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When selling your wood projects, what you pay for your final product is an important aspect of your woodworking business. If your prices are too high, you will lose customers, but if your prices are too low, you risk having a profitable business that will provide you with the necessary income. This is a challenge that many woodworkers face when starting a new woodworking business.

A good formula for determining a good price point for a particular product is to calculate the cost of materials, shop supplies, shop overhead and any subcontractors’ fees.

The total of these costs is multiplied by whatever number gives you a product price that equals your expected profit and your costs together. Although this is very basic, it can be a bit difficult.

Here is a simple way to calculate all the relevant cost factors.

First, base your material costs on the price of the wood used and add 15% for waste. Add hardware and shop supplies like paper, glue, solvents, etc. to each cost.

The next step is to come up with a general hourly rate for your store. The best way to do this is to compare your shop expenses with what you are willing to pay for your time and labor.

Start by calculating all of your woodworking shop expenses such as rent or mortgage, utilities, machine maintenance, advertising and other shop related expenses. The easiest way to come up with an hourly figure for your time is to determine how much you would earn if you worked for someone else.

An average month is 4.33 weeks, and if you plan a 40 hour week that comes out to about 175 hours per month. Add up all of your store expenses and divide that total by 175. Now take that number and add it to what you are willing to pay for personal labor and you now have your shop’s hourly rate.

Now you have a basic outline of how to calculate prices for each of your products. Here is a simple example:

Let’s keep the numbers simple and assume your store expenses are \$875.00 per month. That would work out to \$5.00 an hour for a 175 hour month.

Now add that you are paying for your personal labor. Let’s use \$20.00/hour for this example.

So the shop’s hourly labor rate would be:

\$5.00 + \$20.00 = \$25.00

The materials for this project were \$300.00 and the time spent was 30 hours. Your price for the project should be:

(\$25.00 x 30) + \$300.00 = \$1050.00

At this point, you need to determine whether or not you will increase any amount for your profit margin. This is important for any forestry business and should be increased. The industry standard is 15%.

For this example the profit margin would be 15% of \$1050.00 or \$157.50 and you would add this to get a final price.

\$1050.00 + 157.50 = \$1207.50 Final Price

This is a very basic approach to calculating product costs based on your total costs and it is effective. Of course, if your costs are very low, your prices will be lower and cheaper. On the other hand, overspending has the opposite effect. A good reputation is very important to your lumber business, so be fair and get good quality for the money.

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