Thread: Is it fair?

Originally Posted by jack620

Is selling for the same price to a new customer still "fair and honest" when you know you can make the item for less? I'm not saying it isn't, but it's a pretty grey area.

I don’t think it is a grey area at all, what it costs to make an item in relation to what you sell it for is mostly irrelevant. The true value of any item is the meeting point of what the seller is willing to accept and what the buyer is willing to pay, cost of production only affects the minimum the seller is going to accept, not the meeting point.

Cheers Andrew

Originally Posted by GraemeCook

Sell something to a "new client" at a lower price than the old customer, and you really p*ss off the original customer.

How would s/he know? We're talking about bespoke woodwork items here. And even in retail, products are regulalrly sold at reduced prices. I'm not saying it's wrong to charge the same price if your cost base goes down, but some of the arguments here for doing so seem a little flimsy.

Originally Posted by AJ.

The true value of any item is the meeting point of what the seller is willing to accept and what the buyer is willing to pay...

I don't buy that argument. Never have. The true value should be what it cost to make plus a reasonable profit margin. Would you accept an "entrepreneur" buying all of the stock of a particular drug then placing an enourmous markup on it, such that only rich people could afford to buy the drug? Just because you can, doesn't mean you should.

If only marketing was that simple.... manufacturing cost + reasonable profit= saleprice.
I have, in the past, been approached by many entrepreneurs seeking exclusive rights to a product. They get short shift. I think most manufacturers take a similar approach. Too many eggs in one basket.
Supply and demand are still the determinating factors when it comes to pricing.

Originally Posted by jack620

Would you accept an "entrepreneur" buying all of the stock of a particular drug then placing an enourmous markup on it, such that only rich people could afford to buy the drug? Just because you can, doesn't mean you should.

Martin Shkreli (aka the guy with the world's most punchable face) would like a word about that...

Originally Posted by jack620

I don't buy that argument. Never have. The true value should be what it cost to make plus a reasonable profit margin. Would you accept an "entrepreneur" buying all of the stock of a particular drug then placing an enourmous markup on it, such that only rich people could afford to buy the drug? Just because you can, doesn't mean you should.

In your example do you think that drug prices we pay now are even remotely related to cost of production?

The market economy is not perfect, monopolies are one if it’s issues so in some rare circumstances prices need regulation, but generally not.

So you believe in cost of production plus a easonable markup, who decides what is reasonable? Obviously the market decides that, which goes back to my original statement. What about secondhand stuff? If I bought a Ford GTHO phase 3 new for around $6000 in the early seventies and did nothing but store it, it would now be “worth” well over a million dollars, surely that is unreasonable? Why do we allow auctions where people outbid each other if the price is cost plus reasonable markup?

Cheers Andrew

I have not managed to get this right. That is why i am still working for a boss

Originally Posted by AJ.

In your example do you think that drug prices we pay now are even remotely related to cost of production?

No, most of them cost cents to produce. However the price is more closely related to the cost of development of the drugs, which can run into hundreds of millions. And you didn't answer my question about the entrepreneur.

Originally Posted by AJ.

...who decides what is reasonable? Obviously the market decides that...

Does it? There are MANY examples of sellers of goods and (more often) services who are gouging right now, because they can. I'm thinking specifically of tradesmen. They've jacked their labour charges through the roof because they are in demand. The buyers didn't "decide" that was reasonable. If your gas heater needs replacing, you need a plumber. No legal way around that. If he quotes you $150 an hour, when he was charging $100 an hour two years ago, is that reasonable? Or is it gouging?

As I said, just because you can, doesn't mean you should.

Originally Posted by jack620

No, most of them cost cents to produce. However the price is more closely related to the cost of development of the drugs, which can run into hundreds of millions. And you didn't answer my question about the entrepreneur.




Does it? There are MANY examples of sellers of goods and (more often) services who are gouging right now, because they can. I'm thinking specifically of tradesmen. They've jacked their labour charges through the roof because they are in demand. The buyers didn't "decide" that was reasonable. If your gas heater needs replacing, you need a plumber. No legal way around that. If he quotes you $150 an hour, when he was charging $100 an hour two years ago, is that reasonable? Or is it gouging?

As I said, just because you can, doesn't mean you should.

I did address your question about the entrepreneur, what you were suggesting was a monopoly and I pointed out that is one of the failings of the market system that would need regulation. the cost of development of drugs is one of the costs to produce, but much like the jigs being discussed here gets written of over x units of drugs. Does the price drop to a few cents once the development costs have been met? I don't think so.

I am so glad you used the example of tradesmen and in particular plumbers, as I have a mate who is a plumber that no longer works as one because it wasn't worth it, he now works in a low skilled job in another industry and is better off.

So lets assume I am a plumber and can fit a heater in 4 hours, I charge your reasonable rate of $100 dollars an hour so can do 2 heaters in an 8 hour day, I make a reasonable living and have enough time to go home and mow the lawn, clean the gutters, paint the verandah post, kiss my wife and play with the kids. But demand is high, people want 3 heaters a day installed. So I can now work 12 hrs a day, charge $100 an hour, pay an effective higher marginal tax rate meaning a lower /hr take home income, also I have to pay someone to mow the lawn and clean the gutters but I cant afford to pay someone to paint the verandah because after paying the tax, and the Gardner I am already worse off than when I was working 8 hrs a day. On top of that my wife is mad because she has to deal with the kids, I am never home and the verandah post still hasn't been painted. So I have 2 choices, I can go back to working 8 hrs a day, I am better off but too bad about getting your heater replaced because at a "reasonable" price no one is willing to do it. My other choice is to put my price up to $150 an hour and work 12 hours a day and at least now I can get the verandah post painted and buy the Mrs some nice jewelry so she is less mad at me. But actually what happens is my mate I mentioned earlier all of a sudden thinks that at $150 an hour he might jump back into the trade, of course there isn't enough work for both of us so neither of us can charge $150 because there is now competition, so we drop our price to $125, both work 6 hours a day and make a reasonable income plus a bit more and have time to do the work around the home, and low and behold the market has determined a fair and reasonable price, the price that the seller is willing to accept and the buyer is willing to pay, that doesn't mean you are happy to pay, but willing none the less.

The alternative is, I charge your fair rate, work 8 hours, my mate doesn't get back into plumbing and you get to freeze because I don't have the time or interest in fixing you heater. This in a nutshell is why socialism always fails.

Cheers Andrew

Originally Posted by AJ.

I have a mate who is a plumber that no longer works as one because it wasn't worth it...

Seriously? It's a licence (literally) to print money. What part of the game wasn't worth it to him?

Originally Posted by AJ.

...and the buyer is willing to pay, that doesn't mean you are happy to pay, but willing none the less.

You say "willing", I say "forced".

Oh, and your GTHO argument is spurious. Everyone understands they are a collector's item and their price reflects their rarity. They are also an investment. I don't think they are relevant to a discussion about overcharging for services.

Read through most of this and it's a good discussion with great points raised.

IMO the reality is that as a furniture maker you are providing a product (and maybe some 'experience' / service depending on how you go about the process of engaging with the client). The question of charging or not charging for the jigs needed to make a piece are irrelevant to the customer - the finished product needs to represent better value to them than the next best alternative. If you have no further use for the jigs then you should factor in the cost to your price, however this may result in your product no longer being competitive and thus you won't get the work - that's just simple free market mechanics - and is why specialising in a narrower scope of work will generally make you more efficient and competitive vs generalising - less reinventing the wheel each time and amortising the investment in jigs etc over more pieces.

I do believe the price of a piece should represent the value that the piece provides to the customer, not be tied to a cost+margin equation - that simply sets the producers minimum viable selling price - the customer sets the actual sale price via free market supply/demand - which in the case of furniture/woodwork with many buyers and sellers is a competitive and free market where the supplier does not generally have a lot of pricing power to demand large premiums (without earning them in some way at least - reputation for quality etc).

Cheers, Dom

Originally Posted by DomAU

I do believe the price of a piece should represent the value that the piece provides to the customer, not be tied to a cost+margin equation - that simply sets the producers minimum viable selling price - the customer sets the actual sale price via free market supply/demand - which in the case of furniture/woodwork with many buyers and sellers is a competitive and free market where the supplier does not generally have a lot of pricing power to demand large premiums (without earning them in some way at least - reputation for quality etc). Cheers, Dom

If only it were that simple. Unfortunately even furniture is not really a free market and has become far more polarized with global supply dominated by a few significant players. Our onshore manufacturers using local materials are competing with low wage base countries sourcing materials from similar low wage sources who supply those players. Sadly that plays out with numerous onshore manufacturers, large and small, going to the wall or calling it time before they do. Tessa Fine Furniture after 50 years etc. Now if the customers had access to the jigs and machinery ......

One example of protection of IP is the most renowned maker of inlay banding - Buffard Freres who closed their operations due to the Great Depression (1930's). The family ordered the destruction of the machinery used to make it in the 1970's rather than have it fall into the hands of imitators.

Originally Posted by artful bodger

When you quote on a job and need to make jigs,tooling, templates to do the job to charge the client for the cost of these things?. Especially if you may never use those things again.

Absolutely, without the jig you would never be able to make the piece, also you should factor in a percentage of your business machinery setup costs because you wouldn't be able to make the jig without your investment in the machines.

Thank you for all the replies.
On this particular job which was to supply two round windows that are 1.8 meters in diameter and send them interstate I had to make a suitable face plate for my lathe.
I may or may not have been ever asked to make another one this size again.
I told the client that I would charge him for the materials to make the face plate but not for the time it took to make it.
I think the prospective client might have been shocked at the price I quoted and has decided to think about it as his house build has not yet started.
I might hear from him again or I might not, I guess that is what quoting is about.