Determining shop rate

[smithdoor]

That can happen even with a degree in accounting too. I never went bankrupt in 40 years. OK I never went bankrupt in my life.

The biggest is tracking data for schedule C for income tax.

Dave

Unfortunately guys go bankrupt in real life also.


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[Lis2323]

That can happen even with a degree in accounting too. I never went bankrupt in 40 years. OK I never went bankrupt in my life.

The biggest is tracking data for schedule C for income tax.

Dave

Just to clarify. I am not saying it's absolutely necessary to have basic bookkeeping skills but you would be doing a disservice by advising against it.


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[smithdoor]

It may help for some but simple for me.

Dave

Just to clarify. I am not saying it's absolutely necessary to have basic bookkeeping skills but you would be doing a disservice by advising against it.


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[smithdoor]

I do not talk about what did after I was disabled in 2009.
But did learned more forms than any one would need or want.

FYI I still do welding today just for retirement I never gave it up but could not work 8 hours in the shop do to chemotherapy.

Dave

Just to clarify. I am not saying it's absolutely necessary to have basic bookkeeping skills but you would be doing a disservice by advising against it.


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[tbone550]

I think it's one thing if you're either brought up in a business atmosphere (your parents or immediate family) or you're very gifted in asking the right questions and putting things together for yourself, but it's another if you're just a welder with no past experience with running a business.

Most guys wanting to get into this business are very capable welders. Some aren't, but most realize that they can't learn the basics while trying to sell their services, so they've already got good welding experience by the time they try to go out on their own. This is the simple formula for why these excellent welders fail:

A GOOD WELDER =/= A GOOD BUSINESSMAN

So if you want to run your own welding business, you need additional skills. Being a good welder just means you're a good employee. It means zero for the business end of things. If you've got zero or very little experience with bookkeeping or personal finance, you need to take a night class at your local community college (the easy button) or buckle down and start reading online. I couldn't tell you where.

If you're always living hand to mouth now as an employee, your business has one foot in the grave already, before it's even born. You need to learn how to live on less than you're bringing in. This is like Personal Finance 101, first day of class stuff. But it's amazing how many guys I know who thought starting their own business would fix their money problems.

[psacustomcreations]

Tbone hit it right on the head.

Another point is that a successful hobby, may not become a successful sole source income for a job.

I have a Bachelors in Business as well as an MBA.

Neither of those mean you are capable of running a successful business.

On those same Facebook groups I mentioned earlier I always advocate for people to take a basic finance and or business class.

Another thing is to recognize when you need to pay someone else to do something. Be it accounting, powder coating, machining, etc.

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[smithdoor]

I agree 👍
The money problem will just follow them.
For me self employment was a way of life.

Dave

I think it's one thing if you're either brought up in a business atmosphere (your parents or immediate family) or you're very gifted in asking the right questions and putting things together for yourself, but it's another if you're just a welder with no past experience with running a business.

Most guys wanting to get into this business are very capable welders. Some aren't, but most realize that they can't learn the basics while trying to sell their services, so they've already got good welding experience by the time they try to go out on their own. This is the simple formula for why these excellent welders fail:

A GOOD WELDER =/= A GOOD BUSINESSMAN

So if you want to run your own welding business, you need additional skills. Being a good welder just means you're a good employee. It means zero for the business end of things. If you've got zero or very little experience with bookkeeping or personal finance, you need to take a night class at your local community college (the easy button) or buckle down and start reading online. I couldn't tell you where.

If you're always living hand to mouth now as an employee, your business has one foot in the grave already, before it's even born. You need to learn how to live on less than you're bringing in. This is like Personal Finance 101, first day of class stuff. But it's amazing how many guys I know who thought starting their own business would fix their money problems.

[Sberry]

I was in family biz that resisted and fought every effort to fix problems. I kind of got drafted and there was a point i should have spun off till i made enough to simply buy it out. All fear based stuff none which was really true or accurate. 1 person says so.ething about price so we got to lower it for the other 999 that don't, wont raise during correct cycles.

[smithdoor]

Sounds like my family 👪 too.

Dave

I was in family biz that resisted and fought every effort to fix problems.

[Sberry]

I need to go back to work when i should be retiring with a pocket full.

[Sberry]

It kind of wore us out idling when we should have been stepping on the gas. Some biz are long term enough there is a limited number of opurtunity cycles. They understood about building equity, mostly on free cheap labor, different concept than building wealth.

[William McCormick]

It kind of wore us out idling when we should have been stepping on the gas. Some biz are long term enough there is a limited number of opurtunity cycles. They understood about building equity, mostly on free cheap labor, different concept than building wealth.

Do not underestimate family and friends to look at you like you are food to be devoured.

Sincerely,

William McCormick

[Sberry]

It wasnt that,,, its just growing up in a different era where so many came from a survival mode they never got away from. Very well meaning but not so atune for lack of better words and didnt make some changes when needed to bring the next generation along to the current world and never got past the difference sometimes between 20$ in 1960 and 20 in 1992. Never got a grasp on the work to save that 20 in thew different eras.
There was a bit of lack of observation skills to go along with this despite some education. Some people are not born in the right time. I still cant stand Lawrence Welk. Some were not current in their own time.
In my own case it was assumed I had an interest in mechanical, welding etc but that was not accurate. They wondered why I didnt go to engineering and I might have if I was 10 years later, women and beer were more my speed but I really dont have any interest in that stuff other than what it can do for me.
My interest was in production, an observation missed as well as opportunity squandered really. Only reason I care about welding is it was a solution to a problem, that could be a paycheck as well as a solution to a problem. I happen to be good enough at it that it kind of disguise it and so many of my own faults didnt help along the way. I am not so much in the same production environment today and have worked a lot of it out along the way and my own kids do not face the same position I guess as I was in.
There were things others did well so this is not really blame but some introspection so to speak, sort of forensics. I have created a couple of my own problems along the way may be more fatal than those errors, its long and difficult to go in to and hard to write about.

[Sberry]

I am getting ready to take another little run at this again, I have got some help, I look at the biz differently and not interested in building long term. If I was younger would and should have went to pipeline at some point where a p-premium was placed on quality performance and very flex in regards to hiring on and off. Its too hard today, too worn and dont want to hit the road so much. I think I am going in to a racket I can double bill some travel and get paid to sit in the pickup,,,, ha
The upside to this is I really dont need to invest. Only a handfull of newer tools when the time comes, all simple out of pocket and I am working out where I dont need to hold large amounts of materials for other people.

[smithdoor]

I agree.
There are lot out there that think all you need a gas welder and a set bottles on back of a pickup. All they want to do is burn rod all day {AKA Rod burners.}

Dave

I am getting ready to take another little run at this again, I have got some help, I look at the biz differently and not interested in building long term. If I was younger would and should have went to pipeline at some point where a p-premium was placed on quality performance and very flex in regards to hiring on and off. Its too hard today, too worn and dont want to hit the road so much. I think I am going in to a racket I can double bill some travel and get paid to sit in the pickup,,,, ha
The upside to this is I really dont need to invest. Only a handfull of newer tools when the time comes, all simple out of pocket and I am working out where I dont need to hold large amounts of materials for other people.

[Sberry]

Nothing wrong with being a burner if someone is willing to pay for it.
3 ways to sell this,,, a want, a need and if it saves money. I am working on number 2 and mostly 3. Given the current demand i am going to work on a bottleneck that has been causing delays. I think i can sell it with a limited number of direct sales calls and once i get on the job i can make myself,,,, handy to have around. Gonna be right there when things go wrong in addition to the work i bid.

[Sberry]

Engineers can do stuff i cant even grasp and i dont care for/tired of complicated trouble shooting. They can do stuff wayyyy over my head but when it comes to field pry, rig, heat and beat and fast fix i am right up there.

[welding1]

If your a professional welder, with Liabiity insurance a real work shop with a legitimate business address. Your rate should be similar to skilled trades in your area, Skilled trades like cabinet maker, boat mechanic, auto mechanic, heavy junk mechanic, and so on. I get a lot of small jobs at my shop, I usually get 40-50 cash and thats for a bout 5-10 minutes. Most people pay some walk away mumbling a bout prices from 1982... As far a Facebook/fakebook/wastebook/Metabook goes, I wouldn't believe them if they said water was wet...

[tapwelder]

If you deal with folk on phone or some interaction other than face to face, then you can obtain higher rates. The agreement is made they can make a decision prior to arrival or acceptance.

Shop rate should also be a deterrent against those rush/"I could do it myself, i just don't want to buy wire" folk.

If as a "one man show" you can not justify the rate by expense, the just consider your worth, skill, time value, liability and "make it right / do over" at same price. If still not comfortable charging 150/hr then offer 2 or 3 hrs before reverting yo hourly fee. The. Get it done as fast as possible.

Stop padding other folk vacation or entertainment funds. 200 buck for a 2 hrs event vs 50 buck repair for something they will use or look at everyday.

[Sberry]

How much? Oh, , understand,, i would normally do this myself you understand,,, but i dont know how or have the tools,,, other than that i would do it myself you understand.
I actually heard that. You understand

[Sberry]

Another one gives a ticket to charge is,,, i dont have the time. That statement earns no sympathy.

[Sberry]

I had a guy call, needed a hitch fix on a boat trailer. When he showed he was bit surprised it wasnt a part timer/hobby deal but then procede to tell how he could do this in 2 or 3 hrs if he was at home. At time i mention maybe 50 hr or so and he figures wtf and resigned to it. 45 mins later and 50$ later he seems pissed i charge him a full hour.
I really dont look for those, i take a few but dont track them down, too much crap shows up.

[bassboy1]

Shop rate. How do you determine it?

On the Facebook plasma groups and Blacksmith groups it is common for someone to ask how much to charge for an item or service.

The standard answer from many members is:

(Hrs x shop rate) + materials + materials mark up, etc.

What is not clear to many is how these other businesses or people came up with the actual shop rate they charge.

The typical answer seems to be in the $100-125 an hour range. Why is it that number?

There was a recent post on one Facebook group about how there was a govt report showing standard rates were at that range, therefore the poster argued, all shops should charge that rate.

New members, hobbyists, Side gigs like myself may not have the overhead a full time stand alone business charges.

I keep track of every mile driven and every small widget I buy.

I also use the standard home office deduction ony taxes.




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On the surface, it's pretty simple, but charging the right amount is still one of the hardest things to do.

Shop rate is less applicable to you than it is to someone who is a shop 'for hire.' When one is making products to sell, shop rate goes out the window, and item value is all that's in question. As you said in your second post, if it takes you 2 hours, but can be sold for $750, the price needs to be $750. But, the inverse of this is why I said 'less applicable,' instead of 'irrelevant,' as it applies to those jobs which take 2 hours, but can only be sold for $80. To know where you stand on the sale price, you still need to know your 'shop rate,' but only to serve as a metric for deciding what projects are winners, and what are losers (and some losers can still be winners if the loss leader helps sell high dollar items, but in those cases your shop rate is still valid for figuring the cost of that loss leader to know how much the high dollar sale is costing in 'advertising').

But, for a shop for hire, item value is largely irrelevant. If someone needs something made that takes 2 hours, but in the end, could only be sold for $20, it's still going to cost $200, as the metric of value is the time taken, not value of the item at the end.

Once one has been at it for awhile, and has a handle on actual overhead and expense costs, figuring shop rate isn't all that hard. Take all of your fixed expenses (rent, insurance, utilities, average annual maintenance/repair, etc etc etc, add them together, divide by however many weeks you intend to work (49 - 50, usually - one better be accounting for days off). That's your cost to put the key in the lock first thing that morning, and it's a very important figure to know.

Additionally, once one's been at it for awhile, it should be pretty easy to figure what you want to make. If your figure is 100k gross pay before taxes, that's pretty easy - 2k a week.

The tougher one to figure is the expenses that are variable based on qty of work completed - welding consumables, abrasives, solvents, etc. We're not talking actual material - that's figured as a separate line item on their invoice - yes, you should mark that material up, no you shouldn't let the profit from that affect your calculations for hourly rate. Track those for a year and round up should get you close enough. Revisit every year. Again, divide by 50.

Add all those numbers up, and you've got your weekly required labor cost. Divide that by number of billable hours worked (hint, it's probably not 40, as you're not billing a customer for time spent ordering material, or for filing your monthly sales tax return or for taking out the garbage or for putting a new battery in the forklift or for answering the phone, or figuring up quotes or paying bills, or calling Airgas 6 different times to get a billing error fixed, or... you get the idea). My one man shop has the billable hours at about 6 per day. A mobile outfit that works on multiple small jobs a day may only be at 4 hours a day, so his rate is going to be closer to 150% of my rate, to make the same at the end of the year.

I have the 'hourly rate' (it's not a published number, because I only do firm quotes up front - I can do it because I only do built from scratch items within a fairly narrow scope of possibility, never repairs) for figuring jobs - important as my project size is 2 -3 hours, but for actually tracking how well I'm doing, I figure it usually on a weekly basis. I can have a day that looks bad on paper, but in reality it was taking care of a lot of prep and details that allow the next two days to really knock it out of the park - tallying it on a weekly scale tends to level out the hills and valleys enough to get an accurate figure.

That gets you the figure that you 'need.' Granted, there are times where you do need to adjust it. If you're overwhelmingly swamped in work - even if you're numbers are right on as far as overhead and what you want to make, may need to raise the prices a bit to shy a few customers away. Likewise, if you can't find work, may need to evaluate if your overhead is bloated, or if your expected take home pay is unreasonable.

[Munkul]

Use the pocket overhead.
More money goes out less in your pocket.

When I went to college it for engineering.
I did not need a class or book on basic book keeping. Life will do that for you less money spent more in my pocket.

Dave

That's not a smart way to run a business, at best you're relying on luck to keep you afloat, at worst you'll lose track of things and go bust.

Basic accounting isn't rocket science, it's just being educated in how to track existing income/outgoings and trying to plan ahead. Unless you're born with an instinct for accounting, the only way you get good at it is by learning. Either at college, or slowly and painfully in real life.

[Munkul]

Most guys wanting to get into this business are very capable welders. Some aren't, but most realize that they can't learn the basics while trying to sell their services, so they've already got good welding experience by the time they try to go out on their own. This is the simple formula for why these excellent welders fail:

A GOOD WELDER =/= A GOOD BUSINESSMAN

Absolutely true, and you could apply it to most trades or pretty much anything. Even a good salesman doesn't equal a good businessman.

I would say that all truly successful businesses (the ones that grow from nothing, are passed on to new management and make the owner a comfortable middle-class living, at least) are ran by someone who is good at business. It rarely happens by accident, unless it is founded on a niche that no-one else can exploit.

The rest of us just have to muddle through it and be as savvy as we can be...