Determining Wholesale Pricing

[Redhorseshoe]

A smaller local lumberyard is interested in buying some rough sawn lumber from me.  They want me to send them a quote for wholesale prices but I'm not really sure how to figure it out.  They're interested in juniper which around here sells anywhere from $1.25 to $2.00/bf depending on who you buy it from.  My cost to mill is around $0.60/bf.  What do you all think would be a fair wholesale price for something like that?  I'm only milling as a hobby so I'm pretty happy just selling lumber and not trying to get rich, but at the same time want to make sure I'm at least being fairly compensated for my efforts.  Also, those of you who sell wholesale, do you maintain some kind of contract/formal agreement with the buyer?  Thanks so much 

[alan gage]

I know nothing about selling wholesale lumber or lumberyards but a 50% markup seems to be a pretty common ballpark for most businesses.

So if they can sell something for $2 I'd expect them to want to pay about $1 unless it's something special that might bring in new/more customers.

And for you; if you have .60 invested you should probably be looking to get $1.20.

Alan

[Wintergreen Mountain]

    Any less than $1.10bdf, and you furnish the logs, would be to low. Especially if they want odd dimension lumber and your quality of sawing is consistent. 


    Leon

[WV Sawmiller]

   I don't saw and sell wholesale. What difference does it make to you as the seller/provider anyway? Do not get hung up on what it will be sold for. That is none of your concern and there are all kinds of other costs incurred by the buyer before he sells.

  My suggestion, if you want to take on the project in the first place, is to accurately determine/estimate your expenses then determine how much your time and added stress is worth then make a quote that covers both. If you do and they turn you down you have lost nothing. If you are selling below your costs or satisfactory compensation every load out the door will just drag you further down.

  Also don't lock yourself into a contract that may put you in a bind if you can't continue to meet the clients demands. I think you might put a time limit on the offer and agree to renew or modify the terms after a certain time or volume of lumber provided. Good luck.

[Redhorseshoe]

   What difference does it make to you as the seller/provider anyway? Do not get hung up on what it will be sold for. That is none of your concern and there are all kinds of other costs incurred by the buyer before he sells.

  It makes no difference to me what they sell it for.  I understand they have their own business to run and time/expenses to pay for and still make a profit.  I was just trying to be thorough and include as much info as I could.  Alan's response was really what I specifically had in mind when included going prices.  If they can sell for x amount, I could expect them to buy for approximately x amount.  I didn't know if there was like a general rule of thumb for lumber markup, or expect wholesale price to be such and such percentage below retail or anything like that.

Appreciate the responses so far!

[Ianab]

Basically you need to know your total costs. 

Assuming they are your trees, then those standing trees have a value. So you start there. What would a logger pay you for those standing trees? Maybe 30c bd/ft?

Then what is your cost to harvest those trees and haul them back to the mill? Time and machinery etc. Maybe another 30c bd/ft?

Or if you are buying logs in, what's that going to cost. Some number similar to the 2 numbers above. . So maybe you can buy logs in for 60c bd/ft

Then add your milling costs which you say are 60c, assuming that pays all your expenses and a decent wage / profit. 

That means your bottom line is $1.20.  If they accept that, and go on to retail the wood for $2, great, everyone is making a profit. More they buy, the more profit you make. 

If they won't pay that, then you don't want the deal. You can't sell at a loss, and try and make up for it with volume. 

[moodnacreek]

Good information in above posts, but the only way to find out is to jump right in. Without a contract. If you do good work, can deliver and the buyer is honest and reasonable it will work out. This is not often the case.

[kenfrommaine]

Are they going to take it all? Or just the high grade and certain lengths and leave you with everything else? 

[Stephen1]

You should make money doing this. Yes it is a hobby, but if you do not make an decent amount and you end up losing money, you might as well go fishing on your days off. At least you are not losing money fishing. 

[YellowHammer]

Wholesale vs retail price is just another way of them saying that they want you to cut your price to them, as it assumes your normal price is marked up to retail for a decent profit margin.  So if thats the case, dropping your price means you are making a less than decent profit margin.  

I don't make a distinction, my price is my price, its the same for anyone, as its the price it takes for me to make money at a reasonable rate.  Asking to sell at a wholesale price is asking you do do more work for less money, for them.  That's not the way business is supposed to work.  

 


        

[Warren]

I did one deal in the past where I agreed to a reduced "wholesale" price to a customer who was reselling my product.  The customer wrote me a check when I delivered the product.  But, in the end, I could have been selling the same product for 25% more $$$'s in my own pocket.    As stated above, figure out your going rate and the price is the price.  JMO.  YMMV.

[Ianab]

The reason you might consider a "wholesale" rate vs a "retail" is that selling retail has more overheads and takes more of your time. 

You don't so much discount the product for wholesale, you add an extra markup for the "retail" price to cover the time spent dealing with 20 different customers, which might take up most of your day. As opposed to doing one bigger load, delivering that and getting paid, which might only take an hour? The mill buying the bulk lot from you is then going to do the "retail" work

This applies to pretty much every commodity, if you can order a whole truckload of widgets you should get better deal than just one. 

But of course make sure you are still making a profit.  ;)

[Cedarman]

Remember, if you are selling wood at $1.00 a foot and all your expenses are $.70, you are making $.30 profit.  If you drop it just a dime in price, you have to sell 50% more wood to make the same profit.

[longtime lurker]

I know nothing about juniper wood, hobby sawmills or a whole lot of things but I know all about selling wholesale.

At retail you get paid a lot more for the same amount of wood. You also get... customers.
At wholesale you get paid cost + a small margin so you need to punch more tons for the same profit. But you don't get customers.

So you got to figure in what it costs to have customers.
First you got to advertise so they know you're there.
Then you need to spend time on the phone and internet and stuff getting them from knowing you're there to actually being there.
Then you got to have insurance coverage for all the dumb things they do when they show up.
If they show up.
Then you have to deal with all the dumb enquiries, the tyre kickers, the people who just front up for a look around, the guys who have a buddy who can do it cheaper etc
Then you need to be able to process payments. Lots of little ones.
Then you need to deal with the inevitable warranty claims, because its always your fault that the wood did exactly what wood does when they did whatever you beaut storage number on it.

At wholesale all you have to do is source logs and saw good boards. You deal with professional customers who only ever want the impossible by yesterday for a pittance. But they'll take all you got and it's a low stress relationship because their time is as valuable as yours.

This year, 11 years after I started my own mill, I finally got a website, a facebook page, and a listing on google because I figured I wanted to expand sideways not upwards due to the projected effects of Covid-19 on my business.... rather than take on another wholesale guy to maintain volume in a slowdown I figured I'd retail some to suck up the excess volume at a higher margin.
I've already decided that this retailing caper would be really good if I didn't have to deal with people and could just go back to sawing logs. I like logs more'n most people - more sense in them.

Individual mileage may vary.

[longtime lurker]

I've come back to add a few more points here in the interests of fairness.

Wholesale is a tough business. It's wood as commodity and you have to basically match the guys down the road on price and beat them on quality and availability on a lot of jobs. If it's a local wholesaler that can be a double edged sword... He might pay a bit more to keep you from competing with him but one of the unwritten rules of business is you don't compete with your own wholesale customers so if you get a local retail enquiry you send it to him.

An upside is they are industry professionals. Don't underestimate how good that is... You end up with a set price list so no need to quote anything except oddball jobs. You get a steady flow of work. You only have a couple of customers to stress about. You may get access to their supply pipeline, or equipment at a reduced cost. My own wholesale guys are regional but not in the immediate area so I'm not competing with them on jobs... I have access to imported species or stuff that doesn't grow here at cost + a little bit, I get access to serious moulders at cost +... They scratch my back and I scratch theirs. 

A lot of sawmillers look at wholesale buyers as parasites... You do all the work they take all the cream. I don't, I look at my wholesale buyers as my business partners... They're the sales team, dedicated to shifting product, chasing up work, and protecting me from slow payers, time wasters etc. They allow me to concentrate my time and resources on what I do best which is turn logs into boards.

Retail is great if you're set up for it. I'm not, and it's hard to saw, quote, package and sell without the infrastructure and people to do it.  Going to retail has been a long term part of my business plan but doing it this year wasn't... My hand was forced by other factors. Interesting enough the worst part is getting stock out - we are set up to sell by the pack, selling individual boards means pulling boards from multiple packs and it takes time. I need more racking to hold loose stock. And phone and quotes... I've done more quotes in the last month than the year before, maybe two years before... And that takes time. If I'm in the office doing quotes the mill isn't sawing. But I tell ya... I love that retail markup, sawing half the logs for twice the money.

I'll bed it in but as the retail customer list grows in going to need a sales guy at some point. Another headache.

[stavebuyer]

LL you really wrapped up a concise and insightful package that should be a must read for anyone thinking about sawing for dollars! Retailers have high markups but the numbers of them going out of business indicates that there are operating costs involved that can outweigh the markups. Not to say that for the small and necessarily inefficient producer that more dollars may be made by selling than by sawing.

Along the same vein when it comes to "wholesale pricing" it is generally set by the market or the buyer. The producer's main challenge is to find a manner to maximize efficiency in order to prosper at that price level. Wholesale generally equates to commodity. It is folly to think you can do high volume at a premium price. If you and your resale buyer create a demand for your lumber that leaves generous margins for you both; than it will be short lived especially in a business with a very low cost entry barrier and no patent protection.

Honestly, the only advantage a little guy has is being small enough to circumvent the government imposed regulatory costs either by foregoing employees, insurance, or hiding behind the barn and ignoring the regulations altogether.

[Ianab]

I'll bed it in but as the retail customer list grows in going to need a sales guy at some point. Another headache.

My take is that it's hard to be a "one man band". Cos when you are playing one instrument, it's hard to work on the others. 

One of our computer clients runs a sawmill, and a treatment plant, and a machine shop, and a truss / framing fabrication shop / and a retail store. But then they also have about 50 staff across the various sites. And about 20 networked computers plus the computers that run the chop saws / treatment plant etc that I get lassoed into looking after. But they have the whole supply chain covered, from their own log truck, to builders that will assemble one of their prefab houses for you. But at that level the "manager" is just that, and has 2 office staff to keep up with the accounts / payroll etc. 

Another large mill is wholesale only, and a 3rd company is only doing processing. They buy wood wholesale and process it into "finished" product that wholesale to retailers, or pack for export.  The 3 "competing" companies will actually trade product, heck low grade pine that business #1 sold to #3 could get finger jointed, machined into window trim, pre-primed with paint, and sold back to them to stock in their retail store or finish off a kitset house. 

My ex Father in Law ran his own car repair shop, and his observation was that once you got to 4 employees, you basically had to become a manager. Organising your workers, dealing with customers, suppliers, accounts and general headaches meant he  didn't actually get much "productive" work done himself. But as long as he kept on top of things and kept the guys working, there was 3X the work going through the shop then he could have done alone.  But there was also 3X the headaches. :(

[Ianab]

Remember, if you are selling wood at $1.00 a foot and all your expenses are $.70, you are making $.30 profit.  If you drop it just a dime in price, you have to sell 50% more wood to make the same profit.

100% true. But if you spend 1/2 your time doing "sales stuff", that's time you can't spend sawing. 
So it may be better to offload the whole days sawing at 90c, Vs only getting 1/2 a day sawing, and spending the rest of the day on sales. Unless you put your retail up to ~$1.20?  So you end up with a "wholesale" of .90c, and "retail" of $1:20. If the buyer then sells it retail, they are putting in the leg work to handle the retail side, and are earning their 30c profit for that work. (That you didn't have to do) 
So that's why you have to weigh up the options, and they can change. A wholesale client might have markets you can't reach (export or value added?). Or if the wholesale isn't looking profitable, then retail it yourself, and hope the higher price makes up for the lower volume.  

[moodnacreek]

And the double L describes my life.

[longtime lurker]

Remember, if you are selling wood at $1.00 a foot and all your expenses are $.70, you are making $.30 profit.  If you drop it just a dime in price, you have to sell 50% more wood to make the same profit.

100% true. But if you spend 1/2 your time doing "sales stuff", that's time you can't spend sawing.
So it may be better to offload the whole days sawing at 90c, Vs only getting 1/2 a day sawing, and spending the rest of the day on sales. Unless you put your retail up to ~$1.20?  So you end up with a "wholesale" of .90c, and "retail" of $1:20. If the buyer then sells it retail, they are putting in the leg work to handle the retail side, and are earning their 30c profit for that work. (That you didn't have to do)
So that's why you have to weigh up the options, and they can change. A wholesale client might have markets you can't reach (export or value added?). Or if the wholesale isn't looking profitable, then retail it yourself, and hope the higher price makes up for the lower volume.  

From a business perspective all these numbers are wrong, and I'll tell you why.
There's no such thing as a business with a before tax margin of 30% anymore. You (and this is a very common mistake) are using the word profit when you should be using the word markup.t Jewelry stores run on a markup of 300%... It's why they can do those 50% off sales because that still leaves them with a 50% markup. The margin though is grim because the overhead remains the same. Small verbiage confusion but it leads to big dollar errors... I made them too.


You're also right in that you're factoring in the added costs to get that markup. The biggest mistake most small business owners make (me included) is not putting an adequate dollar value on their own time. Everyone should start keeping track of their own time like they do an employee's... Even if you don't cut the cheque each week knowing what it really cost makes you start looking at efficiency differently.


I could so sink my teeth into this topic... I've learnt so many lessons the hard way I could do a master's thesis in how to make money selling wood.


Bolts are the answer to retail FWIW You sell wood you should sell the fixings and fasteners to go with it. It's all about percentages... you buy a screw in bulk for 2 cents each and sell in packs of 20 for $2.50 They don't take up a lot of space, have a long shelf life and the margin is huge. Nobody cares about spending an extra few cents, they do it and thank you for saving them a trip to Home Depot. And how many other products do you know where people will buy 15 extra to get the 5 they wanted? It's a small dollar value transaction that adds up to a lot of money.  Fixings and fasteners are usually the most profitable things in a hardware store, the "Do you want fries with that?" of the lumber business. True thing!

[farmfromkansas]

Have you been to a lumber yard lately, and looked at the price of lumber?  Especially oak and such.  Just give the yard the price you would to a customer who walks up and wants to buy lumber, and let them mark it up.  People go to lumber yards for convenience.

[Stephen1]

I read a comment  on here a while ago,
 " if you want to lower your hourly wage sell retail"

[WV Sawmiller]

   From what I am seeing here some sawyers evidently don't like dealing with customers as well as others. I am very social and love meeting new people but my milling is more of a cost neutral hobby in my old age rather than the bread and butter my family depends on so regular sales are not critical to me. When I saw/sell I expect adequate compensation and I don't have to saw or sell if I can't get it. 

   One point I have not seen addressed very well is that when selling wholesale it seems you are locked into an agreement with one or a small group of customers. If they suddenly drop you as a vendor or suddenly demand an additional discount you are left holding the bag with a product you may not be able to move quickly and/or spend a lot of time and money in court proceedings. Are you prepared to deal with that?

[longtime lurker]

Have you been to a lumber yard lately, and looked at the price of lumber?  Especially oak and such.  Just give the yard the price you would to a customer who walks up and wants to buy lumber, and let them mark it up.  People go to lumber yards for convenience.

I disagree a bit with that based on the fact that if someone walks up to me to buy a retail volume of lumber I'm going to charge it the same as a retail lumber yard will.
There's enough people ready to cut your throat in this game without cutting your own. And the cost of retailing is the same at his place or mine, less freight. Most lumber yards have a lower cost to sell than me because they are set up to do it.
The only discounting I do is based on volume. Anything else sends you broke.

[Durf700]

I have been in new home construction retail for the last 20 years.  I price out the complete projects , factor in all the overhead  and put in the correct profit margins.  So talking with people that want to purchase small orders of lumber from me is natural for me on the retail side.. and much simpler than what I deal with on a daily basis.  Just be sure to cover all your expenses from start to finish including wear and tear on a new machine.. so you can basically pay the mill back as well per board foot that it saws.