How do you price?

[Dale Penrose]

As the title says, how do you price your work?

[Ryan Mazzocco]

Wayyyyyyyyyyyyyyyy under value. so far anyway.

[David King]

I've stopped pricing my work. My work is priceless to me so I've stopped selling or building for the time being unless I'm doing it for someone who I really think deserves 3-4 months of my undivided attention. Life is way too short. If someone offered me $25,000 for a bass i might consider it.
To keep doing it for the 3-4k I was getting was just gutting me emotionally and financially and not an easy sale either.
I can buy a brand new and perfectly adequate bass for under $70 from the far East and it's hard to justify spending much more to anyone with a musician's typical budget.
Guitars are a totally different ballgame. Start high and keep going higher. Value is totally based on (mis)perception. Looks and finish are a better indicator than sound. If you are a lousy salesman no price is going to be low enough.

[Peter Wilcox]

Since I just build for pleasure, and I'm independently wealthy (Social Security), I'm glad to break even and I build for free. I charge for the cost of materials and $100 for overhead (the main items being electricity, tool maintenance and upgrade, sandpaper, glue and frustration.)

[Dave Weir]

I started out at material times two, plus $1.00/hr for labor. About $385.00. I raise the price about 10% after each 12 I sell. I'm always trying to cut costs and build time (without sacrificing quality), but the actual cost no longer matters. The plan is is to stick to the plan until no one buys them any more.

[Randolph Rhett]

Depends on what you are trying to achieve. Are you asking what you minimally need to charge to have a viable business? To answer that you need a real business plan. I don't mean the formulaic works of fiction that business school students do for a grade. I mean a real plan.

How to make a real business plan is way beyond this forum, but just remember this basic truth about businesses:

The difference between a hobby and a business is that you need

1) People pay you
2) Money for your
3) Goods or Services

As obvious as that seems, I am amazed how often people get focused on just one thing (usually the good or service).

Notice that People comes first. Who buys your guitars? How do they make that purchasing decision? How do you insert yourself into that process?

Next is money. How much do your target people pay for your good or service? Will they pay you that? Will they pay more? Will they choose you if you charge less?

Last is your good or service. Can you make a good that your people want to buy for the money they are willing to pay? Can you do it cheaply enough while still making something they want and cover the cost of goods and the cost to keep you and yours fed while you take care of business?

If you can sketch that out and can come up with answers that make sense, you will have your price.

If you are just a hobbyist wondering what to charge a friend and not be insulted or insult them, then all bets are off. Charge what your gut tells you. There is no right answer.

Hope that helps.

[David King]

Beautifully expressed Randolph.
If you are considering guitar making as a business just keep in mind that you will be competing with many, many people who are charging as hobbyists. That's not a level playing field. If you want to make a living best to choose an indispensable activity that fewer people are attracted to. Actuary comes to mind.

[Michael Lewis]

It really helps to know and understand the quality of your work compared to other brands on the market. Everybody wants to be 'the best' at making guitars, and we all want to believe we are the best but we also need to look at what we produce and compare it to the more or less equivalent instruments. It takes some experience to see great designs and workmanship and put that quality into your own work.

if you price your work too high it will not sell well, and if you price your work too low it may not sell well either, because of 'perceived value'. Once you have set your pricing, if you establish a list of clients and a system of dealers you can't lower your price or they will likely drop you.

I suggest starting by doing your best to assess your quality and set a reasonably low price to introduce your work to the market. Bit by bit you can raise your pricing over time, but you must avoid over pricing your work if you want to continue selling. When you have more work than you can keep up with you are allowed to raise your price. It's difficult but try to keep your ego out of this, make it a business proposition. This is a business, not a hobby. If you are going to do it as a hobby you are free to follow the whims of your own making because you don't depend on it for income to live.

I was told one time that "if you keep this up for twenty years you could become an overnight success". Seldom does anything happen overnight, but if you continue making and selling, establishing relationships with clients and dealers, after twenty years you may have the realization "overnight" that you are a success. Also, success means different things to different people. If you are in business you "have to make it work", but you're not under that stress if it's just a hobby.

[Ryan Mazzocco]

This is an area where I really struggle too. When people hear how low I have sold my guitars for they tell me "that's way too low!" but I'm really not so sure. so far I have pretty much just compensated my expenses and raised capital to build more guitars. I will raise the price each time. I do this because I feel that the product will be that much better each time. But I also have a very specific customer base at the moment. it's only friends, family, neighbors... people who understand my progress and who want a Mazzocco guitar before they get too expensive. As has been stated to me here before, once you get guitars out there with your name on them it becomes your reputation.
And yes, people often associate price with quality. High price must be a great product, low price must be inferior. this is definitely true in the guitar world. When I was a kid, why did I always want a Gibson LP or an American Strat? because I couldn't afford them. (that, and they were what all my idols were playing) But it's hard to change reputation. Once you establish yourself as being less expensive it's hard to justify to the buying public raising your prices when overall your product hasn't changed, unless there's really just that much demand for your product, as Michael mentioned. But whatever your price your guitars, they have to be worth it. If you price them at $2000 that's fine but the workmanship has to be $2000 quality. Want to charge $4000? Cool, but they better be worth that. and so on.... I think you just have to try to figure out what they are worth and charge accordingly. If it's not enough then change something to make them worth more so you can justify getting the right price for you out of them.

[David King]

I'd say the most important factor in success is how do you personally want to define your success. Do you want to be the little local luthier who makes a competent guitar for a fair price or do you want to sit in an office all day running a small factory. What aspects do you enjoy the most and which the least? How can you outsource the stuff you don't enjoy doing. Lastly how will you get through the next inevitable downturn?

[Ryan Mazzocco]

the next inevitable downturn?

What?!? Why didn't anyone tell me about this?

[Perry Ormsby]

Pricing is easy.

A: Work out what you want to purchase in the year as a goal. Work out your overheads for the year. What are your wages for the year? Calculate materials, and stock. Superannuation and health. Loan payments, rent, etc etc etc etc. Add a buffer!! Dont forget about tax, insurance, advertising, etc etc.

B: How many guitars can you build in that period? Reduce it by a bit, to allow room to move.

Divide A by B.

Pretty simplistic approach, but it works for me. My goals last year were: new monster engine for my car, cash for wife to leave work and start her business, increase stock levels by $40k, a years worth of wages in the buffer account.

If your guitars are selling well, increase pricing. I prefer a "base price includes this" with optional upgrades. EVERYONE upgrades. Limiting availability adds urgency. Building in batches increases productivity.

Selling custom/hand made guitars, via stores, is the worst idea possible. Why give 30-40% away to someone who couldnt possibly be more enthusiastic about your guitars than you?
If you believe your instruments are worth less than production guitars, the client is going to pick up on that vibe every time.

To get top dollar, you'll need something "hot", unique, special, limited... plus excellent quality, plus a reputation.

Advertising: you need to do it. It doesnt need to be adverts in magazines. Social media is free. You can build your own website. There is no excuse for that these days. Have a brand. Start a mailing list. Advertising does not need to be expensive... I spent $600 all of last year. Going to local open mic nights is not advertising... it's wasting time that could be spent doing something more efficient.

Social media. Use it. Facebook (use a page, not a personal account for your business), Instagram, link a twitter account to facebook for automatic posting, etc etc. Achieving 'fans' is easy if your show off work that is interesting. Example: We have had an instagram account for 3-4 years. It slowly accumulated 1500 fans. Five weeks ago we actively starting using it, three posts a day max (breakfast, lunch, dinner time), takes no more than 2-3 minutes each, and have just gone past 5000 fans.

If you build in batches, lets say 5-10 guitars, offer a payment plan. Paypal can be used for this, with reoccuring automatic payments. We use $250 a month for the customs, x by however many clients you have, taking into account your build times (we are 12-18 months). Cashflow is king.

[Michael Lewis]

I know several luthiers that used to take huge deposits and partial payments during the process, basically getting the instruments nearly paid for before they are done. This creates a disincentive to complete a guitar just to get the small remaining payment, especially if you are very busy making other guitars. Leave a good amount to be paid when a guitar is delivered, as this will spur you on to complete the instrument, because it brings a pay day.

You may not think this is important but I have witnessed luthiers agonizing about getting all the work done to get guitars ready and still needing more money but very little or none coming in at delivery because it has already been spent.

On a special order I generally ask for $1000 deposit on anything that sells for $5000 or more, and the balance due at delivery. This generally provides enough to cover materials, and you get a good payday at the end. Paydays are a good thing.

[David King]

Paydays are a good thing especially if the customer still has the money at the end of the project. I agree that many luthiers aren't the best at managing their capital but it turns out that the general guitar buying public isn't much better. It would be nice if there were cheap escrow services out there. Some custom orders are easy to resell on the open market if things don't work out while others are simply too far out there for anyone to pay more than pennies on the dollar. You need to cover your bum for the weird stuff if the buyer disappears.

[Perry Ormsby]

I had a guy cancel his $4500 order, two weeks prior to completion (14 month build time) with $340 owing. The excuse was he wouldn't be able to find the $340 any time soon. Quick check of his FB profile showed his priorities were all wrong.

Half the money got refunded and half credited towards another order he had. The exchange rate had moved against him so he wanted me to cover the difference. Oh, and I shouldn't be able to hold on to the transaction fees, that's just wrong.

We have a VIP program, so the guitar was sold within an hour of sending the 50% refund. He then wanted the new buyers details so he could 'invoice him for the exchange rate difference'.

So then last week, six months later, he jumps on a forum and complains how long his second order is taking. Eta is end of 2015. We are slightly ahead of schedule.

So I just sold hs second order to someone else (VIP program member), and will be refunding him 100% plus the difference in the exchange rates, plus the transaction fees. About $500 out of my pocket.

Some clients are not worth having.

[Ryan Mazzocco]

I LOVE that Perry is always so optimistic that a person can make a good living in this business. Personally, I'm drinking the cool-aide. One advantage that I have is that I'm dirt poor. So, already being used to not making very much money leaves little room for disappointment when I finally do go full time building guitars. I've run the numbers over and over and over again just like Perry outlined and it looks good on paper. Okay, that's it. I'm going Full Time!!!

Okay, well... not yet....

[Perry Ormsby]

You can make a good living. I'm at a guitar makers festival this weekend and half the guys here are positive and optimistic. Half are pessimistic and negative about the money side.

I had everyone, including luthiers, tell me there is no living to be made. Never tell me something can't be done.

In the early days life can be tough. Hell, I sold my home to survive. If you can get through that it does get better. My car is now worth more than that house was. Being able to build is just part of the puzzle. But the puzzle is not impossible.

[Michael Lewis]

For those of you that are in the USA that want to go into business there is a tax payer funded department our government, the Small Business Development Center. There are offices near most population centers, and much of their help is free. They do have some things they charge for, seminars, etc., but they will get you started with a business plan. You have to make your own plan, but they give you some guide lines to help you. If you are serious about starting a business this is the place to start. Oh yeah, they don't know anything about making guitars, but they do know about how a business works.

[David King]

That's pretty much my experience with the SBA 23 years ago. The guy I talked to was thinking I needed a big loan for new equipment and a lease on a commercial/ retail space. It's one thing to not make a living at this but quite another to end up with epic amounts of debt. When you are building your brand name and getting established try to avoid any debt.
As a youngster I always thought I would get more efficient as I got more experience but in fact the opposite happened. I got a lot fussier about the way I did things and though my instruments were way better on the inside they were taking twice as long to make and I couldn't charge more for them.
Now as I'm getting on in years I'm finding it much harder to focus for the 10 and 12 hour days I used to pull 7 days a week. Working hard can be its own reward but keep an eye out on that you might be giving up. You may have regrets when you hit 80 and have no memories of anything besides your work.

[Randolph Rhett]

I think the SBA can vary widely throughout the country and maybe over the years. The SBA I have had dealings with considers a "small" business to be a business with 50 employees and $10M in revenue hoping to become a business with 200 employees and $100M in revenue. Mostly it seems to have become a government subsidy program for banks to guarantee loans to their preferred business clients. I deal with a lot of business start ups that are owned by a single person or couple with only a few hundred thousand in capital. The SBA has never shown any interest in them.

As to the viability of lutherie as a business, it will depend a lot on your personal circumstances. That is why a real business plan is necessary. For example, I get the impression that Canada has a better market for custom guitars than we do in the US. They have a wealthier and broader middle class that the US, so perhaps the pool of people willing to spend on a passion is better. Maybe Australia is similar? I know that in Madrid you could get lynched for playing a Chinese factory guitar anywhere other than perhaps the subway next to a urinal. Here in the US people seriously tell you that a Gibson is the best guitar because it comes from the biggest guitar factory, and no one knows or seems to care that the majority of their production comes from Qingdao.

Also, cost of living varies a lot, but guitars don't vary that much in price. For example, in Southern California it takes $500K-$800K to buy a home in a reasonably good school district, and a school in a bad district is like sending your kids to "The Lord of the Flies". In rich neighborhoods the homes cost between $2M and $6M. By contrast, my mother-in-law lives in St. Louis, MO. Nice middle income homes are in the $150K-$250K range. $500K would buy you a true mansion. It takes a LOT more guitar sales to reach the same economic comfort if you live in California.

Finally, it is much harder to be poor and struggling in the US now than 20 or 30 years ago. Education, housing, and health care are all MUCH more expensive relative to average earning than they used to be. Even supermarkets are more expensive and have worse quality food in poorer areas than in richer areas. By contrast, I have a friend who married a French girl years ago. He is a professional jazz musician. I asked him how it was going for him. He said he was dirt poor, but that unlike living in Los Angeles it didn't matter so much. He doesn't need a car because public transport is so good. He has good quality safe food from little green grocers on his block. His kids are at a great public school. He no longer lives in a panic that he will get sick and be ruined by medical bills. Can you even build if you are poor in your community? Will dodging crime and rapacious landlords so consume your time you won't be able to build guitars, or will it just be a matter of simplifying your life and living luxury-free?

You need to understand what will and won't work for YOU. What is the size of the market YOU can tap into (not just the size of the market in general)? What does YOUR market pay for custom guitars? How many guitars at that price must you sell to live well in YOUR community? What does living "well" mean to YOU?

Knowing that people in Australia or Singapore have viable guitar building businesses means very little if you live in Germany or the US. Likewise, if you think that your market is bluegrass players in Kentucky with weekend gigs, then you need to ask as many of them what they paid for their guitars and how they went about buying them. Can you insert yourself into that buying process and have a viable business? It matters little to you that a massive shredder community exists in Auckland prepared to pay thousands for the next ultra bling custom Flying V with neon touchpads.