Need to figure volume product runs

[ronbarnes]

Have a customer wanting to know cost of making wood products in quantities of 500/1000/1500. Is there a certain formula you use to figure this? Is this one of those times I can't use my hourly shop rate plus material costs?

Assistance please

[Brady Watson]

My advice would be to price it on the high side, as I can almost gaurantee that the customer will only go for 500pcs max - as most customers who ask for qty breaks will do. Figure on 100pcs by the time the wittling is done. 9/10 of the time, the customer will get down to a very low qty and beat you up trying to get the 1500pc qty price per unit...and then you make next to nothing. Price it high.

-B

[cabnet636]

brady is right, my standard answer when a builder ask "give me a discount on this one and i will give you ten projects after that"?


i answer better yet i will charge full price for the first one and give you a discount on the other ten!!

100-500 full price 500-1000 -X% 1000-1500 -X%

all orders paid in full at order!! or 1/2 and balance paid at pickup!!

jim

[jamesgilliam]

My last big sign job the plant manager ordered three signs 4' x 8', then the president came in and asked if they would get a discount. I ask him if they sold their customer one piece of steel or three if they got a discount, to which he replied no because it cost us the same to do each piece. I rested my case. When you start in with someone and give them a discount you run the risk of them thinking you are overpriced to begin with for your work.

[GlenP]

Brady is right as they will always try and beat you down and never order the quantity they dream about. Still takes the same amount of time to machine, the only you save is perhaps design time for multiples. If you do let them pay on terms then perhaps you could offer them a discount if they pay the bill within set term. Always put on the bill or statement the amount for "BEFORE DUE DATE" and the amount for "AFTER DUE DATE" if you go this route. Charge what you have to to cover your cost and make money. If you go broke trying to do things cheap they will not be at the door helping you out, they will be trying to buy your tools for pennies instead.

[dray]

I dont play around with pricing.

I figure out what it would take me to make 5. Add the cost of what I want to make+ Material then add 20%. This would be my pricing for 500.

For 1,000 I would only reduce by 5-7% then send formal proposal with 30 day cutoff as material prices have been changing rapidly.

1. Your time to create 5 +
2. Profit you want to make +
3. Material costs +
4. + 20% on top. This covers any mistakes, any redesign, messing around on phone w them, proposals etc.

[knight_toolworks]

Plus is this a job you can keep the machine working and do other parts of the job while it is running? I still give a single task price quote then I multitask and make the customer happy I was so fast.

[henrik_o]

The above comment is in line with my experience, with a caveat for the type of inquiry you are dealing with.

If it is an upstart / minor / etc client, and especially if this inquiry is the first you get from them, yes, what Brady et al say is correct. It rarely if ever comes to anywhere near even the lowest given estimate of items and is used as a negotiation tactic: most of the time, there is no order from anyone anyway, it falls through.

However, if it is from a repeat client or from a first time client who is established, I have found that these estimates generally tend to be on the lower side -- not so much from own experience though we have done some runs (non-shopbot), mostly from friends who are also manufacturers/fabricators.

For some reason, larger companies at least over here tend to underestimate their needed volume when asking for bids. One factor in this might be that when companies ask for true volume production thay almost always already have a supplier, they want out of that relationship, but they're not confident to scrap them entirely.

So, if they need 10k units per year, and they get that from a supplier now, they won't shift over 10k units right away, they will ask for bids for maybe 2k units and try that out. If they're satisfied, they'll want to get to 10k as soon as possible but they will not ask for it right away.

So, I'd say that it depends a lot on the client in question. Look at the request, and the information you get from them. Is this a real product or something that may happen or may not (in those cases it almost always does not)? Is the company established? Are you talking to the owner or an employee? Etc.

Anyway, the 'quality' of a bid is directly proportional to the quality of the request. If you have a clear and set-in-stone request, then they can reasonably ask for a bid with a fixed price. If it is not, then confidence intervals come into play.

I receive rather few volume requests like this, but when I do if it is not 100% solid I tend to only bid for item 0 (zero), i.e. a prototype. And I add a note explaining that given the quality of the request this is the only possible honest number: if they receive other bids for their stated numbers those bids are not serious, it's just an attempt to win the contract and pile on costs later. Look at how the building sector normally works in this regard: how many projects are completed on time and within budget? I also explain that if they like our prototype, they are free to take it to someone else for volume production. I only bid for item 0.

Sometimes the request is similar enough to something we're already doing or have done that I don't need to go down that route, but that's relatively rare.

Get a feeling for the quality of the request, if it seems honest then we can start to discuss how to calculate that.

--^*^--

The above goes for items of some complexity. If we are talking about plaques or coat hangers or whatever (things that do not require a prototype to verify the product), ok, that's different.

What is the product?

[coach]

I just priced a job based on 4 different quantities. 500 pcs, 1000 pcs, 2500 pcs and 5000 pcs. I priced them for the time it takes to cut a sheet by my hourly machine cost.
I gave them no set up charge for 2500 or 5000 pcs. Unless somebody gave me 5000 parts a week for the next year I wouldn't stray from my hourly charge.

[jbuell]

In my experience its best if I create a relationship before I quote a product to manufacture. I visit the prospects web site to understand their product(s) and market. Genuinely ask customers questions about their business to get an understanding of what they sell and to whom. Since I run my own business I am curious how other companies are operating. I have learned a lot about running enterprises from my customers and I hope they have learned from my exchange as well.

Then you can start to ask if the project you are quoting has a budget. Is there a lead time? Do they currently have another vendor making this product? If not, is it a new launch? etc. If your gut was telling you this may be a fly by night customer you will begin to get proof.

Find out where you stand, get to know the landscape. If possible, it is a huge advantage if you can meet the customer in person.

Once you understand the product/item you’re quoting you can begin to think about value added services, such as packing in a manner that makes it easier for your customer to handle at their point of assembly. You would include the cost of this service in your overall pricing or sometimes these can be managed at no extra cost if it flows into a current operating process. Value added services increase chances of securing quotes.


Building customer relationships takes time but it is just as valuable as your machine time.
This process builds trust, an invaluable currency. Once trust is established you are obligated to have your words match your actions and the same goes for the customer. You can reduce business pitfalls that can be blindsiding and build a foundation for future business. Plus, your potential increases for the best advertising of all, word of mouth.

Eventually your business conversations with your customer will start with news about their family, interests and their favorite bar-b-que recipes. The point is to create a symbiotic relationship to support one another and in the process you get to know some really cool people. People what to buy from who they know, then you can deliver great customer service and a product of superior quality for a life long customer.

[ronbarnes]

Thanks again guys.
I was thinking mat;l cost plus brake even (overhead costs) then go with a percentage for 500,1000,1500.

Ron