Customs Pricing – Opinions and Views?

[lwrhea]

Kevin,
I'm not answering for WWG.
I think I know what he means though. A beginning knifemaker may crunch all the numbers and know exactly what he needs to charge to make his profit, but his first knife would be so expensive only his mother could afford it. He still must value price.
For the first year or two he is really not recouping what he has invested, not just in materials and equipment, but also including the time he's spent in the shop making subparr knives. I have a shelf full of them that need to be burried somewhere. They cost me time that I would have to wait years to recoup.
When a maker starts getting recognized and his work is in demand, he now is recouping his tuition.
Lin

 

[Kevin Jones]

WWG, I usually agree or at lease understand your reasoning behind most of your post, but not here.

How can you say actual cost doesn't enter into a new maker pricing his knives?No one can sell anything successfully or operate a business successfully without knowing what their cost are.

It doesn't matter if the new maker is going to be paid the same as an established maker or not. Its just as important to know your cost to determine how much you will lose off sales while apprenticing as it is to know your cost to determine where to price your knives and how much you will make off them.

Kevin,
I'm not answering for WWG.
I think I know what he means though. A beginning knifemaker may crunch all the numbers and know exactly what he needs to charge to make his profit, but his first knife would be so expensive only his mother could afford it. He still must value price. For the first year or two he is really not recouping what he has invested, not just in materials and equipment, but also including the time he's spent in the shop making subparr knives. I have a shelf full of them that need to be burried somewhere. They cost me time that I would have to wait years to recoup.
When a maker starts getting recognized and his work is in demand, he now is recouping his tuition.
Lin

You are right Lin, WWG’s point was correct in that with any new business there's a start-up period or learning period where it will not be profitable. However, that makes it even more important that the owner/maker be fully aware from day one to present where they stand from a cost and profit/loss standpoint. Its one of your most basic principles of business, "know your cost; control your cost, and manage your price/profit structure from it". Applying your specific market conditions along with this principle gives the maker a successful business plan.

I just have a problem with WWG's opening statement that "cost doesn't enter into it"" as that was my premise for starting this thread is that so many new and established makers for that matter just "wing it" rather than starting out with a viable business plan.

And a little advice, "don't ever tell your banker that cost doesn't enter into it".

 

[lwrhea]

Kevin,
As for myself, I started knifemaking as a hobby with no idea that it would grab hold of me like it did. The cost was not a factor at the time. I had a full time job and was planning to continue working it.

Its different now. I plan on eventually going full time and have shifted my priorities (as far as work is concerned) to knifemaking. I'm looking to improve my skills and broaden the variety of the knives I make. Tomorrow I will start the Slipjoint class at the WF Moran School of Bladesmithing. I'm gathering up my supplies as we speak. Any suggestions as to what I should take? I dont want to hi-jack this thtread, so heres my email:
www.lwrhea1@windstream.net
Thanks, Lin

 

[Kevin Jones]

Kevin,
As for myself, I started knifemaking as a hobby with no idea that it would grab hold of me like it did. The cost was not a factor at the time. I had a full time job and was planning to continue working it.

Its different now. I plan on eventually going full time and have shifted my priorities (as far as work is concerned) to knifemaking. I'm looking to improve my skills and broaden the variety of the knives I make. Tomorrow I will start the Slipjoint class at the WF Moran School of Bladesmithing. I'm gathering up my supplies as we speak. Any suggestions as to what I should take? I dont want to hi-jack this thtread, so heres my email:
www.lwrhea1@windstream.net
Thanks, Lin

Yes Lin, it seems most knifemaking careers start out just that way in evolving into a business rather than starting out that way. However starting with a good foundation is important in whatever you do.

You have sure set a good example IMO of just how to transition from hobby into business.

As far as slipjoint class, just be sure to take an open mind.

 

[Don Hanson III]

Hi Don,

I believe they refer to those years making all those knives as "Paying your Dues".



WWG

Thanks Les.

Yes, you have referred to this, in your many writings. I had to start making money when I first started. I had no money and there were no jobs out here in this very rural area. The first hunters I made sold for $30-$40 and I made many (hundreds) kitchen and fillet knives for $25 or less.

It amasses me, the number of guys who want to jump right in and make/sell high end knives.

I tell all new makers who ask, start out as a hobby and make a whole bunch of knives and sell them cheap. Then, if all goes well, you can slowly work up the ladder.

 

[lwrhea]

Kevin,
I dont plan on making very many slipjoints. But, I have this opportunity to take the class and I want to be able to do it, so....we'll see what happens. Thanks, Lin

 

[Don Hanson III]

Kevin,
I dont plan on making very many slipjoints. But, I have this opportunity to take the class and I want to be able to do it, so....we'll see what happens. Thanks, Lin

Lin, I love slip-joints but they are not easy. A good instructor makes all the difference. Above all else, have fun :thumbup:

 

[DWinkler]

This is such a great thread. Thanks Kevin for getting it started.

The way I price knives: Time studies and material costs

I have a background in manufacturing from back in the early to mid 80's where I did time studies to set prices for products. I use the same techniques for pricing knives. I study the time required for each operation such as forgeing, grinding, guards, filework, etc. I get a base rate for the simplest knife at a per inch rate. Then I add to that base for extras. This way I can stay fairly consistent with pricing. It takes a while but a notebook and stopwatch are valuable tools just like a grinder.

I figure out what I need to make per hour for shop time to pay the bills, travel expense, advertising, insurance, supplies, etc. Keeping in mind I am only earning money when I am working in the shop. Good record keeping is very important and I can look up how much I spent in past months for propane, sander belts, steel, etc. With this method I can come up with a dollar rate per hour for each knife I make without having to try and keep time for each piece.

I usually raise prices about 15% every 2 years but this is not a hard rule. Last year I went up considerably more on a few operations because of new time studies. I also increase my personal income level by improving methods and up-grading equipment.

Two years ago I invested about $10,000 on a new air hammer. I figured with my increased efficiency I would pay for the hammer in about two years. Now after the hammer is paid for I am seeing increased profits because of the investment.

Building your market. This is a tough one that will take more thought. I do know that originality, quality, price, shows, dealers, advertising and personality are all important factors and new makers have a steep hill to climb. Established ones too, especially with the levels a lot of new guys are producing at.

Daniel

 

[Kevin Jones]

Thanks Les.

Yes, you have referred to this, in your many writings. I had to start making money when I first started. I had no money and there were no jobs out here in this very rural area. The first hunters I made sold for $30-$40 and I made many (hundreds) kitchen and fillet knives for $25 or less.

It amasses me, the number of guys who want to jump right in and make/sell high end knives.

I tell all new makers who ask, start out as a hobby and make a whole bunch of knives and sell them cheap. Then, if all goes well, you can slowly work up the ladder.

Good point Don, as in being able to sell those hundreds of knives @ $30-$40 and instantly making a profit, it was extremely important that you knew first what they cost to produce.

Isn't it funny how most successful endeavors start with someone starting small or slowly and working their way up? :thumbup:

The only job where you start at the top is grave digging and its only down from there.
Good luck Lin and enjoy yourself.

 

[Kevin Jones]

This is such a great thread. Thanks Kevin for getting it started.

The way I price knives: Time studies and material costs

I have a background in manufacturing from back in the early to mid 80's where I did time studies to set prices for products. I use the same techniques for pricing knives. I study the time required for each operation such as forgeing, grinding, guards, filework, etc. I get a base rate for the simplest knife at a per inch rate. Then I add to that base for extras. This way I can stay fairly consistent with pricing. It takes a while but a notebook and stopwatch are valuable tools just like a grinder.

I figure out what I need to make per hour for shop time to pay the bills, travel expense, advertising, insurance, supplies, etc. Keeping in mind I am only earning money when I am working in the shop. Good record keeping is very important and I can look up how much I spent in past months for propane, sander belts, steel, etc. With this method I can come up with a dollar rate per hour for each knife I make without having to try and keep time for each piece.

I usually raise prices about 15% every 2 years but this is not a hard rule. Last year I went up considerably more on a few operations because of new time studies. I also increase my personal income level by improving methods and up-grading equipment.

Two years ago I invested about $10,000 on a new air hammer. I figured with my increased efficiency I would pay for the hammer in about two years. Now after the hammer is paid for I am seeing increased profits because of the investment.

Building your market. This is a tough one that will take more thought. I do know that originality, quality, price, shows, dealers, advertising and personality are all important factors and new makers have a steep hill to climb. Established ones too, especially with the levels a lot of new guys are producing at.

Daniel

Great post Daniel. :thumbup:

Just demonstrates how the small knife business can use big business procedure, process and principle to run their knife businesses successfully.

Back to the computer spreadsheet tool for pricing I mentioned in a previous post. All the operations Daniel mentioned above plus your fixed cost calculations could be formulated into the spreadsheet one time, to be used to calculate cost/price on each knife just by filling in a few blanks and hitting enter.

 

[Don Hanson III]

Good point Don, as in being able to sell those hundreds of knives @ $30-$40 and instantly making a profit, it was extremely important that you knew first what they cost to produce.

Isn't it funny how most successful endeavors start with someone starting small or slowly and working their way up? :thumbup:

The only job where you start at the top is grave digging and its only down from there.
Good luck Lin and enjoy yourself.

Kevin, my only overhead back then was electricity, gas, grinding belts and glue, I already had the basic equipment, saw blade steel for blades and lots of wood (handle wood that is) and even some micarta I also had lots of time after finishing our house.

I also should add that I wasn't about to get a real job after running a business in Florida for the previous 14 years.

Lot a great info here guys :thumbup:

 

[Les Robertson]

Hi Kevin,

Lin and Don explained my point better than I could have.

Almost without exception knife makers start out as hobbyists. Doing so puts enjoyment in the drivers seat. Cost is a very small marble rolling around way in the back of your brain. Seldom if ever does it come to the forefront.

If you think it is a mistake telling a banker that cost is not important. Tell them you need an unsecured loan to make knives.

Unless you have some untapped capital that you can get access to it is almost impossible to go into custom knife making with making a profit being on your list.

Kevin you are coming it at this with the mind of a trained business man/owner.

This is from the first chapter of the book "The Business Rules"

"with all this talk of new economy, there seems to be some confusion about a company's reason to exist. So let's start at the beginning. In the beginning, there is capitalism. At least here in America. In some other places, there were and still are other forms of economic systems. They tend to not to work so well. Never really have, never really will. But within the confines of capitalism, there are two reasons companies exist.

The first is to make a profit. It is not just an objective but an imperative, an obligation. The second obligation is to perpetuate the first."

Business Rule #1: The fist, and probably most important, business role is: Sell it for more than it costs you

Kevin this of course dovetails nicely with what you are saying. In order to make a profit you have to know what your costs are, both variable and fixed.

This leads into Dan Winklers post (which by the way the knife makers out there should print that post and put it into your shop).

Kevin, you will find that almost without exception that knife makers are artisians first and business men/women second.

While many will achieve success, this is usually after 10 or more years. I feel that combining sound business principles with their knife making would shorten this process by several years.

WWG

 

[jdm61]

More good stuff:thumbup: From a business viewpoint, i think you must treat knifemaking like any other start up. As Don so eloquently put it, you are figuratively going to be "eating beans by the case" for a while. Actually, Don was being quite literal, but you get the point
Mr. Winkler....were you doing all of those wonderful knives and hawks by hand before you got your air hammer or was this an upgrade from a smaller machine? What kind of production inccrease did you see once you got the new hammer?

 

[Kevin Jones]

Another great post WWG. :thumbup:

I hope this thread will at least make a small difference out there.

Probably, one of the easiest ways to screw up something you really love to do is to turn it into a properly run business.

 

[Jeff Hall]

I would suggest that knifemakers need to realize that they are in business as soon as they sell a knife. Or sooner. It may be a hobby business, or something more ambitious, but it is a business.

How each maker decides to run his/her business is up to that individual, but they are in a small business as soon as the buy materials, invest in a little equipment, and sell product. They will quickly be out of their new small business if they do not take steps to identify and learn about their future customers.

Each will have to decide what his/her goals are, and how to pursue them, after they take a genuine look at themselves and their situation. This will require more than a half hour of thought one morning over coffee and will continue over the life of the new business. Generalities are a mistake here. Some knifemakers want to supplement their retirement income and others may want to support a young family or drive expensive muscle cars.

Knifemakers have often opted out of the corporate life and may have an independent streak. They should be independent thinkers too. Listen to everyone who offers advise. Keep in mind, though, that ones best info may come from an unlikely source like a successful house painting contractor with a fourth grade education. Business schools are filled with all sorts of students and some of the students are ambitious idiots with narrow expertise and little real-world, small business experience.

Set a clear, definable goal, analyze ways to get there, and get moving with a strategy that works for you. If one can't explain ones knife business to an industry outsider in a few simple sentences, something is wrong.

Good Luck!

 

[Kevin Jones]

I would suggest that knifemakers need to realize that they are in business as soon as they sell a knife. Or sooner. It may be a hobby business, or something more ambitious, but it is a business.

How each maker decides to run his/her business is up to that individual, but they are in a small business as soon as the buy materials, invest in a little equipment, and sell product. They will quickly be out of their new small business if they do not take steps to identify and learn about their future customers.

Each will have to decide what his/her goals are, and how to pursue them, after they take a genuine look at themselves and their situation. This will require more than a half hour of thought one morning over coffee and will continue over the life of the new business. Generalities are a mistake here. Some knifemakers want to supplement their retirement income and others may want to support a young family or drive expensive muscle cars.

Knifemakers have often opted out of the corporate life and may have an independent streak. They should be independent thinkers too. Listen to everyone who offers advise. Keep in mind, though, that ones best info may come from an unlikely source like a successful house painting contractor with a fourth grade education. Business schools are filled with all sorts of students and some of the students are ambitious idiots with narrow expertise and little real-world, small business experience.

Set a clear, definable goal, analyze ways to get there, and get moving with a strategy that works for you. If one can't explain ones knife business to an industry outsider in a few simple sentences, something is wrong.

Good Luck!

Thanks Jeff, well said.

To your house painter contractor reference, the wealthiest individual I have ever know and with the most brilliant business mind dropped out of JR. High to buy old tires from junk yards @ 1.50 each to sell them for $12.95 installed. He is now worth several hundred million dollars.

 

[Bobby Branton]

I have been making knives since 1984 and I've always had decent jobs and listened to some great old time makers like George Herron for advice. I immediately started to make knives and sell them and put all of my money back in the business for supplies and such. When I started to get serious in the mid 90's, and was thinking about trying to figue out how to increase production, Mr. Herron gave me some advise that I'll always remember. He said, If you are going to stay in knifemaking for the long run and want to go full time someday, you need to start buying all of your big ticket items, like Mills, Lathes,extra grinders etc, while you have a good job. He said don't wait until you are in your sixties to buy the stuff that you are going to need now.

I then went and incorporated my business and really started to treat my knifemaking as a business. I take advantage of all the tax breaks and write off everything that my accountant tells me are legal deductions. I keep records of everything. I buy in bulk when I can, I have a storage container that I use for a mini warehouse to store sheets of G-10, micarta,steel and a few hundered pounds of titanium. If you are in it for the long haul, buying supplies in bulk or at a great price is like having money in the bank. This stuff is not getting any cheaper and if you have a slow period, you do not need to put out money for supplies.
I am constantly updating my business plan. I've made some great business decisions and some not so great. I make corrections and clean up the mess and keep marching onward and upward. I have been full time for four years and I am doing fine. Never give up!!!!!!!!!!!!

 

[fisk]

I have enjoyed this thread and there has been some insight as to why the prices are where they are for a given maker. Someone up in a post on this, sorry I cant remember who said something to the effect that two newspapers are not going to sell the same size ad for greatly different prices. That may be, however magazines do.

Last time I checked the Smithsoian magazine was 36k for a on page ad, if you are a Sams club member you get their magazine. One page will cost you 50k in it, I was checking on a popular magazine last week and found a one page ad ran over 200k. These are the people we need to be reaching as they are not the regular knife buying public that we have traditionaly sold to but with my income I cannot do it. yet. I am still pondering on ways to do this and have a germ of an idea of how to do it. This helps not only the maker but the collectors as it will help drive up the 2nd market. Helps other makers too. Ad cost can be staggering that comes right off of the top before you put money in your pocket.

I chose 20 years ago to go full time. It took me right at 5 years, I saw two weeks ago while reviewing my records, before I was able to put $3500 in my pocket at the end of the year. Along with the expenses noted in earlier posts you also have to figure in what an office set up and maintance would cost, the auto I drive is corp owned and must be kept up to date as I drive to all but one show. I personally cannot afford an auto with the breaks that the LCC offers the business. The shops pays my health and life insurance as I get older these cost will go up. All of these too goes in before I take money to put in my pocket at the end of each month.

Some cost that you figure in moves slowly. As with Daniel on my regular model pieces I have it timed as to how long each step takes so I could figure in the price correctly. I worked and worked to get my time down so I could deliver as valued as possible on my regular models. With some businesses you can lock that in however if you beat up your hands then the more you do it the longer it can take to finish one as you get older and the more health costs go up. A maker must constantly review on a yearly basis where he is and what he should be charging.

It is kinda funny in a way, and it has been like this since I have been in the business, most new makers always goes to someone who is comparable in their work and finds out what they are charging. Where do you think they got it? From someone else at their level of course. Each thinking the other must know so you have a lot of these guys really just guessing unless they start with their own costs etc. Each maker will vary due to his location, type of work and equipment. There has been some good layouts of what to do to get one started with his prices. These layouts will also help people who collect better understand why prices are where they are and why they vary.

 

[jdm61]

I have been making knives since 1984 and I've always had decent jobs and listened to some great old time makers like George Herron for advice. I immediately started to make knives and sell them and put all of my money back in the business for supplies and such. When I started to get serious in the mid 90's, and was thinking about trying to figue out how to increase production, Mr. Herron gave me some advise that I'll always remember. He said, If you are going to stay in knifemaking for the long run and want to go full time someday, you need to start buying all of your big ticket items, like Mills, Lathes,extra grinders etc, while you have a good job. He said don't wait until you are in your sixties to buy the stuff that you are going to need now.

I then went and incorporated my business and really started to treat my knifemaking as a business. I take advantage of all the tax breaks and write off everything that my accountant tells me are legal deductions. I keep records of everything. I buy in bulk when I can, I have a storage container that I use for a mini warehouse to store sheets of G-10, micarta,steel and a few hundered pounds of titanium. If you are in it for the long haul, buying supplies in bulk or at a great price is like having money in the bank. This stuff is not getting any cheaper and if you have a slow period, you do not need to put out money for supplies.
I am constantly updating my business plan. I've made some great business decisions and some not so great. I make corrections and clean up the mess and keep marching onward and upward. I have been full time for four years and I am doing fine. Never give up!!!!!!!!!!!!

Good point. "Buying in bulk" can be as simple as buying a bigger piece of wood and cutting it yourself. I bought a big 2 x 2 square of amboyna a while back for $210. I ran the numbers and if I had bought the same amount of wood cut into standard size handle blanks, it would have cost maybe as much as $400 and definately well over $300. Now admittedly, I will have some waste due to screwups and the fact that the square is 2 inches and you don't always need 1 x 2 for a handle, but i will still be ahead.
And I can use any cutoffs for scales and I have screwups with blanks cut to size anyway

 

[DWinkler]

Joe,
I up-graded from a 25# Little Giant to a 150B Phoenix with two 7.5hp compressors.

Kevin,
Good computer skills are a big help and I hope to get all this pricing information on a database so I can just plug in the details and let the computer add it up. I know a lot of knifemakers shy away from computer technology but it is the way of the future and can be a big time saving tool. (Remember only actual shop time earns you money.)

Bobby,
Good advise from George and yourself.

Jerry,
You are one of the best knifemaker/businessmen around, kind of like E.F. Hutton, you talk people listen. Keep me informed about your large-scale advertising ideas.