Woodworking Profit

Setting the right price for your woodwork product requires you to know your true cost of production and understanding your customer. You'll need to know your customer's demographic information which includes age, gender, average income, a prominent source of income, and trending interests. In other words, you need to recognize the psychological impact your customers experience when contemplating to buy your product.

It's that type of information that will help you achieve that fine balance between making a sale and making a profit. It's not always about giving the lowest price.

Sometimes the higher-priced products will sell better with a higher profit margin than lower priced items.

In the end, the ultimate goal is to have happy customers that will come back while attaining the optimum profit margin.

In this article, we will discuss various strategies used by woodworkers to price an item for sale. These strategies not only work for woodworking but pretty much for any industry.

We will follow up with the method we use for pricing our products so you can decide what is the best method for you. 

Be advised that we are not business consultants. We are merely showing some examples based on research we've done, living and working within the woodworking culture, and explaining how we currently price our products based on our own experiences.

Woodworking Pricing Myths

Woodworking pricing myths

When it comes to pricing woodworking items the most common markup margin we've heard from the woodworker culture is to take the price of materials for the project and double it.

So if it costs $20 on materials for a project you would charge the customer $40.

This strategy may work well for the hobbyist wanting to cover their costs but it will not help a woodworker start and maintain a business.

We say hobbyists because most will use off the shelf wood from the big box stores and will build these products during their spare time for fun.

Yes, we said for fun as those using this strategy are certainly not doing it for profit, because there ain't gonna be any!

We will explain in more detail about how to make a profit further down but doubling the cost of materials is likely not going to cut it.

The other downfall of this doubling material pricing model is that some wood can be quite expensive.

Most wood in the big box stores will range between $1.50 bf to $14 bf but if you start getting into any type of specialty woods you can look at upwards of $50 bf and many customers may not be ready to pay for products made from that wood.

Customers may prefer the wood color to be the same but don't care if it is made from Pine or Sandalwood as long as it looks nice.

Customers may prefer the wood color to be the same but don't care if it is made from Pine or Sandalwood as long as it looks nice.

How To Calculate Actual Cost

Woodworking price calculation

Before we start by figuring out why we need a 40%+ markup on a project, first let's start by calculating the actual cost for materials and time per project.

The first thing to figure out are the amount of material you will need for a project.

When it comes to materials, the easy-breezy way is to figure what approximate total board feet are needed for the project than adding about 15 to 20% on top to account for waste or a possible error in one's calculations.

The problem with that method is that the error in calculation tends to happen more frequently than we would like and that means you end up underestimating the cost of the project along with possible return trips to the lumber yard.

Not fun!

The better method to figuring out how much wood is needed would be to draw up your project, create a cut list, which will need to be done anyway, and then you will know exactly how much material and hardware you will need.

Then having created that sketch and list you will be ready for the next order for that piece, which in turn will save you time which equals savings in cost for higher profits.

Don't worry we will get to the profit information shortly.

The second thing to figure out is the amount of time it will take to build and finish a project.

Essentially most of our furniture projects can be broken down into 6 steps.

  • Getting materials
  • Planing lumber
  • Cutting lumber
  • Assembling
  • Sanding
  • Finishing


Sometimes 2, 3, 4, 5, 6 will overlap depending on the type of furniture but those are the basic fundamentals of woodworking.

Once again the easy-peasy method to estimate the time needed for a project is to break down each of the 6 steps and adding them up for a total time.

The calculating time part may sound easy but in most cases, we will underestimate how much time something will take to do.

I think most woodworkers are inherently naive to believe we get things done faster than it actually does. So you really need to be honest with yourself and we have a written about a time management exercise you can read about here.

Now if we go back to how to calculate the materials needed where we mentioned the best way would be to sketch up a plan, that method also works well for the time.

If you have your sketch and cut list and you start working through the steps you should mark down how much time it took you for each step.

Then when you are asked to build the same project you will know how much time it should take you to build that table or chair.

You do have to remember that the time taken to do each step will likely improve as you get better and also as you get accustomed to building from the same plan.

Now that you've figured out how much time you'll need to build a project you'll need to decide how much you want to charge per hour.

Part of that decision will depend on where you live. If like myself you live in North-America then it seems that a reasonable hourly rate is between $30 and $40 dollars depending on your experience.

You may think that $30 to $40 is high and it may be true because of where you live.

Even if you do live in North America, the cost of living and salaries for any field of work will vary by region and that is the same for woodworker's rates as well.

All-in-all $30 to $40/ hour is an average that appears to be consistent across most regions of North America.

To sum up the actual costs you will take the cost of materials plus your time to give you the total cost.

Material Cost + (Hourly rate x Hours to complete the project) = Total Cost

Woodworking For Profit

Woodworking for profit

Having the total cost doesn't mean you've figured out the final price you will charge your customer.

The total cost is what you would charge if you only wanted to barely break even. 

If you charged at the rate of total cost only you will essentially be building furniture for free.

You may argue that you are charging for your time so at least you're getting paid for your time.

The reality is that you haven't accounted for many other expenses in order to run your woodworking business so all those expenses will eat up what you charged for your time.

That is why you will see successful businesses will do a markup in price.

The average markup rate in our area is about 40%.

That means you would take your total cost and add 40% to give you the full price of your project.

The best way to calculate your markup is as follows:

 Total Cost [Material Cost + (Hourly rate x Hours to complete project)] ÷ (100-40%) x100

Example for a project where the total cost of materials and time equals $50

and you want a 40% markup:

[(50) ÷ (100 - 40) x 100

[(50÷60)] x 100 = $83.33

If you are a manufacturer and wanted a retail store to have them sell your product they will markup the price at least 40% more than the price you charged them. Remember,  you already marked up your price to them by 40%.

The store owner knows they need to sell it higher than what they buy it for otherwise they can't stay in business. They have expenses to cover and still want to make a profit to please the owners or investors.

The same goes for the a small woodworker business like ourselves. That 40% markup is required to cover all the associated costs to run a business.

Here is a shortlist of costs that we incur from running our business:

  •  Insurance House/Shop
  • House /shop portion mortgage
  •  Heating
  • Electricity
  • Van -maintenance, fuel, insurance
  • Tools -maintenance and new tools to increase efficiency and quality
  • Replenish sand paper, screws, glue, air filters, gloves, stain, paint, etc +++
  • Website hosting
  • Payment Services (Square)
  • Accounting
  • Advertising (not currently but possible in future)

That list consists of only a few associated costs you may encounter to run a business. If your business grows and you start having to hire employees, rent a store, the list will grow to be much, much longer.

If your business expands you see that the number of expenditures increase and you really need to fine tune all those costs to ensure you maintain a profitable business. 

In our case, the number of expenses are limited and easier to calculate. 

Next Steps To Profitability

Woodworking next step to profit

We are at a point where we should start seeing some profit.

That is to say, currently, our business is not profitable.

Why?

The reason we are currently not profitable is because of initial equipment costs and shop setup versus low production.

Now that we have our workshop pretty much setup (it will never be 100% set up) we should be able to just produce and sell.

That was our full intent back at the end of November into December 2019.

Unfortunately, we had a huge loss in our family and we are now just starting to get back on our feet, starting to have some normalcy back in our routine.

We acknowledge our lack of production and understand that we may not reach the medium length goal we spoke of in our "Work-Life Balance" blog as predicted.

That doesn't mean we are giving up. If anything, our loss has demonstrated how fragile our lives are and we need to jump at every opportunity we have to make a better life for ourselves and others.

So we are moving forward with our business and we predict great success with the path we are taking.

We see the interest in our locally built projects and people are willing to wait for furniture that is made by small business owners like ourselves.

The important thing though is that we can't give it away.

We do need to make a profit to continue doing what we are doing by following the profit formula:

Material Cost + (Hourly rate x Hours to complete the project) = Total Cost

We hope you found this blog helpful.

If you have any questions or comments please contact us. We love to hear from you.

Click HERE to sign up for a FREE GIFT for reading all the way to the end!

Cheers

Paul

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Evagreene - February 19, 2020

Wow! Thank you very much for sharing this article. It is practical and explains the economics such that if the principles and steps you’ve given is followed, it will help anyone into woodworking understand the pricing and not run at a loss, especially for newbies like me who is gradually taking woodworking as a side business. Thanks!

Reply
    Paul - February 19, 2020

    We wish great success in starting your woodworking business. We really enjoy it and hope to increase our profits with time.

    Reply
Stephanie - February 19, 2020

Very interesting how you connected your woodwork with psychology and how the human brain works when they first enter your store. For what I can see, if you’re selling your woodwork projects then you should sell it for double the price that you initially bought the products? I’m sure most companies do this, the rough part is when these companies start charging an insanely amount of money, that’ll just scare your customers away. 

Reply
    Paul - February 19, 2020

    We believe the main part of charging for something is the need to cover all of your expenses which includes your labor. If we can’t cover that then there really isn’t any reason to continue with that business. In all fairness, if you have a ‘business” that never makes a profit then we don’t think it can be considered a business. It would be more of a job that you perform for your customers. When starting out it’s understandable that you may not make a profit but there is a time or a goal you need to set to ensure you don’t just continue running your business without a profit.

    Reply
Parveen - February 19, 2020

Hey, I enjoyed reading your article and find it very useful for everyone. While reading your article I learned that sometimes the higher-priced products will sell better with a higher profit margin than lower priced items. Your detailed guide is very useful to me. I am planning to set up my own woodworking business. Now I know that 40% markup is required to cover all the associated costs to run a business. Thanks for your awesome guide.

Reply
    Paul - February 19, 2020

    Some customers are taken aback when we talk markup but it really is more of a cost coverage than profit. We hope to have a profit in the end. When starting out the profit margin may be lower but as we become more efficient and able to get cheaper materials due to volume then the profit margins can increase or we can decrease the markup.

    Reply
Linda - February 20, 2020

Pretty neat… I believe that someone who is in this kind of business builds according to their personality. This is where I would bring psychology into this. However, then again there are those projects one makes according to orders, right? Then there’s the selling connected to the psychology part. Overall, it is pretty interesting. 

Reply
    Paul - February 21, 2020

    The art of making a sale can go deep and be quite diverse. There’s a reason there are so many marketing companies that make loads of profit. Seeing that our business is tiny we tend to stick with the simpler side of things and focus a small niche woodworking market that the big boy companies don’t bather to tap into.

    Reply
Patrick - February 20, 2020

Figuring what sells is the hard part. One place that always has money through my experience is cabinets and built-ins or running millwork. Not the most interesting work but it is generally consistent and finish carpenters and remodelers are always looking for a short run on the fly millwork. This article is a great insight, Great post thanks

Reply
    Paul - February 21, 2020

    There is certainly a huge demand for cabinet makers and millwork. We decided to do woodworking as it allows us to maintain our current “daytime” careers while we build our side business. Maybe once we retire from the day job we can consider doing cabinets, we would love to do kitchens.

    Reply
MrBiizy - February 20, 2020

Awesome guide for Woodworking Profits. As newbie woodworkers, we tend to get this wrong especially as a result of incompetent guidance from our peers but I find the tips you have shared very insightful and helpful and even applicable for several other businesses currently available.  A business without reasonable profit cannot stand the test of time.

Reply
    Paul - February 21, 2020

    I’m not sure if this was quoted by someone else but here is what we believe. 

    A business without profit is a job!

    hope to hear about your profitable business adventure soon.

    Reply
Margaret - February 20, 2020

Hi, I enjoyed reading your article about Woodworking for Profits.  It is very helpful and interesting information about woodworking.  Your video was awesome and helpful too.  This helps anyone who wants to start a woodworking business and how much to charge.

My uncle has his own cabinet shop.  I don’t know how much he charges for his work, but I know that the materials can be costly and then you add your labor it all adds up.  I will show him your website and your videos.  This would help him a lot.

Thank you,

Margaret

Reply
    Paul - February 21, 2020

    Thank you, Margaret,

    We would really love to hear more about your uncle’s cabinet shop business. He may have a few tips and tricks he can share with all of us.

    Reply
Tariqul - February 20, 2020

Hi Paul,

I am lucky enough to have read this topic. Thank you for sharing this encouraging information with us as I want to start a woodworking business. I was searching for this type of information and yours turned up and is really very helpful pricing strategy you provide in this article. 

Another thing I would like to know is how much I have to invest to start a woodworking business from home? 

You have provided great detail on how to price my projects for a profitable woodworking business. 

I will share this article on my social media so that my friends can take the information to start their own business. 

Really, I am grateful to you for this innovative article.

Reply
    Paul - February 21, 2020

    We are pleased to hear that you found our article to be helpful. We plan to continue providing information like this, where we’ve experienced it and pass that info over to others to help them get a step ahead faster.

    Reply
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