Business of Blacksmithing – How to Determine Your Hourly Shop Rate
How to Price and Charge for Your Work.
Blacksmithing like any craft takes a lot of thought when your price your work. We all struggle with what we think should be a fair price. Often we enjoy the work so much it seems hard to price the work at what it should be priced to make a proper living.
Let’s look at the reality of pricing your work when you work in a specialized, labor intensive craft. The numbers I will use may be a bit different for your country or location, but I am sure you will be able to adjust the numbers to your situation.
In my area minimum wage is about $8.00 an hour. This gives a bare subsistence in quality of living. So what is a reasonable wage for the type of work we do?
Let’s look at the nature of our business first. We use specialized equipment to create precision pieces of metal work. We assemble our creations into complex shapes and functional items.
There 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 do your own accounting and bookkeeping. There are many hats that we have to wear as one person business operators.
The manual skills required in the blacksmithing business as well as the technical knowledge are closely related to the skills of a welder, or auto mechanic, or a machinist. There are some differences in each of these trades but the skill level is about the same.
In my area auto shops and machine shops charge $75.00 to $100.00 an hour. Individual mechanics and welders get paid $25.00 to $35.00 an hour.
So let’s take an average of $30.00 an hour over a 40 hour week. That gives $1200.00 a week times 50 weeks (remember that you should be able to take a two week holiday and this is paid). So 50 weeks gives a total income of $60,000.00. This is considered a good solid income in my country.
You only get paid for the work you sell. The time you spend consulting with your clients you are not paid for. The time spent designing the gate or grill is not paid time. The time spent getting materials and supplies you are not paid for. If you do your own bookkeeping you are not paid for. If some one else takes care of your book keeping then you have to pay them.
There are many areas that you have to spend time on that you do not get directly paid for. Everything is paid for by what you sell so you have to take into account all the time spent other than smithing.
To calculate what your time is worth when you are working on actual blacksmithing you will need to at first 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 need to include the time it takes to package it up.
You also need to keep a log of all the time spent that is work related but you can’t charge for. You will need to keep your log-book very detailed so you can isolate what proportion of time actually brings income in, and what proportion supports your income but that you don’t get paid for.
You also need to calculate all your consumable costs, electricity, rent, business insurance, vehicle costs, etc and add to your wage costs. This will give you the total that you need to bring in a year.
The next step is to calculate the number of hours used on non paying work. This includes the running around and consultations, or the sitting at the craft show selling your products. This should be part of your log book as well!
If you keep track of all the time spent on your business, and the time of actual making of the products you will probably find a 60 / 40 ratio. That is 40% of your time is actually working on salable products. 60% of the time is spent on related but unpaid work. You will have to determine this ratio from your own log book.
Let’s take a look at some sample numbers in the equation. These are rough yearly totals.
Shop Electricity $1200
Shop Rent $3600
Business Insurance $1200
Vehicle Costs $6000
Show Fees $2000
Equipment Repairs $1000
You may have other expenses that you only incur since you are in business. These will need to be added to this list. Everyone is a bit different, and check with your accountant.
Our actual equation looks like this:
Hourly Shop Rate = (target yearly wage + business expenses) / (ratio of paid hours per week x 40 hours x 50 weeks in a year)
Now let’s plug into our time ratio.
0.40 x our a available paid hours (40 hours a week x 50 weeks in a year)
0.40 x 2000 = 800 paid smithing hours in a year
So $77000 / 800 = $96.25 per hour plus your material costs. This should be your shop rate. As you can see your actual wage is much less than what you have to charge.
Going back to the beginning of this article you can see why my local auto mechanic and machine shop is charging $75 to $100 an hour. Your blacksmith work is the same value!
Let’s add another twist to this scenario.
Suppose you hire an employee. Obvious expense is wages and deductions. When I was hiring employees it would take a month before they had been trained well enough that they were making me significant money. It took a week before they would break even and I could use the components they were making. If you pay $10.00 per hour, the first week they may just break even. The second week they may get up to $20 per hour in production for you.
After a month I found that they could bring in about $40.00 hour if I kept them busy. If you have the work rolling in this is when you start to make money. Remember you are still paying them $10.00 an hour. If your work dries up, paying employees is a fast way of going broke.
In short you need to start keeping a logbook of how much time you spend on each facet of your business. Time for everything. Then break it into time spent directly making your products and time spent on non-billable supporting hours. Do the simple calculations to find what you should be charging in your circumstances. It will probably be more than you guess.