Blacksmith Business: How To Determine Your Hourly Shop Rate
Website design By BotEap.comHow to price and charge for your work.
Website design By BotEap.comBlacksmithing, like any trade, requires a lot of thought when determining the price of your work. We all struggle with what we think should be a fair price. We often enjoy work so much that it seems hard to price work at the price it should be to make a decent living.
Website design By BotEap.comLet’s look at the reality of putting a price on your work when you work in a skilled, labor-intensive trade. The numbers I’ll use may be a little different for your country or location, but I’m sure you’ll be able to adjust the numbers to your situation.
Website design By BotEap.comIn my area, the minimum wage is $8.00 an hour. This gives a mere subsistence in quality of life. So what is a reasonable salary for the type of work we do?
Website design By BotEap.comLet’s first look at the nature of our business. We use specialized equipment to create precision metalworking parts. We assemble our creations into complex shapes and functional items.
Website design By BotEap.comThere is a high degree of skill and planning involved in many of our projects. We also have to deal with customers and suppliers on a daily basis. Solve problems and quote projects, as well as do your own accounting and bookkeeping. There are many hats we have to wear as one person business operators.
Website design By BotEap.comThe manual skills required in the blacksmithing business, as well as technical knowledge, are closely related to the skills of a welder, auto mechanic, or machinist. There are some differences in each of these trades, but the skill level is almost the same.
Website design By BotEap.comIn my area, auto shops and mechanic shops charge between $75.00 and $100.00 an hour. Individual mechanics and welders are paid between $25.00 and $35.00 per hour.
Website design By BotEap.comSo let’s take an average of $30.00 per hour for a 40 hour week. That works out to $1200.00 a week multiplied by 50 weeks (remember you should be able to take two weeks vacation and this is paid for). So, 50 weeks gives a total income of $60,000.00. This is considered a good solid income in my country.
Website design By BotEap.comYou only get paid for the work you sell. The time you spend consulting with your clients is not paid to you. The time spent designing the gate or fence is not paid time. The time spent obtaining materials and supplies does not pay you. If you do your own bookkeeping, you don’t get paid. If someone else does your bookkeeping, then you have to pay them.
Website design By BotEap.comThere are many areas in which you have to spend time and for which you do not get paid directly. Everything is paid for with what you sell, so you have to take into account all the time spent blacksmithing.
Website design By BotEap.comTo calculate the value of your time when you’re working in the real blacksmith, you’ll first need to keep strict records of how long it takes you to make your items. You must include the time to paint and finish your work. If you ship to your customers, you must include the time it takes to package it.
Website design By BotEap.comYou must also keep a record of all time spent that is work-related but cannot be paid for. You’ll need to keep your logbook very detailed so you can isolate what proportion of the time you actually earn income and what proportion supports your income but doesn’t get paid.
Website design By BotEap.comYou should also calculate all your costs for consumables, electricity, rent, commercial insurance, vehicle costs, etc. and add them to your salary costs. This will give you the total you need to bring in a year.
Website design By BotEap.comThe next step is to calculate the number of hours used in unpaid work. This includes raids and consultations, or participation in the craft fair selling their products. This should also be a part of your log book!
Website design By BotEap.comIf you keep track of all the time spent on your business and the actual manufacturing time of the products, you will probably find a 60/40 ratio. That’s 40% of your time actually working on salable products. 60% of the time is dedicated to related but unpaid work. You will need to determine this ratio from your own logbook.
Website design By BotEap.comLet’s take a look at some sample numbers in the equation. These are approximate annual totals.
Website design By BotEap.comSalary $60,000
Website design By BotEap.comElectricity Store $1200
Website design By BotEap.comStore Rent $3600
Website design By BotEap.comCommercial Insurance $1200
Website design By BotEap.comThe vehicle costs $6000
Website design By BotEap.comShow fee $2000
Website design By BotEap.comAdvertising $2000
Website design By BotEap.comEquipment repair $1000
Website design By BotEap.comTotal $77,000
Website design By BotEap.comYou may have other expenses that you only incur since you’ve been in business. These will need to be added to this list. Everyone is a little different, and check with your accountant.
Website design By BotEap.comOur actual equation looks like this:
Website design By BotEap.comHourly shop rate = (target annual salary + business expenses) / (ratio of hours paid per week x 40 hours x 50 weeks in a year)
Website design By BotEap.comNow let’s connect our time relationship.
Website design By BotEap.com0.40 x our available paid hours (40 hours a week x 50 weeks in a year)
Website design By BotEap.com0.40 x 2000 = 800 hours of blacksmithing paid in a year
Website design By BotEap.comSo $77,000 / 800 = $96.25 per hour plus material costs. This should be your shop rate. As you can see, your real salary is much less than what you have to collect.
Website design By BotEap.comGoing back to the beginning of this article, you can see why my local auto mechanic and repair shop is charging $75-$100 an hour. Your blacksmith work has the same value!
Website design By BotEap.comLet’s add another twist to this scenario.
Website design By BotEap.comSuppose you hire an employee. The obvious expense is wages and deductions. When I was hiring employees, it would take a month before they were trained well enough to make me a lot of money. It was a week before they broke even and I could use the components they were making. If you pay $10.00 per hour, the first week they can break even. The second week they can get up to $20 per hour in production for you.
Website design By BotEap.comAfter a month I found out that they could make about $40.00 an hour if I kept them busy. If you have the job rolling, this is when you start making money. Remember that you are still paying them $10.00 per hour. If your job dries up, paying employees is a quick way to go broke.
Website design By BotEap.comIn short, you need to start keeping track of how much time you spend on each facet of your business. Time for everything. Then break it down into time spent directly manufacturing your products and time spent on non-billable support hours. Do the simple math to find what you should be charging in your circumstances. It will probably be more than you imagine.