Interesting Article...

CrisAnderson27 · Jan 20, 2016

...about pricing and the costs involved in a blacksmithing business.

And while I am not a blacksmith, of course...I'm sure the similarities are apparent, lol. Now...most guys aren't doing this full time, and so their overhead costs will be different. Other guys are start ups and so may feel the need to under price for whatever reason. In addition, I don't bill any of my time spent communicating with customers, or working on design...but again...the concepts still apply to the value of the finished product. I think you guys who have ordered from me and received a finished knife can attest to what all is involved in that aspect of the job. All in all though, it SURE makes a $1,078 fire poker set (from the article) seem a LOT more reasonable lol. I also don't charge overhead as such, as I seem to have found a way to work it into the average price per knife by length, with add on charges for various upgrades. The responsibility is on me to complete the knife within a reasonable time frame in order to maintain ANY semblance of profit.

I have included the entire article within the quote, and a link to the source below.

ANVIL Magazine said:

Blacksmithing as a Business
© Nol Putnam

published in ANVIL Magazine, January, 1996

Blacksmith Bill Gichner once told me that as a beginning smith, I would spend 80% of my time learning the craft and 20% of my time selling. Once I had mastered the craft, the figures would be reversed. I did not believe him - I was wrong. It became imperative to learn what my work was worth.

In smithing, the progression for me has been learning:

How to smith.

How to price my work.

How to market the ironwork to produce a livelihood.

How to put all of this together to create a life that includes family, friends and being a good citizen in my community.

My process sounds very orderly. That has not been the case. All of the above points have to be worked together; like the tides, intertwined. Some days your hammer will do your wish, and the next, some numbers may fall into place.

Something about my own business first. I did not pick up a hammer until I was 37 years old. Aside from wishing that I had started learning younger, beginning at that age, I knew what I wanted to do. I did not have to try a lot of avenues until I blundered into my love. No blades, no horses, no wholesale; I knew I wanted to do: large, architectural smithing. Of course, I paid years of dues with hooks, hardware, chandeliers, fairs, galleries, and even some wholesale work. And I still do some of these. One can never start full grown like Venus on the shell. Dues must always be paid.

In 1982, I moved to my present shop and for the next ten years worked with one or two others in the shop as partner, helper or apprentice. Today, I have come full cycle, and once again I work alone on architectural commissions.

My basic business rules are:

To respond to any inquiry (mail, telephone or fax) within 24 hours. This includes people who call upon me in an emergency to shoe their horses. I cannot. But I always return the call and refer them to farrier friends. Someday they may want some wrought iron.

To greet everyone who comes into my shop. Customers are the life blood - treat them nicely. And remember, never judge a book by its cover.

To treat every question as though it is the first time I have ever heard it. It is the first time the questioner has been brave enough to ask (because you greeted them so nicely), and all that's wanted is some correct information. Who better to provide it than you?

If I have the time and the inclination and they are receptive, to teach them something about the craft. They are future customers or perhaps their friends will be. It pays to be helpful.

The foundation of a successful business is good record keeping. It is a must. You cannot know the value of your work without records. And too, the IRS will not like you, and your accountant will have strong words with you. So do not buy into what I call the Sarah Bernhardt syndrome: "I amartiste I do not keep records!" Nonsense. The flip end of this is just as harmful: "Well, my work isn't very good, so I shouldn't charge a fair price." It is true that the customer should not be charged for your education. But once learned, you deserve to be paid for all of your work. And too, you will be undercutting your smithing neighbor who knows the value of his work. Not fair to them.

My work is priced by how long it takes me to do it. Thus, I must keep track of the hours and then know what to charge per hour. The latter is called your shop rate and is made up of two parts. The first part is what it costs you to open your doors: rent, mortgage, lights, fuel, telephone, advertising, heat, equipment, shop tools, water and more. This is your overhead. The second part of the figure is your salary.

Overhead is everything you need to run your business. At tax time, some of these expenses will be handled in different ways. Costs of major equipment (your power hammer, a new anvil) may be spread over several years. The building, if you own it, may also be depreciated over 15 or 20 years. And the cost of materials used in the creation of your work may be deducted right off the top.

Breakdown of Expenses or Overhead: Advertising, Business Commissions, Donations, Dues & Publications, Equipment, Freight, Hardware, Insurance, Leasehold Improvements, Mail, Mail UPS, Materials, Materials steel, Office Expenses, Other, Payroll Gross, Propane, Rent Paid, Sales Tax, Shop Tools, Show Fees, Supplies, Tax Preparation, Taxes (Federal), Taxes (FUTA), Taxes (Unemployment), Taxes (State), Taxes (Town), Taxes (Personal Property), Taxes (Real Estate), Telephone, Travel, Truck (mileage), Utilities, Water, Welding Gas.

All these bills are to be paid from your business account. Keep your personal and business accounts separate. It is not that someday you won't get stuck and need one for the other, but don't make a practice of it. It is much simpler for all concerned to have those nice checks printed up with the name of your forge boldly at the top. This can take many forms, from a simple checkbook to the One-Write check system (using the carbon strip), to a computer program like Quicken, which greatly simplifies record keeping.

I also keep a record book in my truck to record all the mileage I drive for the business. This is a must for the IRS. It is a log of date, where, mileage in and out. At 29 cents per mile, this can add up quickly.

Also on the dashboard I keep an envelope to put in all those silly little cash receipts for four screws, one can of black paint, the envelopes for the business, and such items. These are your out-of-pocket expenses. I pay myself back at the start of each month, breaking them down into their categories. I know all of this sounds burdensome. But is really only a matter of training yourself to take a few moments to keep these records as they occur.

The next step is to figure out how many hours a day, week or month you spend actually producing work. It is this activity that produces the income - not answering the phone, not looking at reference books, and not having that cup of coffee. Only when you are at the desk designing it, the anvil creating it or the bench putting it together, are you actually earning money for yourself and your business. You will be amazed, astounded and even shocked at how little of your time actually gets spent productively. I am at my shop seven to eight hours a day. I probably spend five or six hours a week in the evenings at my desk and computer - in theory, that is a 45- to 50-hour work week. In actual fact, my chargeable hours hover between 15 and 25 hours per week. It is from these productive hours that my overhead and salary must be paid.

To find out how many hours you are working or where they go, create a time sheet in half-hour increments and keep track for a month. Do it again in six months, and then again periodically to see that things are still in balance. A time clock is very useful for this (They cost about $300, but are great for keeping track of multiple projects).

The second part of the 'what-to-charge equation' is your salary. How much do you need to earn in a year - $15,000 or $35,000? How do you break this down? Again it must be reduced to the actual productive hours you are working. There are 52 weeks a year. Take out the weekends and you have 260 days. Take holidays (another five), a week of being sick, and finally this year you had better take that week-long vacation with the family. So we are down to 245 actual working days.

Having filled out the time sheets, I know that I average four hours a day of chargeable time. Further, I've decided I need to earn $25,000 a year.

The formula then goes like this:

4 (hours per day) x 245 (actual days) = 980 chargeable hours per year.

$25,000 (my salary) divided by 980 (chargeable hours) = $25.50 per hour.

Now you must add in the cost of overhead.

And having kept GOOD records, I know my monthly overhead averages $2500, or $30,000 per year.

$30,000 (overhead) divided by 980 (chargeable hours) = $30.63 per hour.

$25.50 + $30.63 = $56.13 (basic hourly shop charge).

I would round this up to $60, because I know you will have forgotten to add in something somewhere.

Now, how do you apply this to your finished work? The simplest way is to keep track of your hours on the fireplace poker and multiply by $60. But what about the design fee; cost of materials; replacement of equipment; delivery and installation time; the three hours you spent with the client while they decided on the style? All of these impact upon your final price. (Let me recommend a tape from Walt Scadden, P.O. Box 8116, Buckland Station, Manchester, CT 06040, at $12.95 + 1.95 for shipping, for a detailed and excellent discussion of these charges.)

Properly, these are subjects for articles in themselves.

But in a nutshell, I do the following:

Design time: The first meeting is free, and then the design fee is 20% of the total cost of the item.

Materials: I multiply my cost by 50%, and this will cover the extras, such as rivets, etc.

Delivery: One-half the shop rate per hour, plus mileage, to and from.

Installation: At the hourly shop rate.

Profit: (This might also be called fix-up, replacement of equipment, or darn-I-didn't-charge-enough-again.) 20% of the total price.

So Mr. and Mrs. Jones have called you for a fireplace set of three tools and a hanger. You do a drawing of one of the tools so they can see the size and the elegance of the handle. You estimate that you can do a tool every four hours.

4 hours x $60. shop time = $240 per tool; the hanger is 2 hours x $60. = $120. Design fee 20% of one tool (you only did the one drawing) = $48. Materials = $22. Profit (20% of $840 {3 tools and hanger}) = $168. For a grand total of $1,078 plus state tax where applicable. This estimate will give fire tools a new respect in your eyes. You know the actual costs of doing business. You can hold your head high and enjoy the fruits of your labors.

This all may seem a far cry from doing things that make your soul soar. In fact, it is not. My self-esteem is far better knowing (not guessing) that I am charging a fair and honest price for the things I choose to make. I can document it. More important, by charging a fair price, I have time and money to do the things that make my life richer and better, like buying a recording of Dylan Thomas or Yevtushenko; taking a trip to Mexico to see the copper workers or tile makers; a week down the canyons of southern Utah in the late summer; a trip home to see the grandparents and collect some of the old stories; a chance to go back to school to hone skills or learn new ones. This is all possible because I know with certainty how to charge and what to charge for the work. I love my iron work, and most days I love going to the shop. But I do not enjoy subsidizing people who buy my ironwork. I work too hard for that. I have too many things that I want to do in my life. Don't be ashamed to know the nuts and bolts of your work as well as the joy it brings to your soul.

Nol Putnam maintains the White Oak Forge, Ltd. in The Plains, Virginia. Among his many artistic efforts is the Memorial Gate in the West Columbarium at the National Cathedral in Washington, DC.
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http://www.anvilmag.com/smith/blcasabs.htm

I also wanted to say that the only reason I've posted this is that I was researching applicable tax laws and other business related information and found it really interesting. My pricing structure is much different, though oddly enough I came out with similar numbers. I thought you all might find it interesting as well. I mean, these numbers were valid in 1996 lol, and you can only imagine how some of them have changed today. Just the self employment tax this year is astronomical, as there is no one matching a business owner's contribution to the government. I'm sure that same blacksmith today is charging $75-$80/hr for the same take home pay.

I'd love to hear all of your thoughts on the topic .

WildBoar · Jan 20, 2016

Pretty much standard way of determing hourly billing costs. The big question is what does the Overhead encompass? Should include things like retirement program, health insurance, etc. Equipment costs as well, although it should be balanced with the ability to depreciate. And if a shop is at one's home it may be a little trickier to separate out some of the operating costs vs if you have separate shop space somewhere that comes with its own set of bills each month.

Probably the one thing that jumps out at me is he only works 4 billable hours per day. A 50/50 split is definitely on the low side.

CrisAnderson27 · Jan 20, 2016

WildBoar said: ↑

Pretty much standard way of determining hourly billing costs. The big question is what does the Overhead encompass? Should include things like retirement program, health insurance, etc. Equipment costs as well, although it should be balanced with the ability to depreciate. And if a shop is at one's home it may be a little trickier to separate out some of the operating costs vs if you have separate shop space somewhere that comes with its own set of bills each month.

Probably the one thing that jumps out at me is he only works 4 billable hours per day. A 50/50 split is definitely on the low side.
Click to expand...

I spend a lot of my work/production hours conversing with my customers via text or private message etc...so the billing hours kind of make sense to me, actually. I only end up getting 4-6hrs of actual shop time per day as well. This is considering what's probably a 10hr (or more...actually, definitely more) day between mail runs, tool runs, materials runs, private message responses, email responses, facebook responses, pictures, maintaining a forum presence and Instagram presence, and communicating with customers at a level where I cannot work at the same time, etc lol. I can easily see a 50/50 split when considering a 6hr production day. I just checked my time keeping app (SO USEFUL), and I've worked only 72.5 production hours in the shop this month. With 13 'weekdays' in the month, that averages almost 6hrs per day. Considering that I work (meaning put in shop time) pretty much every day of the week with few exceptions...and am almost always working in some capacity unless I'm eating or doing homework and other social things with my little ones...that says something. Divide that labor time by 20 days, and you're down to under 4hrs in the shop a day.

On the other stuff...I can't even imagine retirement, insurance, etc right now lol...but you're right, I do need to. About the most I do currently is factor 15% against my materials costs per knife to cover 'overhead' (meaning electricity, equipment wear or repair, materials that don't apply directly to each knife, etc)...which looking at this article and your commentary isn't anywhere near enough. This is also not how I determine what I charge...but rather how I pay myself. I think I have a long way to go to make this an actual productive 'business' model...though currently it supports us well enough, and allows me to put some money each month into savings. Some of that is due to the shop being at my home as you said I'm sure. I can't imagine being able to do this any other way.

I do still need to see an accountant, and am still in the process of researching how best to setup my financials. Right now Paypal is technically my 'business' account, while my bank is personal...but there's a BIG grey area in between. My record keeping books are an Excel spreadsheet that I setup myself, lol. It has one control sheet, and separate 'record' sheets for each knife I make that includes costs of materials, hours worked, dates worked, and what was done in each work session. This has been exceedingly useful in regards to helping me fine tune my pricing AND track my labor (all of which ties back to my control page which logs total hours, total profit, and my eventual hourly rate when the knife is complete)...but I'm not certain of the long term functionality as I'm definitely no Excel expert.

This could turn out to be an interesting topic across the board it looks like .

cassca · Jan 20, 2016

CrisAnderson27 said: ↑

Just the self employment tax this year is astronomical, as there is no one matching a business owner's contribution to the government. I'm sure that same blacksmith today is charging $75-$80/hr for the same take home pay.
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hi

can you tell me how much is it ?
that is a percentage of the profit ?

WildBoar · Jan 20, 2016

It's funny how people knock Kramer for the knife prices (which he still sets far below free-market pricing), but if you figured $60/ hr + materials his pricing is probably 'fair'.

'On the phone with customer'... where to start with this one? That seems to be a major thorn for a lot of you makers. On one hand, the accessibility is a large part of why people like this maker or that one, yet the 'non-billable' time aspect of it definitely comes back to haunt you. Reduce that non-productive time by 50% and the same hours worked will be more $ to cover overhead and pay yourself. Do it well enough and it will allow you to control the pricing of your knives. I think David Smith was probably the best of the 'craftsmen' on the forum with respect to not spending a lot of time on the computer, phone, etc. during the day.

bob_loblaw · Jan 20, 2016

CrisAnderson27 said: ↑

I spend a lot of my work/production hours conversing with my customers via text or private message etc...so the billing hours kind of make sense to me, actually. I only end up getting 4-6hrs of actual shop time per day as well.
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Message received, no more random texts to Cris telling him how awesome the knife he made me is

In all seriousness, I couldn't imagine working all the financials in putting together a business model that works. This society makes it hard to make a fair living as an artisan; no one wants to pay what it's worth for a handmade premium crafted item.

MotoMike · Jan 21, 2016

bob_loblaw said: ↑

.... no one wants to pay what it's worth for a handmade premium crafted item.
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Though a derail (sorry), my wife makes and sells quilts as a home business and I can tell you the same is true there. I look at the hours she puts into it, the cost of quality materials, and realize the price they should cost, no one will pay.

CrisAnderson27 · Jan 21, 2016

I wonder why I didn't get notification of all of your replies??

cassca said: ↑

hi

can you tell me how much is it ?
that is a percentage of the profit ?
Click to expand...

This year it was approximately 20% of my income.

WildBoar said: ↑

It's funny how people knock Kramer for the knife prices (which he still sets far below free-market pricing), but if you figured $60/ hr + materials his pricing is probably 'fair'.

'On the phone with customer'... where to start with this one? That seems to be a major thorn for a lot of you makers. On one hand, the accessibility is a large part of why people like this maker or that one, yet the 'non-billable' time aspect of it definitely comes back to haunt you. Reduce that non-productive time by 50% and the same hours worked will be more $ to cover overhead and pay yourself. Do it well enough and it will allow you to control the pricing of your knives. I think David Smith was probably the best of the 'craftsmen' on the forum with respect to not spending a lot of time on the computer, phone, etc. during the day.
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I can agree with this...but honestly, that's not the only issue...nor is it the most time consuming one. Today I spent 3hrs sharpening a razor, packaging it to go to Sweden, and packaging two knives to ship out. Then more time driving to the post office and getting back to the shop...which was another hour plus. I started my work day at 8am, and didn't even get into the shop until after noon. Two and a half hours later (some of which was spent taking video for customer updates and uploading to YouTube and IG) I had to get my little ones from school, get home, do homework, feed them...and then I was able to get another hour and a half in. Sooooo, my current production hours for today clocks in at 3hrs and 30 minutes lol. I'll get another two or so hours in tonight after 9pm...so today will actually turn out to be an above average day for shop time.

bob_loblaw said: ↑

Message received, no more random texts to Cris telling him how awesome the knife he made me is

In all seriousness, I couldn't imagine working all the financials in putting together a business model that works. This society makes it hard to make a fair living as an artisan; no one wants to pay what it's worth for a handmade premium crafted item.
Click to expand...

Nah lol, I quite enjoy the customer interaction. It makes each knife a personal piece, rather than 'just another knife'. Even if I don't end up great friends with the person receiving it, at least the process is enjoyable for us both.

And I always like to hear how awesome I...err, my knives are!

MotoMike said: ↑

Though a derail (sorry), my wife makes and sells quilts as a home business and I can tell you the same is true there. I look at the hours she puts into it, the cost of quality materials, and realize the price they should cost, no one will pay.
Click to expand...

You guys are right here. You have NO IDEA how incredibly grateful I am for you ladies and gentlemen who appreciate my work enough to accept pricing that allows me to support my family doing this. It's genuinely humbling...and yet, it is also something I'm very proud of. It's an interesting mix of feelings that should be incompatible...yet, somehow aren't.

cassca · Jan 22, 2016

in france :
http://www.lefigaro.fr/impots/2013/...arges-sociales-pesant-sur-les-entreprises.php

between 51 and 64% :/

worst country in europe ...

WildBoar · Jan 22, 2016

CrisAnderson27 said: ↑

I can agree with this...but honestly, that's not the only issue...nor is it the most time consuming one. Today I spent 3hrs sharpening a razor, packaging it to go to Sweden, and packaging two knives to ship out. Then more time driving to the post office and getting back to the shop...which was another hour plus. I started my work day at 8am, and didn't even get into the shop until after noon. Two and a half hours later (some of which was spent taking video for customer updates and uploading to YouTube and IG) I had to get my little ones from school, get home, do homework, feed them...and then I was able to get another hour and a half in. Sooooo, my current production hours for today clocks in at 3hrs and 30 minutes lol. I'll get another two or so hours in tonight after 9pm...so today will actually turn out to be an above average day for shop time.
Click to expand...

Sharpening a razor wasn't a paying job? If it wasn't, 'lost' time like that is a little tough to count as overhead cost for your knifemaking. As far as packaging/ driving to PO goes, either that is billed time for the particular orders, or you put it in the OH pot and split among all paying jobs (which it sounds like you do). Perhaps charge an hour's worth of labor for packing/ driving per knife? It probably takes quite a bit of time per knife to package (I've seen some of the packaging you do), but chances are you are typically mailing more than one thing at a time.

In the professional services world (engineers, attorneys, etc.), billable hours are more than just actual production time, they are time you spend on a particular project. For professions that do not charge for shop/ travel time (i.e., most building trades) it is captured in the OH and translates in higher hourly billing rates. So two approaches: 1) bill for all time on a project, at rate "x"; or 2) bill only for production time on a project and bill time at rate "x" multiplied by a higher OH #. Main thing is to decide which way you want to go with and calculate your OH based on that decision. Use your 2015 books to help calculate. Of course this really only works if you record your time. If you have not been, try recording for a couple months and then do the calcs and see how your rates come out.

Neens · Jan 22, 2016

If you billed for time spent in the planning and development portion of production where you needed my input, I think we could add another 0 to my knife. I told you before that with all the custom makers that I've worked with you have been the most open to communication. Aside from makings amazing knives that would be my favorite thing about you.

CrisAnderson27 · Jan 25, 2016

WildBoar said: ↑

Sharpening a razor wasn't a paying job? If it wasn't, 'lost' time like that is a little tough to count as overhead cost for your knifemaking. As far as packaging/ driving to PO goes, either that is billed time for the particular orders, or you put it in the OH pot and split among all paying jobs (which it sounds like you do). Perhaps charge an hour's worth of labor for packing/ driving per knife? It probably takes quite a bit of time per knife to package (I've seen some of the packaging you do), but chances are you are typically mailing more than one thing at a time.

In the professional services world (engineers, attorneys, etc.), billable hours are more than just actual production time, they are time you spend on a particular project. For professions that do not charge for shop/ travel time (i.e., most building trades) it is captured in the OH and translates in higher hourly billing rates. So two approaches: 1) bill for all time on a project, at rate "x"; or 2) bill only for production time on a project and bill time at rate "x" multiplied by a higher OH #. Main thing is to decide which way you want to go with and calculate your OH based on that decision. Use your 2015 books to help calculate. Of course this really only works if you record your time. If you have not been, try recording for a couple months and then do the calcs and see how your rates come out.
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No, sharpening the razor wasn't a paying job, but it was absolutely a work related job. The razor was sent to me to review by use and as an example of a grind a potential customer might be interested in. I don't like sending back dull tools, so it got sharpened. He may never buy a razor from me, but it's still absolutely something that costs me time etc.

As for the rest, I'll have to track ALL time spent for a few months, but as Anthony says below...it would probably add another zero, lol. I do enjoy it though, truly...so it feels more like 'social' time than work time. I currently only keep track of shop time, as the other time is too easy to mix up. For example, I may do a number of domestic errands while heading to the post office. Other than a flat out guess at the percentage of time I spent actually going to and from...it's tough to track. Making an effort there for awhile might be worthwhile in the information it provides though.

Neens said: ↑

If you billed for time spent in the planning and development portion of production where you needed my input, I think we could add another 0 to my knife. I told you before that with all the custom makers that I've worked with you have been the most open to communication. Aside from makings amazing knives that would be my favorite thing about you.
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Thank you my friend, truly . I genuinely love working with my customers. The in progress photos (which you haven't really experienced yet), their responses, the interaction and development of the project (ask @Cheeks1989 how many times we've made little changes here and there to his current knife being made lol)...all of it adds to my enjoyment. Again, I'm getting paid to hang out with friends (online) and make them tools that they will love. It doesn't get better in my opinion!

Cheeks1989 · Jan 25, 2016

O yeah, I don't shut the hell up either. If Cris was a loyer I couldn't imagine the bill.

bob_loblaw · Jan 25, 2016

@CrisAnderson27 BTW, your customers love working with you too! Those in progress photos and videos add a lot to the experience, it's great to see the maker get as excited as you, which only makes you more excited...it's like your feeding each other's fires.

CrisAnderson27 · Jan 25, 2016

Thanks you two! It means a lot that you guys appreciate the entire experience as much as I do . I know some of my customers think they have been a pain or overly difficult to work with...but honestly, I can't think of one that I wouldn't happily make a knife for again without a moment's hesitation.

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