Pricing name badges - Engraving Etc. Forum

<body> <h1>Full Version: <a href="https://www.engravingetc.org:443/archive/index.php?webtag=EE&msg=6258.24">Pricing name badges</a></h1><a name="a6258_24"></a><p><b>From: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.24">#24</a>]<br /> 9 Mar 2007<br /><b>To: Dave Jones (DAVERJ)</b> [<a href="lmessages.php?webtag=EE&msg=6258.23">#23</a>] 9 Mar 2007</p> I guess I wasn't as clear as I could have been, Dave. The coefficient you're missing is <i>multiple</i> jobs, produced at the <i>same time</i>. That's why analyzing overhead based on an hourly consideration is inaccurate, even in a one-man shop. Otherwise you <i>would</i> have to calculate more than 24 hours into each day (man hours.) In other words, 100% of the overhead cannot be associated with a single job when other jobs are in play.<br /> <br /> Here's an example: there are four of us working here. While one is creating 100 name badges, another is fulfilling a custom resin order of 300 pieces, another is processing a set of 30 state plaques for a tournament and yet another is rotary engraving 150 handles for curling stones. The overhead costs are fixed....insurance, rent, etc. remains the same, and even the electricity is fairly constant since the machines are almost always running. But the total gross revenue is being credited against that overhead....not the individual hours of the each job.<br /> <br /> ....and if my overhead was only $2,000/month, I'd throw a party. :'-(<p class="edit_text">EDITED: 9 Mar 2007 by GREAT_ATLANTIC</p> <hr /><a name="a6258_25"></a><p><b>From: Harvey only (HARVEY-ONLY)</b> [<a href="lmessages.php?webtag=EE&msg=6258.25">#25</a>]<br /> 9 Mar 2007<br /><b>To: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.24">#24</a>] 9 Mar 2007</p> <div class="quotetext" id="quote"><b>quote: </b></div><div class="quote">But the total gross revenue is being credited against that overhead....not the individual hours of the each job.</div><br /> That will get you into a whole load of financial problems.<br /> <br /> There are more complicated ways of figuring it that are more accurate but this will give you a handle.<br /> <br /> Take all of your costs, less material costs. Divide that by the hours that are worked, let's say on a monthly basis. That is the real cost of an hour of anyone's time. I had a spreadsheet and a method of figuring posted at one time that could give you the cost of each person's time easily.<br /> <br /> It usually turns out to be between 3 and 15 times the person's actual salary. Large companies run about 5X, smaller ones about 8-10X. More than that and you could be in trouble unless you have a fantastic markup. <hr /><a name="a6258_26"></a><p><b>From: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.26">#26</a>]<br /> 9 Mar 2007<br /><b>To: Harvey only (HARVEY-ONLY)</b> [<a href="lmessages.php?webtag=EE&msg=6258.25">#25</a>] 9 Mar 2007</p> That's not really the issue, Harvey. I understand the calculation of hourly value on the employee side...just another way of slicing and dicing the overhead analysis. But in this case, the analysis is in relation to an individual's job production (...including the salary component of overhead.) And amortizing overhead based on hourly production versus total gross revenue simply doesn't work when trying to back into a pricing model, especially when margins are wildly different. Yes, you can mathematically justify a higher price based on multipliers of a salary+benefits, but it doesn't give you a true threshold in a competitive environment.<br /> <br /> In other words, can you justify selling at $12.00? Absolutely...in a vacuum. But unless you calculate your absolute costs against gross revenue, you'll never get a picture of your low-end <i>profitability</i> when it's needed. And unless you create something that is truly unique, patented, sold only by you....the competition at some level will always exist. <hr /><a name="a6258_27"></a><p><b>From: Dave Jones (DAVERJ)</b> [<a href="lmessages.php?webtag=EE&msg=6258.27">#27</a>]<br /> 9 Mar 2007<br /><b>To: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.24">#24</a>] 9 Mar 2007</p> <p>I didn't miss the multiple jobs part. I did mention that in the second half of my post. If you have 4 people working 8 hours a day and every minute of every hour they work can be charged to a customer (aka billable hours), which is not likely but possible, then your overhead should be spread across 32 hours of jobs per day.</p> <p>But you're missing my point. At $0.01 to cover overhead on 40 seconds of work, for 32 hours in a day (4 people all working at the same time on 4 different jobs) that still only brings in $28.80 a day from all the work those people did to cover your overhead. That's only going to cover $576 of your overhead that month. The rest of your overhead is coming out of what you calculated as profit.</p> <p>I'm not saying you aren't making plenty of money to cover your overhead. I'm saying your calculation of your profit per job is flawed if you don't account for enough of the overhead, and for the extra small pieces of time involved in completing the job, beyond the laser time.</p> <p>Here's another way to look at it, and why you should charge overhead based on time instead of gross sales. These figures are exagerations, but bear with me. Say you have one type of product that makes you $10 per hour profit and another one that makes you $1000 per hour profit. Lets say that based on dividing overhead by billable time your overhead costs you $1 per hour. If you charge it based on gross sales then you would add $0.01 to the calculation of the $10/hr profit job and $0.99 to the $1000/hr profit job. But then what happens if in a given month you only get orders for the one that pays $10/hr profit? You end up only covering 1% of your overhead. If you had calculated both at the $1/hour overhead then no matter what orders come in, the overhead is covered.</p> <p>And on your comment about several minutes per badge being extreme. That example was based on doing a couple of badges, not 500. No matter how many you do there is more time involved than just the laser time. For a small order the extra time might be several minutes divided by only a couple of badges. For a large order it might be more minutes divided by a lot more badges, so might only average a few extra seconds per badge. But it's still time beyond laser time that should be calculated into your cost analysis. Your cost per badge is quite different if you get an order for 2 badges vs an order for 500.</p> <hr /><a name="a6258_28"></a><p><b>From: Dave Jones (DAVERJ)</b> [<a href="lmessages.php?webtag=EE&msg=6258.28">#28</a>]<br /> 9 Mar 2007<br /><b>To: PenTrophy (PENINSULATROPHY)</b> [<a href="lmessages.php?webtag=EE&msg=6258.21">#21</a>] 9 Mar 2007</p> <p>The meter doesn't just start running when the customer comes in the door. It's always running. If you spend half your time taking orders, buying materials, etc... and the other half engraving stuff, and you only charge for the actual engraving time without somehow calculating the rest of the time into the cost, then you'll go broke. Even faster if you have to pay somebody else to take the orders, buy materials, etc...</p> <p>You need to figure all of that extra time as either part of the job or part of the overhead. Either way it needs to be calculated into the cost of that job.</p> <p>I've seen a lot of small companies fold where the peope were working 60 hours a week, had jobs coming in, but ended up with nothing in the end because they weren't calculating their true costs into the bids/quotes.</p> <hr /><a name="a6258_29"></a><p><b>From: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.29">#29</a>]<br /> 9 Mar 2007<br /><b>To: Dave Jones (DAVERJ)</b> [<a href="lmessages.php?webtag=EE&msg=6258.27">#27</a>] 9 Mar 2007</p> <div class="quotetext" id="quote"><b>quote: </b></div><div class="quote">But you're missing my point. At $0.01 to cover overhead on 40 seconds of work, for 32 hours in a day (4 people all working at the same time on 4 different jobs) that still only brings in $28.80 a day from all the work those people did to cover your overhead. That's only going to cover $576 of your overhead that month. The rest of your overhead is coming out of what you calculated as profit.</div><br /> Ahh! It just dawned on me where the disconnect is with this thread. The $.01 calculation isn't an overall assignment based on time, or part of a formula to determine pricing....it was simply a product of <i>this particular item</i> based on its total cost in backing into the justification of a retail price. That overhead assignment changes for each product value in this direction. It wasn't meant to represent an absolute in determining pricing for all products, but rather as a component for the overall profitability of this <i>one</i> item at $5.25. We've essentially gone in two separate directions in this discussion.<br /> <br /> In other words, we don't assume that the $.01 covers a specific time in production....it assumes that given fixed costs versus total gross revenue, $.01 <b>of</b> the $5.25 <i>represents</i> overhead. That factors all production at different margins, price points, production requirements, etc. And depending on an operation's total gross sales, that number either increases or decreases.<br /> <br /> In the larger picture, outbound pricing based on overhead is absolutely necessary....and I certainly wouldn't attribute only $.01 to the equation regardless of production time, given our fixed costs. <hr /><a name="a6258_30"></a><p><b>From: Peter</b> [<a href="lmessages.php?webtag=EE&msg=6258.30">#30</a>]<br /> 9 Mar 2007<br /><b>To: ALL</b></p> <p>Hi Doc,</p> <p>Yeah Adeaide is only a smallplace. It certainly isnt Manhattan. We have only 1,250,000 people here.</p> <p>But at the sametime, we have a plethora of engraving companies.</p> <p>We have never subscribed to " cheaper means more, business school of economics"</p> <p> </p> <p>Capitalism , democracy, competition and the magic ingrdient...Marketing are well and truly alive here in Australia..</p> <p>regards<br /> Peter</p> <hr /><a name="a6258_31"></a><p><b>From: Doc (GREAT_ATLANTIC)</b> [<a href="lmessages.php?webtag=EE&msg=6258.31">#31</a>]<br /> 9 Mar 2007<br /><b>To: Peter</b> [<a href="lmessages.php?webtag=EE&msg=6258.30">#30</a>] 10 Mar 2007</p> My hat's off to you Peter, particularly in a competitive environment. I wish we could hold the line as well as you on commodity items. One thing's for sure....we're certainly going to try the premium route on sublimated products, one of the key reasons we've added the technology. <hr /><p align="center">Show messages:  <a href="lmessages.php?webtag=EE&msg=6258.1">1-3</a>  <a href="lmessages.php?webtag=EE&msg=6258.4">4-23</a>  24-31</p> <h4><a href="lthread_list.php?webtag=EE">Back to thread list</a> | <a href="llogout.php?webtag=EE">Login</a></h4> <h6>© 2025 <a href="http://www.beehiveforum.net/" target="_blank">Project Beehive Forum</a></h6> </body>