The Price is Right – Or is it?
by Robert Bois
When CustomMade first asked me to contribute to this blog, I figured I might as well dive in head first and address a topic that never fails to spark controversy – pricing. If you wander over to almost any woodworking forum, you’ll find any number of opinions on “the right way” for woodworkers to price their wares. I myself have even gotten into a few lively debates on the topic, but over time one thing became clear to me – most people giving pricing advice never actually account for the individual business model.
In reality, no two woodworking businesses are the same. To illustrate this better, I divide the craft into two main categories: custom and production businesses. Custom woodworkers typically build one-of-a-kind pieces to the specifications of a customer, which makes this model much more of a service business. On the other hand, those who create their own designs and then sell them as finished pieces have almost purely product businesses. So when someone offers you advice on how to price without asking what kind of business you are in, kindly smile and decline.
The primary difference between the two models is that they ask the woodworker to differentiate on very different things. A good custom woodworker differentiates on craftsmanship, communication with the customer, and quality of service (on time, on budget, while exceeding expectations). Because this is a service business, the traditional method of charging time and materials often makes a lot of sense. The better you are at providing that quality of service, the higher the hourly shop rate you can fetch in the open market.
A production woodworker, on the other hand, almost always differentiates either on design or price. Most high-quality craftsmen seek to build a reputation by combining a branded design with high quality craftsmanship, rather than focusing on a low-cost model. In this case, the market value for the end product is much more disconnected from the time and labor. This model requires a keen understanding of the market to ensure that marketing, branding, and design will resonate with the right prospective buyers. The pricing should focus almost exclusively on what the market will pay, rather than the cost of materials, labor, or overhead. Cost only comes into play when determining the final profit margins.
In both cases, competitive differentiation remains the key. If a custom woodworker can regularly meet tight deadlines, apply specialized tools and techniques, or demonstrate superior craftsmanship, he or she can charge a premium shop rate. By the same token, a production craftsman that focuses on differentiated design, specialized materials, or unique production process can use that to charge higher prices or achieve better margins. The critical factor, regardless of business model, is to identify those key differentiators and validate the premium pricing they can command. Successful shops have a very good understanding of their competitive advantage and the value that target buyers place on it. So before reading another forum post, ask yourself – what are your differentiators and what are they worth?
Rob Bois lives in Newton, MA with his wife and dog. By day, Rob runs product marketing and thought leadership for a software company. By night, he is an avid designer, woodworker, and author of theboisshop.com video blog. Rob has successfully applied many of his business and marketing learnings to his woodworking craft, and regularly contributes to blogs and forums on topics related to the business of woodworking. You can view some of Rob’s work at his Newton Fine Woodworking web site.