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Author Topic: pricing product  (Read 2695 times)

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Offline wdncno

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pricing product
« on: February 18, 2010, 09:53:25 AM »
I've been in business 35 years and pricing stuf properly is still a mystery to me!  I have been trying to snag a long term contract with a customer for a small product.  We are looking at a chance of about 10,000 pieces a year.  I've done samples, talked with other local sawyers about helping out, figured out end sealing, loading and trucking.  It looks like I may be able to make a dollar or two on it, but it has been a lot of work.  What I discovered, and I hope I have made no mistakes- is that this should pay off in the long run and I should have been doing this kind of thinking for years.  My customer has to be able to make money on the product, or he won't stay a customer.  I have to make money, or I won't stay a supplier-  HERE IS THE EXAMPLE- 1 cent a piece on 10,000 pieces makes or costs you $100.  50 cents a piece is an extra $5000 a year in profit or loss. I may be a bit slow, but this was a real wake up call for me.  I hope it helps someone else.

Offline woodmills1

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Re: pricing product
« Reply #1 on: February 18, 2010, 06:58:32 PM »
one year I lost my $5000 dollar pine contract.  I raised my 50 cent per bid to 55 and got under bid at 54.  so I lost 5 grand for a penny times 10,000. :P ::) ???

been at 50 cent ever since
James Mills,Lovely wife,collect old tools,vacuuming fool,36 bdft/hr,oak paper cutter,ebonic yooper rapper nauga seller, Blue Ox? its not fast, 2 cat family, LT70,edger, 375 bd ft/hr, we like Bob,free heat,no oil 12 years,big splitter, baked stuffed lobster, still cuttin the logs dere IAM

Offline Busy Beaver Lumber

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Re: pricing product
« Reply #2 on: February 18, 2010, 08:59:16 PM »
wdncno

My wife and I have been in business for over 9 years with our vending, embroidery and sign business and most recently the sawmill and furniture business. Additionally I have a bachelors degree in Business Management and Masters in Management.

Based on my life experience and recalling the 4 P's of marketing (Product, Price, Packaging, and Placement has taught me the following.

Competing on price is the first thing most people try because it is the easiest method to try. You under cut your competition, then he under cuts you the next go round...and so on and so on, until you get to the point that neither of you make a decent profit. This is pretty much a one way death spiral for both of you and should be avoided at all costs. The customer is the only one who benefits as he plays both of you off against one another.

Competing on Packaging is hard to do in this business since we usually sell just bare lumber and the customer is not expecting it to come in multi color wrapping, however neatly stacked and stickered lumber makes a much more favorable impression than does a pile of boards just thrown one on top of another in a sloppy manner.

That leaves placement and Product left

Placement can be a big factor. Getting your product into stores and outlets will definately boost sales. Ebay and our 2 websites has been a great market for many of our products, including wood bowl blanks and wood turning blanks. Placement at our local woodcraft store has help quite a bit as well. Joining a local woodworking club with over 200 members also gives us a place to move cut lumber and turning blanks. There have been days when I have sold an entire truck load of wood in less than an hour by just pulling up to the clubs door.

Product is by far my favorite to compete with and there are two parts to product so far as I am concerned. There is the tangible product, such as the wood you cut, and the intangible product which is the level of customer service you provide.

So far as the tangible product, perhaps you can add value and offer kiln dried wood whereas your competition may not be able to do so. With our wood turning blanks, many of our customers prefer them to be green, so we seal them with 2 cents worth of wax which they greatly appreciate and are willing to pay a premium for. We offer surface planing and jointing which many of our local competitors do not, again adding more value to the final product.

By far my favorite to compete on is the intangible, and often forgotten art of customer service. We go out of our way to do things above and beyond the customers expectations. We answer our phones from 8 am to 10 pm, 7 days a week. Because we are set up completely indoors with our mill and woodworking shop, we can cut or fabricate 365 days a year, night or day time, wheras many of our competitor can only cut on nice days or when the sun is still up. We react faster than does our competition and our customers apprecite it and reward us with repeat sales. A good source of income for us is wooden mailbox post repair and fabrication of multi unit mailbox units. The prevoius supplier took 3 weeks to deliver and install a completed unit, we take 3 days and that is only because we have to wait for the paint to dry or it would be 2 days. When it came to a repair, it could take him 3 to 4 weeks....we offer same day service. We will stay up late and make a sign or banner so you can have it in your hands the next morning. If it is important to you, it is important to us. I am sure you get the idea by now. Compete on service, not price!

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Offline Cedarman

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Re: pricing product
« Reply #3 on: February 18, 2010, 11:33:28 PM »
I will repeat Busy Beaver, "Compete on Service, not on Price".
When Universal Studios called and asked for a Hippogriff nest, cost was the least of their concerns.  Did I have what they wanted and if so, how fast could I get it to them. (Harry Potter is not to be kept waiting). This type of thing happens all the time.  When the Bronx Zoo e-mailed for "Ugly Cedar", we sent them a load. 
And if you cannot supply, do not hesitate to send them to the best places you can think of to solve their problem.  They will remember you as the go to guy.

If you are dealing in a commodity, make sure you know what your customers charge and how they offer it and how long it takes to fill an order.  This goes a long way in deciding how to price an item that anyone can make.  That is why we never sell cants.
I am in the pink when sawing cedar.

Offline Brucer

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Re: pricing product
« Reply #4 on: February 19, 2010, 01:38:04 AM »
Yep, I'm with Busy Beaver and Cedarman.

I've always charged more than my closest competitor, and people always come to me first. My timbers are always square, there's never any wane on them, I never charge more than I quoted, and I always finish a job when I say I will. Those things are worth $ to my customers.
Bruce    LT40HDG28 bandsaw with two 6' extensions.
"Complex problems have simple, easy to understand wrong answers."

Offline Magicman

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Re: pricing product
« Reply #5 on: February 19, 2010, 10:54:15 AM »
My sawing prices are a bit higher than anyone else in my area.....but they know what their sawing is worth.... :D

Many of my customers were previously theirs.  I completed a job yesterday that was a repeat customer.  He had had logs sawed by another sawyer in the past.  He said "as soon as it dries up a bit and he's able to get more logs out he would give me a call".
Knothole Sawmill, LLC     '98 Wood-Mizer LT40SuperHydraulic   WM Million BF Club Member   WM Pro Sawyer Network

Never allow your "need" to make money to exceed your "desire" to provide quality service.....The Magicman

Offline backwoods sawyer

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Re: pricing product
« Reply #6 on: February 20, 2010, 01:31:40 AM »
There are some good points made by busy beaver. I have a milling job on Monday for a customer over on the coast, it is a 75-mile drive and this will be my 5th time back and he has had an LT-30 sitting in his barn that he has just never gotten around to setting up the whole time. I keep offering to help him set it up and he keeps telling me I need to charge more. Marketing your service is as important as marketing a product, and keeping good customers is more important then finding one-time customers.
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Offline WDH

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Re: pricing product
« Reply #7 on: February 20, 2010, 08:04:12 AM »
When I sell hardwood lumber to people and after we have figured up the grade, volume, and cost, I usually throw in a few low grade boards at the end as extras.  They see this as getting more than they paid for and I see it as a way to get rid of some of the low grade that would otherwise sit around forever and take up space.  It is a win/win.
Woodmizer LT40HDD35, John Deere 2155, Kubota M5640SU, Nyle L53 Dehumidification Kiln, and a passion for all things with leafs, twigs, and bark.  hamsleyhardwood.com

Offline wdncno

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Re: pricing product
« Reply #8 on: February 21, 2010, 08:03:34 AM »
I agree with all that has been said here, but most of it is about marketing, I'm talking about pricing and knowing exactly- to the cent- what it is costing you to produce your product.

Offline Cedarman

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Re: pricing product
« Reply #9 on: February 21, 2010, 12:47:52 PM »
To figure out what to charge you need to know 2 things.  What are your costs of production at various levels of production.  Costs for 2 items per day versus 100 items per day will have very different breakeven costs. 
The other is what price the market will bear.  Researching what competitors charge for equivalent items  is a great place to start.  The more people selling the item the better known,this figure will be.  Also the better your marketing and the better the job of selling, the higher the price you can charge.
If you never lose a sale, you are priced too low.  If you never make a sale, you are priced too high.  Experience will show you that you must make enough sales while losing some sales that you maximise profits for the business.
Your job as a business person is to lower the costs of production per item and increase the price to the maximum feasible to make the highest profit per unit of time expended.
Alas, there is no perfect answer.
I am in the pink when sawing cedar.

Offline woodmills1

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Re: pricing product
« Reply #10 on: February 21, 2010, 09:57:42 PM »
first ya just needs customers
James Mills,Lovely wife,collect old tools,vacuuming fool,36 bdft/hr,oak paper cutter,ebonic yooper rapper nauga seller, Blue Ox? its not fast, 2 cat family, LT70,edger, 375 bd ft/hr, we like Bob,free heat,no oil 12 years,big splitter, baked stuffed lobster, still cuttin the logs dere IAM

Offline red oaks lumber

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Re: pricing product
« Reply #11 on: February 22, 2010, 05:55:45 PM »
everything we do we also have two constant products we make, pinewood derby cars(150,000 per yr.) fish fillet boards(50,000 per yr.) you don't have much control on pricing but, where you can really make hay is with how smooth everthing runs thru the shop.
 we also give extras but, you can only go beyond so far before that starts to eat heavily into your profits.
the experts think i do things wrong
 over 18 million b.f. processed and 7341 happy customers i disagree


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