust my prices (hopefully upward)

If I were a Buster Warenski or a Juergen Steinauon and my knives are very "unique" (at least the buyers think so)===>
I would use subjective theory of value, value based pricing, and price skimming
(because I think knives on this high end of the custom knife spectrum are more price inelastic)

And make your knife different from the guy at the next table
Maybe add on "hand hammered","Rwandan giraffe bone" ,"Clark County meteorite", or "low count Damascus" to your spiel
Make your knife BETTER in the eyes of the knife buyer
***********************************
This one reminds me of INFI steel and The Busse Hogs

Brand loyalty: an attachment to a certain brand—either out of tradition or because of proprietary barriers—can override sensitivity to price changes, resulting in more inelastic demand.

http://en.wikipedia.org/wiki/Price_elasticity_of_demand

Seriously, ever look in the wanted to trade subforums of BF?
I see guys in there saying "I will trade my Colt Sporter Model and my 2008 Fat Boy Harley for a 2008 Busse Combat Special Forces Natural Outlaw"
People are clamoring for Busse's! At least that's my observation
Why does demand exceed supply by such a great amount?
Why are knife consumers willing to pay ANYTHING (price inelastic) for a Busse?

Jerry Busse pricing strategies...you all need to figure out his pricing magic:thumbup:
I'm thinking it comes down to productions levels or monopolistic power because of his proprietary superiority over his competitors..........

At least now you can impress your friends around the forge with big words, like price inelasticity and The Intrinsic Theory of Value.....

 

[Murray White]

the day Buster makes another knife and prices it on any basis is when I get out of collecting

 

[BladefulArt]

Very informative thread. My strategy for knife prices when I start selling them is going to be very simplistic as I'm only going to have 2 main goals:

1. Get my knives out there
2. Get feedback so I can make improvements

At this point, profit will be of no concern for me...that'll come later on once my skill/reputation is sufficient in which case I will develop a actual pricing struture based on style of knife, my vaule in the market, lenght of knife, grind type, embellishments, etc. Once you start selling them , it is a business and should be treated as such.

 

[Kevin Jones]

Very informative thread. My strategy for knife prices when I start selling them is going to be very simplistic as I'm only going to have 2 main goals:

1. Get my knives out there
2. Get feedback so I can make improvements

At this point, profit will be of no concern for me...that'll come later on once my skill/reputation is sufficient in which case I will develop a actual pricing struture based on style of knife, my vaule in the market, lenght of knife, grind type, embellishments, etc. Once you start selling them for profit, it is a business and should be treated as such.

I totally agree with your strategy, as most new businesses do not start off profitable but have to build to that point. However, for the same reason, I disagree with your statement that a business shouldn't be treated as a business until you are profitable.

If not treated as a business from the very start, the vast majority of businesses will never become profitable. Thus the reason most businesses do fail before becoming profitable.

 

[BladefulArt]

If not treated as a business from the very start, the vast majority of businesses will never become profitable.

Good point, so I'll edit my post.

 

[Trent Rock]

I put a link in the other thread (knife show question) about an article where they found people are willing to pay more for a product that they can touch before buying.

But what was driving the effect? The team's initial hypothesis was that the behavior is driven by a classic Pavlovian response. "Behavioral neuroscience suggests that when I put something appetizing in front of you, your brain activates motor programs that lead to your making contact with that item and consuming it," Rangel explains. "We hypothesized that if there's no way for you to touch the item, then the Pavlovian motor response would be absent, and your drive to consume the item thus significantly lessened.

The results were the same as during the food experiments. The subjects were willing to pay, on average, 50 percent more for items they could reach out and touch than for those presented in text or picture form. "We knew then that whatever is driving this effect is a more general response," says Rangel.

http://www.sciencedaily.com/releases/2010/09/100908160358.htm

Pavlovian Processes in Consumer Choice: The Physical
Presence of a Good Increases Willingness-to-pay

People who held the coffee mug longer than a few seconds seemed not only more compelled to outbid others in an auction setting, but they were also more willing to bid more than the retail price for that item.

“The amazing part of this study is that people can become almost immediately attached to something as insignificant as a mug,” said lead author of the study James Wolf, who started the work while he was a doctoral student at Ohio State.

“By simply touching the mug and feeling it in their hands, many people begin to feel like the mug is, in fact, their mug. Once they begin to feel it is theirs, they are willing to go to greater lengths to keep it.”

http://researchnews.osu.edu/archive/endowl.htm

The results were the same as during the food experiments. The subjects were willing to pay, on average, 50 percent more for items they could reach out and touch than for those presented in text or picture form. "We knew then that whatever is driving this effect is a more general response," says Rangel.

The moral of the story..IMHO====>
If you are selling a knife on the internet for $1,000
You should sell it at a knife show for $1,500+

I did pay 5 bucks more at the Santa Barbara knife show for my Pat Crawford neck knife
He lists it as $125 on his website
I paid $130 (plus the 18 bucks to get in)
And no I am not mad
And Mrs. Crawford DID have price tags next to the knives on the table...BTW
It made it easy to make my purchase decision (it took maybe 30 seconds for consumerist mind to churn out the result )
If there were no price tags next to the knives would I have asked him how much?
Or would I have walked to the next table to look at other knives?
I'm not sure...tough to say....
***************************************************
Do makers give out production #'s?
If I call Joe Knifemaker
Will he tell me how many models and units he has made this year?
I don't understand why knife companies do not make the production #'s public knowledge
I should be able to call up Buck knives and ask, "How many Bucklite 486's were made in 2009?"
It seems to me that would boost the collector knife market for any given knife company.....
*********************************************************
I see a lot of restistance to raise prices
Raising prices is not an evil tactic
Heck, there is even a pricing strtegy where you set the price high and "work down the demand curve"....price skimming
"It'll piss of my customers"
Of course a price increase will piss people off
I get upset when they jack the price of Whoppers from 99 cents to $1.09
But, I still buy the Whoppers

"The guy will see the price and walk away from the table"
So, make a mental note
"At $1,100 2 people picked up the knife off the table"
"At 800 dollars I got A LOT of questions about the knife and 5 people picked up the knife"
"At $1,500 dollars, no one even looked at it. They saw the price tag (or asked, since for some reason there is controversy over whether or not to display prices at a knife show) and their eyes quickly darted away"

Milton says it best
Use your prices as feedback mechanism
(And he uses pencils as examples:thumbup===>

Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product––the distribution of income. These three functions are closely interrelated.

Prices not only transmit information from the ultimate buyers to retailers, wholesalers, manufacturers, and owners of resources; they also transmit information the other way. Suppose that a forest fire or strike reduces the availability of wood. The price of wood will go up. That will tell the manufacturer of pencils that it will pay him to use less wood, and it will not pay him to produce as many pencils as before unless he can sell them for a higher price. The smaller production of pencils will enable the retailer to charge a higher price, and the higher price will inform the final user that it will pay him to wear his pencil down to a shorter stub before he discards it, or shift to a mechanical pencil. Again, he doesn't need to know why the pencil has become more expensive, only that it has.

http://www.agem.com/Free%20to%20Choose.htm