Pricing Your Projects Doesn't Have To Be Difficult

When it comes to pricing your items, it can sometimes be difficult to figure out exactly what you should charge. While I can't help you determine your worth (hourly rate), what I can help you do is take that hourly rate (once you come up with it) and use it to extrapolate how much you should charge for a given item.

I went back and forth on whether I should even do this as a blog post or not, but I feel this is the best way for me to help other makers price their work. Doing this as a blog post means that I'm also being completely transparent with my customers, which is never a bad thing, even though when it comes to pricing, it can be nerve-wracking.

Before we get started, I do want to say that this is a long read. This post breaks down the intricacies of the formula, why it works, and how it works. You're more than welcome to simply sign up and get the Google Sheet sent to you and then start using it! However, if you're like me, and want to know why it works, and how to best use it, then keep reading. There's a lot, but hopefully,  I've organized it well enough that it flows quickly and you'll be done reading before you know it!

Let's start at the beginning. There are many formulas out there to come up with pricing. Some say do materials times three, others say take materials plus labor and multiply by two...and there are probably 764 other ways to price your products. Today, we're going to talk about how I do my pricing. This formula is loosely based on Rockler Woodworking's method of pricing (just modified to fit my needs.) 

I've developed a pretty stout Google Sheet for my pricing based on a formula that my wife and I have spent approximately two years working on. The formula takes into account just about everything you could need as a maker and can help you price out standard woodworking projects, laser projects, CNC projects, 3D printing projects, and even apparel making. If I expand into new markets, I'll be sure to update the Google Sheet with the refreshed tabs as well!

With all that out of the way, let's dive into actually using the Google Sheet. I'll break down each tab and walk you through how it works, why it works, and why you shouldn't question the formula -- I did...and it didn't end well.

The opening tab is just simply an explainer of the Sheet and defines a few terms that you'll see throughout the document. 

Knowing Your Material Costs

Tab two is where things start to get interesting. This tab (Material Cost) isn't used throughout the document, but more so for you to reference. What I like to do is take a material I buy frequently (say, 12x19 sheet of 1/8 plywood), and multiply that into square inches (228.) From there, I divide the cost of that sheet of plywood (say, $4) by 228 (comes out to $0.0175) and then I write that down on the Materials Cost tab. I can include the supplier, link, and other pertinent information for that material. Now, whenever I go to use that material, I can look at Lightburn and see how big it is (3x4 inches, for example) and multiply it out (12 square inches.) With this information, I can multiply 12 square inches by the cost ($0.0175) and get the material cost ($0.21.) You can jot down everything here, from board foot cost for hardwoods to how much you pay per screw. This is really just a place for you to reference costs, and you'll probably end up memorizing them after some time. 

The Tools Behind The Quote

Moving onto tab three is where the party really gets started. Because of how complicated it might look, I'm going to break it down by tab (or tab group) so you know exactly how to use each one.

Job

This one should be pretty straightforward. Simply label the job here. You can use a customer name, project name, or whatever you want. This column is also filtered, so you can click the little icon to the far right of the column and search for a specific job or even a specific customer name if that's how you want to do it.

Hourly Rates

This is something that I can't really help you come up with to start. However, what I recommend is the same thing that Rockler recommends in the linked article above. Figure out how much money you want to make per year, and then extrapolate that out. On average, people work about 1,920 to 2,080 hours in a year. If we go on the lower end of that (I'd rather work less, I don't know about you), then simply take your desired income and divide that by the number of hours you want to work. Going off of Rockler's example, if you want to make $75,000 in a year, and you divide that by 1,920, you get $39 per hour. If you want to make $95,000 in a year, you get $50 per hour. Regardless of what you want to make, this is entirely up to you. 

Something else to keep in mind here. You're only making this hourly rate when you're actually working. If you're just doing this on the side, it's easy to realize that you're not working every single hour of the day. However, if you want to make $75,000 per year, and you put $39 per hour into the formula, then those times when you're not working on a project (like when you're working on a quote for a client, running to the store, etc.) you're likely not making $39 per hour. This is why I "charge" more than what I would expect to make per hour if I were working a solid 40 hours a week non-stop. 

My hourly rate fluctuates and does go up over time. At the time of writing, I charge $95 per hour for my work. "You charge what?!" you may ask. If I was to make $95 per hour 40 hours a week 50 weeks out of the year, I'd be bringing home almost $200,000 per year. News flash: I don't bring home nearly that much. I'm lucky if I bring home 1/3 of that much sometimes. This is because there are often times between projects where I'm working on other things (like writing this blog post. I don't have a client paying me to write this) and I need the money that I make from jobs to sustain me between jobs too.

Also, your hourly rate is the variable available in the formula for pricing. For any project, your material cost doesn't change when doing more than one. I mean, if you're buying tumblers in bulk, the cost of the tumblers might go down a little, but typically there's not a huge variance there.

That's why, when I do bulk work, my hourly rate drops down as low as $65 per hour at the highest point. Changing my hourly rate makes it very easy for me to figure out pricing for clients that place bulk orders, as I don't have to try and think.

Time

This is a fairly straightforward area, but one that can't be overlooked. You need to know how long something takes you to do. Whether it's manual time, laser time, or even 3D printing time, it's crucial to know how long something takes. And, also, have a minimum. For me, it's 0.02 hours (all time in this Google Sheet is in decimal form, with 1 being 60 minutes.) For reference, 0.02 is a rounded-up number from one minute. One minute in decimal is 0.0166 repeating, so I just round that up to 0.02. So, even if a task takes, say, 15 seconds on my xTool F1, I charge for 0.02 hours of work. 

The time is really simple to equate, but also, there are a few formulas at play here. For 3D printing, time and hourly rate are really all I use for a quote. I charge $6 per hour of printing, and that's it. So, those are pretty easy things to quote.

However, the "Fiber Laser Time" column is unique. While the formula (we'll get there in a bit) takes your time multiplied by rate to come up with a quote, the fiber laser doubles the laser rate for the quote. This is because fiber lasers work so fast compared to gantry-style CO2 lasers. I could break this out into a separate field where you could input a separate hourly rate for fiber laser work, but for me, just simply taking my CO2 laser rate and multiplying it by two has worked perfectly for me.

Material Costs

This is a pretty straightforward area, and I only have it broken down into two components: wood cost and material cost. This works for me, but you could also expand this out further in the future if you needed. I simply just input the actual, exact costs of wood and/or materials here. Sometimes it's more rounded than exact, but I try to keep this as precise as possible as that helps with the accuracy of the quote.

However, you don't have to include everything here. Part of the formula is calculating shop incidentals (more on that in a bit), and with that, the cost of glue, some screws, nails, etc. are already factored into your estimated quote that the formula generates. If you know that you'll need X number of screws (say, 250 pocket hole screws for a project) then include that in your material costs. The incidentals that are included really are designed to cover just some glue usage and some screw/nail usage, but not hundreds of screws/nails or gallons of glue. 

What are Incidentals and Shop Profit?

The formula includes areas for incidentals and shop profit to the right of the quote. These numbers are automatically generated using a formula and are then added to the final estimated quote. But, what are they?

What are incidentals and why do they need to be part of your pricing strategy?

Incidentals are items that you use during the creation of a project that you don't directly bill for. Think of things like glue, screws, nails, double-sided tape, etc. It's hard to know exactly how much super glue you'll need during a project, but you still need to cover the costs of buying more glue when you run out. Sometimes you don't plan to use three sheets of sandpaper for a project but you do, and you'll need to buy more sandpaper at some point. Things like that.

Incidentals is really designed to help cover the costs of things that you're not able to inherently charge for. In fact, incidentals can also be a great way to cover the cost of things like a new laser tube, new CNC bits, and other consumables. Laser tubes eventually have to be replaced, and they can be quite expensive. CNC bits dull over time. So, having a dedicated line item to help you save up to replace those parts of your creative journey is essential, and, with this pricing formula, completely automated.

What is shop profit and why does it need to be part of your pricing strategy?

You might see all profit as shop profit. And, for some, that might be the case. If you're doing this just on the side and not looking to make it a primary income source, then all profit over material and incidental costs could theoretically be profit you can use for anything and everything. However, if this becomes your livelihood and full-time job, that's no longer the case. 

Your hourly rate (and therefore, net profit) will end up going toward everyday expenses. Taxes, groceries, gas, the mortgage, electricity, insurance...all the fun adult stuff. However, it's still nice to have some cash to upgrade things down the road for fun. Whether that's adding AC to your shop, picking up a new laser, or just replacing your old shop lights with newer, brighter LEDs. That's where the shop profit line item comes in.

Shop profit is money that's designed to be set aside purely for spending on the shop. This money is designated to go toward shop upgrades or expansions, however you see fit. It's just a little extra added on top to give you some additional cushion when it comes time to spend money on the shop. Sometimes it's easier to swallow a purchase if you have a budgeted line item for that purchase, instead of just pulling the money out of a general fund. 

Do you have to use all the areas of this quote generator?

The short answer is: no. You don't. In fact, there are times that I don't. You see, I have shop profit and incidentals factoring into my quotes right now but because of my wife and I's financial state, shop profit is lumped into our normal income, and incidentals exists, but not in the way that I'd like it to in the future. And, that's perfectly fine. I still have it factor and I still track it like that because it helps me to see where things will be in the future, and it helps me to properly price projects. I'd rather price things accordingly now so that way down the line I don't have to change things, develop new formulas, and adapt pricing strategy to include it. All I have to do is just keep things flowing just as they are, and change a few budget line items in how we track our expenses.

You can do the same. I would urge you to not remove anything from the formula, but to just use the information as you see fit. Removing incidentals and shop profit from the formula would take completely re-writing the formula, which is entirely possible and something that you could easily do if you wanted to! The cells on the sheet are simply displaying the result of the formula, not actually doing anything to the formula. So, removing the cells from the sheet won't change the actual formulation of things, and I don't recommend that you change the formulation at all. But, you can if that's something that you'd really like to do!

How To Quote

Now, this is the part you've probably been waiting for. And I don't blame you, as this is where the rubber meets the road. You've gone through and inputted your hourly rate, time required, and material costs, and the formula has done the hard work. Now, there's a quote waiting for you in the Estimated Quote column. So, what do you do with it?

Well, that's entirely up to you. The formula is designed to factor in everything I've already mentioned; hourly rate (double your laser rate for fiber time), materials, shop profit, and incidentals. It takes all that into account and spits out a number for you to see. It's extremely rare my customers see the estimated quote, as it's just that, estimated. This is a place for you to start with pricing, not end.

I will say, never make your official quote lower than the estimated quote. One time we did a project for someone and the formula told us to charge $80 per item. That sounded astronomical to us, and my wife and I decided to charge the customer $40 per item. 50% of what the formula recommended. We would still be making a decent profit, but $80 each just sounded like it was so high. After doing the project, we determined that we wouldn't do it again for a penny less than $100 each next time. The formula was right, we were wrong. That was the one and only time I've ever gone lower than the formula, and it was an immediate regret.
However, there are many times that I'll go higher than the formula. If it says $77.24 for the quote, I'll typically quote it at $80. However, if it says $75.45 or even $76.75, sometimes I'll drop it down to $75. I know I just said to not go lower than the formula, but a dollar or two I've never regretted if it makes it easier for my customers. My pricing strategy is always whole numbers, and typically with a reason. When prices get higher, I'll typically round to the nearest $5 or $0 (so $213 would be $215, and $217 would be $220.) For lower numbers, I'll just normally round up to the closest whole dollar, and occasionally to the nearest $5 or $0 as I do for the larger. There's no rhyme or reason for when I do either, it all just depends on the project. 
Also, you absolutely could go with the exact number that the formula spits out. If it says $74.56, then you could very easily make that your quote for the customer. That number factors in everything that we've already talked about, and rounding it only makes it an easier number to remember.
Once you've determined your official quote, simply punch that into the official quote column and the formula will then work out what your net profit is. The gross net is your official quote minus cost of goods sold. Net profit (all the way to the right) takes your net profit and subtracts incidentals and shop profit. I split it up this way because that lets you see your true net profit (quote minus COGS) and then also the profit if you were to set aside incidentals and shop profit, so you know how to budget either way.

How To Price For Bulk Sales

So, now that you know how to use the formula and the Google Sheet, let's talk about the other tabs at the bottom. They all work the same, just some are laid out a bit differently, or have different tasks. The fourth tab within the sheet is for your bulk pricing. This is just so it's easier to keep bulk pricing separate from individual clients, and this is how I've found my workflow works best.

Bulk pricing works relatively simply, at least, for me. As I said early on in the post, I charge $95 per hour for my time because I know that not 100% of my working time will be billed to a client. However, the more of my time a client bills, the lower they'll pay for it. This is because if a client orders, say, 100 t-shirts from me, that will monopolize a lot more of my time that week. For this, I drop my hourly rate in increments of $5 per hour depending on how large the bulk order ends up being. My personal bottom rate (at the time of writing) is $65 per hour for bulk.

My material cost might change slightly if my supplier passes on a bulk rate to me, so I'll update the quote to have my new hourly rate plus the new material cost and that'll help me come up with a bulk rate. Bulk rates are also relatively fixed. For example, when doing t-shirts, my retail price is $25, as you can see across my website. However, if someone wants to place an order of 75+ shirts with me, that price drops down as low as $14 per shirt depending on the end use of the shirt. If it's wholesale, then it's one price, if it's just bulk for use for other purposes, it's another. I have tiered pricing just like many other companies depending on what the end use of the item will be. 

You'll see this reflected within the rest of the sheet, as well. Which, should be pretty self-explanatory. The rest of the tabs within the sheet are all related to t-shirt production, which could be entirely ignored if that's not something you plan on doing. Really, these all use the exact same formula, just with fewer columns for costs, and a few more on the other side so you can track things like brands, model numbers, and supplier names.

If you have any problems with the Google Sheet, or would like to ask any other questions, then feel free to join our Laser Creators Workshop Facebook group or Discord! I'm active in both groups, though the Facebook group does have more activity by others who can also chime in to lend a hand or assistance.

If you'd like to gain access to my pricing Google Sheet, simply enter your email address above and the link will be sent to you! Once you receive the link, click on it, then hit "file" then "Make a copy" and you'll have your own copy of the pricing worksheet to use in any way you see fit!