Customs Pricing – Opinions and Views?

[Kevin Jones]

Really great interaction and discussion here between maker, dealer and collector this weekend regarding a very important topic.

I hope some makers and collectors benefited from it. As Jerry mentioned, I think collectors may have a better understanding now of what goes into the making of a knife from a cost prospective.

Our resident dealer contributed quite a bit, but not sure if he benefited as he took a few on the chin for his team, however I'm sure he will be just fine.

Glad I stumbled upon this place nine months ago as I have learned quite a bit here.

 

[jdm61]

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.

I would be the guilty party who used the ad price example, but since I am a recovering shifty lawyer, I made sure that I said cost per thousand circulation My point was that the "art" aspect of the knife biz has some funny effects that you don't normally see in some businesses. Because of folks like you, the expectations are high a far as the quality that ANY knife must be, but your long standing reputation as an artist and innovator makes people willing to pay a premium for your knives above and beyond the materialand "labor" cost of even the most intricate work you put into them. In the case of knives like a Loveless hunter, you should expect to pay a VERY high price even though the knife is, even in the mind of the maker, a simple using knife. Your "labor" and that of Mr. Loveless are worth a LOT more to the buyers. We see that sometimes in things like expensive cars, but normally, there is a reason that they cost so much. They might still be hand made and the company makes very few of them, so the cost of actually producing them are much higher. If I had to think of an "everyday" product where we see great premiums charged purely because of the maker's reutation for super high quality, I would use the example of the food and beverage business. I don't think that there is a quantitative method of proving that Chateau Latour is 3-4 times better tasting in a given year than Forts de Latour, the winery's less expensive wine or 20+ times as good as a decent basic table wine from the same region of Bordeaux. Or that a 1982 or 1989 Latour is 2-3 times bettter tasting than a wine from a less stellar year. Yet the reputation is such that people are willing to pay that premium, whihc makes things VERY confusing for someone just coming into such a business I know that if I pay my dues and strive hard to improve the quality of my knives, AND have a well thought out business plan that I actually bother to follow, I will have a much better chance of being able to sell more knives at a more attractive price (more attractive to ME, that is....lol) But the great mystery is what takes a makers knives from being desirable to being virtualy unobtainable at any price. That is the real trick...lol. But even having your knives become moderately desirable seems daunting, particularly with the numbers of folks taking up the craft. This thread has been very helpful, but I'm still anxious.....lol

 

[fisk]

Joe, yep, I remember reading it now. Recovering shifty lawyer, that was funny. Back to the subject, the growth thing is part of your plan. Not all plans work but you have to plan and strive for it anyway. It is a tough balance sometimes.

Thing is to make enough knives but not too many. You have to figure what the minimum knives for you to live on and make just a bit more than that. Everything has to be geared toward the client buying it then your plan kicks in on increasing the value once he has it. You can't make a living and do well selling one guy one knife one time. You gotta have it to where he will come back. Just because a maker sells a knife to collector X does not mean he is through working for him. X will most likely put it in a drawer or up on the mantel he may even use it. He is doing very little or nothing that will increase the value of it, that is the makers responsiblity.

For myself I never made over 75 knives a year at my best. I am now less than 40 a year, full time with no other income. I cant work as fast as I could at one time so I have to account for that too.


Along with making the knives for food, bill etc you need to take some time, say one day a week to make knives toward a show or to make something that will stretch your methods of thinking. For instance the more ethic pieces you can make will also help you make a better plain hunting knife. You must also set aside some time montly to review your business practices and ponder what can you do to increase the value of the knives that are already out there. If you only have two pieces out there start with that. I am more interested in promoting the second market as that can control the primary market of said product.

Joe, do you get any other art type magazines to keep an eye on? I pick up a lot of info there. For instance most all of the other art fields, glass, jewlery, wearable art etc is experiencing the very same trends we are in their own trade shows. It is interesting what some of them are doing to offset the show problems. What works in other fields will sometimes translate to ours. By the way some of the artist in those other art fields watch ours too I found out. Joe, you can boil all of this down to, If you want to go Elk hunting you gotta go where the Elk are.

 

[jdm61]

Good suggestion on the magazines. I have had a passing interest for a while in some other applied arts in addtion to the fine arts. I like certain types of older furniture and I am a fan of Wedgewood Jasper Ware. When you sit back and think about it, these other applied arts are VERY similar to ours. Knives, furniture, ceramics, glass, etc. all have a basic utility function. Many people are hapy having just what they need to sit on, eat off of or somewhere to put their stuff. Then there is the sub-group who wants something a little nicer. There are a lota of varaitions and sometimes they blur a bit, but at the top, you have the folks who like collecting stuff that is way too valuable to use for it's intended purpose I know that you can't make everyone happy and service every aprt of the market, but it's always fascinating to try to think of ways to "move some buyer up" into the custom market. The mid-tech phenomenon creates what could be an interesting opportunity for someone like me because their pricing has gotten up to and, in some cases, exceeded the prices that I can charge for a similar size knife. The downside is that some of these companies like Busse inspire FANATICAL brand loyalty and may be hard to convince to come over to the Dark Side
The good news is that the business of making quality cutlery seems to be continuing to grow. (more potential customers) The bad news is that it it seems to be continuing to grow (more makers) This should be an interesting journey.

 

[supsme]

Jerry...You have to be the smartest Maker on the planet...I wish all Makers would follow your lead...

 

[Keith Montgomery]

.I hope some makers and collectors benefited from it. As Jerry mentioned, I think collectors may have a better understanding now of what goes into the making of a knife from a cost prospective.

I have always had a very good idea what goes into the cost of making knives. I am not one of those that thinks that most knives are overpriced. In fact, many of the knives that I have seen are in my estimation, underpriced.

 

[Kohai999]

I have always had a very good idea what goes into the cost of making knives. I am not one of those that thinks that most knives are overpriced. In fact, many of the knives that I have seen are in my estimation, underpriced.

Yeah, I agree on that....but....just as we discuss makers living in the Ozarks, on $50.00 or less a day....lotta possible collectors out there, sole income families, two kids, making ends meet (barely) on $20.00 or less an hour, before taxes...they want, nay demand, sweat equity, and something of a promise that they are not getting taken to the cleaners.

We as a community cannot always deliver on that expectation, and the production companies frequently can, and do.

Just something to think about, as we consider and discuss pricing.

Best Regards,

STeven Garsson

 

[Kevin Jones]

I have always had a very good idea what goes into the cost of making knives. I am not one of those that thinks that most knives are overpriced. In fact, many of the knives that I have seen are in my estimation, underpriced.

Keith, there's a lot of hands extended for part of that $500 hunter makers are selling.

I imagine there are part time makers out there that could go full time from an income prospective, but those benefits from their present jobs are what's hard to give up.

A maker whose at the point in their career where they can consider going full time is most likely middle age with a family in many cases. Just health insurance cost alone would keep many from crossing the line.

Yep, I like a deal just as much as the next guy, however if we are to keep getting these beautiful knives makers need to be compensated to a point where its worth their time. I have visited several of the upper tier maker's homes and shops and yes they are living comfortably, but by no means extravagantly.

 

[SharpByCoop]

A maker whose at the point in their career where they can consider going full time is most likely middle age with a family in many cases. Just health insurance cost alone would keep many from crossing the line.

You just nailed why I still use my photography as a part-time income. Per hour I make more doing photo work, but I cannot replace the security of a continuing health insurance plan for a family from an employer.

A very real consideration in our day and age.

Coop

 

[Kevin Jones]

Lot's of talk regarding makers being hobbyist rather than businessmen / professional.

So where do you draw the line in y'alls opinions?

Similar to amateur/professional criteria; it could be considered operating a business after you accept the first dollar for a knife.

Or do have to go full time before you are officially operating a business?

Level of talent?

What do you think?

 

[DWinkler]

Jerry makes a point about “making enough knives but not to many”. This brings up an interesting point about future collector value and the secondary market which is so important to the success of a knifemaker.

Example:

Knifemaker #1 makes 25 knives a year and sells them all. Most likely he will sell to about 18 different customers. 7 buyers collect his work and buy more than 1 piece. He has from this year about 15 real collectors of his work.

Knifemaker #2 makes 50 knives the same year and sells them all. Most likely he will sell to about 38 different customers. 12 buyers collect his work and buy more than 1 piece. He has from this year about 32 real collectors of his work.

My point is Knifemaker #1 has 15 collectors out there looking for his knives on the Internet, at shows and with dealers besides buying directly from the maker. Knifemaker #2 has 32. Which is better. The more exclusive knives from maker #1 or the larger collector base of maker #2.

I have been making as many knives each year as I possibly can trying to increase that customer base. I probably made about twice as many last year as Jerry but I imagine at a much lower average price point.

Daniel

 

[RogerP]

I have always had a very good idea what goes into the cost of making knives. I am not one of those that thinks that most knives are overpriced. In fact, many of the knives that I have seen are in my estimation, underpriced.

The most informative experience for me in this regard was actually making a knife - start to finish including sheath. I sure came away from that wondering how some guys charged so little for their work. I mean, I knew it was work, but it was a good bit more work than I had thought.

Roger

 

[Les Robertson]

Hi Kevin,

The day you think you might sell one of your knives (even if it is before you buy the equipment) the knife maker should consider becoming a business entity.

The tax implications should not be over looked. The depreciation of equipment alone is reason enough to become a business.

Additionally the new maker can show a loss for the first three years. Which they can then carry forward into the years they actually make a profit, reducing the taxable income even further.

You want the business to pay for as much as possible.

Corporate tax rate at $50,000 is only 15%

Personal tax rate for someone who is filing single at $50,000 is 25%.

If you are married, personal and corporate are the same.

However, you reach the $50,000 after deductions and depreciation.

Example, my corporation pays everything for both of my vehicles. Subsequently, I can pay myself less of a salary to the point that with standard exemptions and deductions my adjusted gross income will be close or at $0. We all know how much tax you pay on $0 income.

When you hear these ads on the radio and tv about incorporating for tax reasons. This is what they are talking about.

There is no "Voodoo" in this. The tax code is very specific about what you can and cannot do. You play by the rules, hire a good CPA and you will reduce your taxable income. BTW, if the money doesn't go to the IRS who gets it? YOU!

Remember, it is not what you make...it is what you keep.

WWG

 

[DWinkler]

WWG,

I think I need you to give me some tax counseling. With FICA I'm paying close to 30%. My CPA has told me I need to show enough profit to cover all my personal expenses or I'll be a red flag to the IRS. We have thought about incorporating but I can only see an advantage with the FICA portion of my tax bill. If you are showing a low or $0 personal income doesn't your business still have to pay taxes on profit?

This may be a little off the subject but it does come into play with knife pricing.


Daniel

 

[Les Robertson]

Hi Daniel,

Technically you need to show a profit about 1 out of every 3 years. The IRS understands that a business such as ours (selling things that no one needs) is subject to highs and lows.

Incorporating allows your business to pay for almost everything.

My corporation pays me rent for the office space it occupies in my house. Rent is of course earned income. However, it is not subject to FICA and Medicare. Consequently you automatically make an extra 14% (approx) on your money. Additionally this means you can decrease your "Salary" which will have to pay FICA and Medicare.

Another nice thing is that when you incorporate you can sell all of your equipment, land, etc to the corporation. You set up a payment schedule to include interest. The corporation pays you back on monthly basis. For as many months as it takes. Note, the money used to pay back the loan is not taxed in any way shape or form. Only the interest.

If you are paying $1,000 a month loan payment. That is $12,000 a year that is not taxable. Now you have eliminated another $12,000 that you have to pay yourself in salary. This gives you your 30% back for as many years as you need. In my case it took 8 years. Between Rent and Loan Payments I was receiving $20,400 a year. $12,000 had no taxes and $8400 was taxed at a 15 % rate.

Then you do pay yourself salary but only enough to cover personal expenses. Subsequently you make $30,000 a year. However only 18,400 of that is taxable. Once you take your exemptions and deductions your adjusted gross income will probably be under $10,000. This number has a very small tax consequence.

You were telling me at dinner that you had a large order from a business. If that was a large paycheck you could shelter that in your corporation and not pay tax on it until you actually spent some of that money.

Lots of advantages. Yes, you have to fill out quarterly paperwork, but once you do it a couple times it is not that big of a deal.

I know it is tough to wrap your brain around all this. I took me 7 years to talk Bob into incorporating. He even uses my CPA.

WWG

 

[Les Robertson]

Hi Dan,

One more thing.

Your personal and corporate taxes are two completely seperate things.

One has no impact on the other.

You can pay tax on your corporate return and pay zero on your personal and visa versa.

WWG

 

[Kevin Jones]

The most informative experience for me in this regard was actually making a knife - start to finish including sheath. I sure came away from that wondering how some guys charged so little for their work. I mean, I knew it was work, but it was a good bit more work than I had thought.

Roger

Very true Roger. And in addition add in all the expenses we have identified in this thread.

It's kind of ironic how we love these guy's and gal's work, think very highly of them, talk them and their work up where ever possible, however when its payday, many times we expect to pay them less per hour than the guy that comes to unstop our toilets
.

Go figure.

 

[Kohai999]

It's kind of ironic how we love these guy's and gal's work, think very highly of them, talk them and their work up where ever possible, however when its payday, many times we expect to pay them less per hour than the guy that comes to unstop our toilets
.

The guy that comes to unstop MY toilets charges $60.00/hour. At that rate, you would be paying about $900.00 for your drop point hunter. At that point, production knives start looking a lot more attractive.

Best Regards,

STeven Garsson

 

[jdm61]

Hi Dan,

One more thing.

Your personal and corporate taxes are two completely seperate things.

One has no impact on the other.

You can pay tax on your corporate return and pay zero on your personal and visa versa.

WWG

That's what is fun about the good old Sub S entity. No "double taxation" If you think about it Dan, depreciating your new power hammer (no idea what the schedule would be) is going take remove at least $1000 per year and maybe more from your taxable income.

 

[joshsmith]

Great posts.

Over the last few years I have been trying each year to get a better handle on how my business works and where the money goes. My business is an "S" corporation under the name Montana Knife Company, dba Josh Smith Knives. I named my corporation Montana Knife Company because I thought it would be a great name for a production knife company someday if that was to ever happen. Josh Smith Knives is for the custom knives made by myself. Daniel, you have got to incorporate. There's no doubt. If your CPA says no then look for someone else. The advantages are huge. You can creatively reduce your taxable income drastically by doing just a few simple things that completely legal and nowhere near the fringe or endangering you in an audit.

I have found this thread interesting. I feel like I'm getting a handle on pricing but I've read this post for any tips. Having my business set up in Quick-books has helped big time. Daniel is right about computers. Just a couple years ago I was trying to do it by hand on a spreadsheet but there was just no way. Now I can just hand my CPA the reports.

To me the first thing makers have to remember is that they are professionals. Saying you're "just a knife maker is BS". I've heard that and used to say it. But I've come to realize from guys like Hancock and Fuegen that we as knife makers are doing something unique and difficult and there is no reason we should not be compensated accordingly.

For example the average lawyer probably goes to college for 6-8 years at least. I have been making knives for 15 years now and feel that just in the last 5 I am starting to climb to a reasonable level of success. I'm just lucky to be hitting this point at 26. That first 10 years was my law school. I lost tons of money, blood, sweat, and tears. I feel like I've paid my dues and should now be compensated for those trials.

There's no reason a well known quality maker should not be able to charge 100 dollars per hour for certain tasks. That may sound like a lot but the advantage that maker has is he by now should have figured out how to do the simplest tasks quickly and accurately. That hunter that took 20 hours should now take 6. Well at 25 per hour for 20 hours that's 500 dollars. At 100 for 6 that 600. I'll bet that when it was taking 20 hours that maker was not even selling that knife for 500 because the quality and name recognition was lacking.

This hourly rate however sometimes will just not be applicable on more challenging tasks in which at the end a project the price would be ridiculous. But that maker should make notes as he goes along to try and do that task quicker the next time in turn making a better profit. The maker must be able to self check himself and know if what he is charging is out of line with what his market will bear. I feel there should always be value left in the piece as to not make the collector feel violated by the price.

Unlike many makers I feel the dealers are an useful tool. If they are marking your knife up 50-70 percent then you are leaving money on the table. New makers should sell to dealers to get their name out there but they should also pay close attention to what the dealer does with that knife. In fact the maker should encourage the dealer to have the freedom to price that knife at what the market will bear. That's just free professional advice. Though I disagree with Les on many of his viewpoints with the ABS he is right on one thing. I've never seen a dealer force a maker to sell them a knife. The maker can say no.

I am learning along with every other maker about the business end and I am a dry sponge when it comes to this. I will try and soak up every angle to see what best fits my business.