New Business Idea...HELP!!!

[kimo]

Mike, Brady, Paco, Gary, Robert, and everyone else that supported my question, thank you-all very much for your professional inputs and opinions. For a minute it seemed that I opened a big can of worms! My reasons for seeking help from all you professionals are due to the fact that it was only just a few months ago that I become acquainted with ShopBot equipment and the magic it can do! Since retiring from the U.S. Navy, I have found myself kind of lost looking for hobbies to keep myself busy and to avoid a heart attack from slowing down in life too fast!
I am impressed and have also became obsessed with purchasing ShopBot(s) to start-up a custom design and manufacturing interrior/exterrior business here in my home state Hawaii. I am currently putting together a Business Plan and my stopper right now is the service pricing.
I have a lot to learn but I feel the venture will be awesome and well worth my time. Does anyone have a ShopBot Business Plan Sample???
Once again, thanks a lot guys, your thoughts and professional advice will be very helpful and well appreciated.
Mahalo,
Bob.

[jhicks]

All great input as usual. I strongly agree about "following your passion" and with that said, its very tough to do if you can't put food on the table so the practical issue is how does one do that so you can afford to "follow your passion?"
Well I see all the calculations and understand machine rates, shop time, overhead etc BUT I must say that is the VERY LAST way I would price our work.
WHY? Because when one begins to understand their market, competition, and true value in the "customers mind" those numbers have ALWAYS been way too low for what the market will bear and basically says you are simply selling time.
Why place a value on your time vs the projects worth?
Would you sell a unique patented item for what it cost to make it plus a small profit? NOT!!
We'll you doing custom/unique designed work or service aren't you?
So we generally use a multifaceted approach.
Yep material, labor, OH are one calculation.
Another is What do competitors sell it for on the WEB or elsewhere(or something similar).
Are they providing local service, custom design and what would it cost to ship that from say California or India to NY if they bought it on the web?
What is the market price per foot for example on dimensional signs. $100.00 to $150.00... Compare that to labor, material, shop rate etc.
What do we believe our "value added" services or uniqueness is worth on this project? What is our design collaboration and personal contact with the customer worth?
And finally (most important) what do we feel the customers situation is with respect to their time, personal investment, emotional investment, and budget to find someone they trust and collaborate with to achieve their unique vision.
Ok all that now in a spreadsheet we compare all those angles.
In the end, Labor, machine time, materials, OH, design time etc all added up ALWAYS comes way short of what the true value is.
One simple example... A recent job based on strict time(at $75.00/hr) materials, mark up, etc came out around $7,500.00. Yes that would have met all logical criteria and technically we probably would have been happy at that. Upon further review of all the above we proposed $15,000.00 plus some added options.
The customer was thrilled and thought that was very reasonable perhaps a bit low and wondered if we had lowballed it??
So if you're happy with selling time, I certainly will wish you well BUT if you want to maximize your return on investment and sell at market rates and percieved value, I think you'll find "following your passion" might be much more rewarding. Just my 2 cents

[harryball]

Following your passion does not preclude common sense or doing what is neccessary. If you read back through my posts you'll see that I'm not talking about throwing caution to the wind with a be danged attitude and doing what you want. I'm talking about finding something that energizes you and building your business plan to pursue it so you don't sit in the same old life draining job/work for the rest of your life.

I'm sorry Jerry I disagree, figuring your machine rates, shop time and overhead is the VERY FIRST way you should price your work. Don't forget my comment... "Once I see the number I adjust it based on local knowledge"

Believe me, I sell for as much as possible but a good way to loose your shirt is to wing it without knowing what it's really costing you to do the job. I always know my cost to operate and my "selling by time" calculation is my floor price to keep the lights on. If I can get more, believe me I do but I NEVER take less. I find many people are willing to provide the "same thing I do" for less money. I also find they don't stay around long and if I based my prices on theirs I'd go right out with them.

I recently finished a small contract job, one of the electricians used (not picked by me) wings it. He walked through the job and quoted $3500... I asked him to reconsider but I did not tell him his next closest competition was $7,500. He re-did the quote in about 5 minutes and came up with $3800. The owner gave the guy got the job... then both wished he handn't. I later asked him how he did his quote. He told me he figured in his head about how long it would take him, added for material and came up with a number and it always worked in the past (right). He never did calculations. It was also no surprise to learn the guy was going under. If he'd taken time to do the math he would have added the cost of all the concrete drilling bits for one.

In a nut shell, get what you can get but know your minimum sales price to stay profitable. Know your competition but don't blindly follow their prices.

Robert

[jhicks]

Robert, I wasn't addressing you specifically so pardon any offense. In fact it sounds like we agree but I must not have made it clear when I said.
"I see all the calculations and understand machine rates, shop time, overhead etc BUT I must say that is the VERY LAST way I would price our work."
Guess I should have differentiated SELL PRICE vs Cost. and

"So we generally use a multifaceted approach.
Yep material, labor, OH are one calculation." and

"those numbers have ALWAYS been way too low for what the market will bear and basically says you are simply selling time."

The key is multifaceted, and that Matl,OH, GP are JUST ONE base line calculation.
Guess I should have said a base line from which to adjust. Regardless, I think many have experienced situations like the one you describe either with their work, or someone else who got in trouble.
At the end of the day, its whatever works in your area,shop, and wallet.

I just hate to see folks (especialy those starting out)try to set standard formulas for custom work to determine their SELL price and leave money on the table and I've met and spoken with many who do.

Obviously one needs to know their costs.

BUT if all one wants to do is sell time and that makes one happy, more power to them.
Just my 4 cents

[Gary Campbell]

Jerry, Robert & Brady...
Thank you all for the insight... sometimes we overlook even the most obvious facts. I must have forgotten that I was one of those 6 figure mgmt types rushing thru the traffic in West Palm getting to the Island every morning. I had a couple weeks off for my sons graduation, and while I was in MI I worked a few days with a former partner. That was it..til then I hadnt realized how much I enjoyed actually doing the work... not directing it. I never went back. Back to being self employed. My son joined me a few years later. And we are loving life..(best explained by Robert above). Thanks for the reminder.
By the way... in reference to the mythical job I quoted above... it was real. A small media cabinet for a yacht. The listed coasts are real... but as Brady states above, the value of the work, considering the boat had to be taken to a yard 250 miles to get it done, was much higher than our costs. We sold the job for $4,900 and the customer never even flinched. Thanks again to you all for the reality check.
Gary