Vivian Kistler on Pricing

[Bob Carter]

First, let me say I enjoy Vivian's columns and have sat in on her presentations. She's entertaining and informative. She is one of the better educators we have in our trade.

But in this month's Decor she uses a formula for pricing that to we retailers is like using cardboard and masking tape in framing to framers. If it were that simple, we would have bean counters determining prices instead of entrepreneurs and marketers.

A more sophisticated approach to pricing includes so many more variables that really are fairly easy to incorporate in a comprehensive pricing scheme. But this one price fits all type of determing price leaves so much uncovered.

Let's take a simple example of a single mat listed in Larson @ $4.15 a sheet. Assuming no freight, the actual cost is $4.15 times 2.5 multiplier plus 15min labor @$60/hr and you get $25.38 no matter what size (up to 32x40). Shouldn't a 22x28 mat cost more than a 16x20, but formulas like this don't provide that flexibility. They also penalize you if you buy very well by suggesting you charge less. Suppose you buy the same sheet for $3.24/sheet then your selling price, according to formula, is $23.10. Why should the consumer get a better deal because you do? And it carries forward to complete orders, as well.

A more balanced approach takes formulas into consideration, then modifies them to many factors:market, competition, your ability to get more, etc.

This isn't intended to criticize Vivian. These formulas have been bantered around so often they gain an acceptance through repetetion. A more sophisticated approach includes much more that is not all that more difficult. The formulas are easy, but if it was that easy we wouldn't need great merchants or Marketing Depts. I'll gladly expand on this topic if there is any demand, but honest to goodness, this simplistic pricing is just not a very smart way to maximize your profits.

[Cheryl Crocker CPF GCF]

I agree and find a lot of framer friends who price in a manner in which she is suggesting. I would be out of business if everything was a 2.5 multiplier. I am very interested in what formulas or methods you use for pricing and why.

[B. Newman]

Since that column is an answer to my question originally, what is yourall's opinion on just the markup of moulding. And then overall markups.

I've taken all of my overhead and divided by the days, then hours open to determine a cost per hour to operate. So I know my costs.
And there's "40 jillion" formulas for pricing. What's the simplist?

To paraphrase an old commercial, "What's a framer (mother) to do?"

Betty

[JRB]

The simplest is a six time mark up on everything you buy. This will cover labor and overhead, if your rigid about it, you'll even have a profit. Always work from minimum quantity prices, for example, length price instead of box price. Like Bob says, why should you work for less just because your hard work enables you to purchase in quantity?

John

[MerpsMom]

Bob, I thought that was here on the Grumble somewhere already? Would be useful to bring it back up?

[Bob Carter]

As a follow up, let me start with this is no indictment on Vivian or her formula. It is to point out that there are many ways to determine pricing and all should have some flexibility to include things like common sense and a sense of market.

We don't use a formula per se. We start out with a gross profit goal and work backwards. More simply, if we want a Cost of Goods of 30%, then we need to average 70% GP. This comes from experience, not a formula. We also know what our percentages need to be to remain profitable. Again, not from a formula, but experience.

So we try and make sure our workorders average that amount of CoG. We look at each component and know our costs (and we figure a full sheet price when we have to buy a full sheet) and start with a 3.3 multiplier (to get the 30% desired). Then we see if that price makes sense. Is it logical? Shouldn't a customer expect to pay more for a 24x30 mat than an 11x14. Even though you probably had to buy a full sheet and may never use the balance? And even though you probably spent the same amount of time in selling and ordering and cutting, etc. Logic in pricing is the one obvious missing component in formula pricing. We also don't use any labor quotient. That's what your gross profit covers (salaries, labor whatever you want to call it is an expense and as such, is deducted from gross profit to determine net profit) and besides you probably are committed to 40 hrs of wages if they cut 1 mat or 100.

Then we need to know what the market will bear. If you buy very well, you should be at a similar retail price level that someone that buys poorly. You should just make more money because you're smarter. Not the same percentage as them (and if you use the formula method it will be). But you will only know what the market will bear if you shop your market. I know, I know a lot of you don't care what your competition charges because your clients bust your doors down because of you unparalled expertise and superior design and all the other things that we all think we have over our competition. But we all can't be the best, so just in case you might be second best and it's the rest of the great unwashed to don't measure up, sometimes pricing matters.

But this isn't designed to be cheaper than your competition, it's designed to make sure you aren't cheaper than your competition. It's to make sure you aren't underpricing yourself because the formula says so. One of my favorite stories is when doing our periodic shopping one of the nicest family run business was the cheapest on glass by a lot. When I shared this with her she said defensively that her pricing was fair and that's what her figures (read:formula) called for. But she was leaving money on the table-$4-5 a lite, in most cases. I know when we checked again she was in line. But had I not told her she would've been happy with her pricing because she didn't know any better. Because she felt it unneccessary to shop her market.

I'll leave it at this for now, with much more to come. It's just so much more than multiplying if you want to maximize your potential.

[This message has been edited by Bob Carter (edited September 24, 2001).]

[Bob Carter]

Okay, it's a new day and I'll expand on why I'm against formula based pricing.

Let's use a real world example:

Larson 457901 overall size 24x30
any paper mat (I know, I know we would never allow that type of #### in our store)
regular glass (I know, I know)
dry mount on foam

Pretty basic components. Taking the list prices from Larson's most recent (you know the one that they insensitively dropped on us)these material costs (buying box of glass and foam pricing)equals $68.81. The price is for chop; a bundle of 17ft comes out about the same.

Multiply that by 2.5 and add labor(and for this drill let's use 1hr @ $60/hr-easy math)and your retail is$232.02.

Now my retail is $268.00, and I buy pretty well. so using my costs with the same formula, my retail should be $177.92. Way too much disparity.And I'm not giving my advantages away for free; but I will use them to my promotional advantage(I know, I know you would never do that-price integrity and all that. But that's another thread)

Now using Vivian's formula (for the umpteenth time, not criticizing) she does yield a 29% CoG.That would meet our goal except that it assumes you never make a mistake, never have any waste, order only what you need, etc. If you are that skillful and efficient, Nike has a high paying job running their Guatemala operations for you. It also doesn't allow for you to make an executive decision that "By Golly, I'm not selling product, I'm selling a creative design and superb craftsmanship and just like Nordstroms or Ruth's Chris or Cadillac, I think I'm worth more and I'm going to get more" and actually charge the amount that is commensurate with your world class skill. Sometimes you have to look at your components and say "That's too low, I can get more".

That's where management and analysis come into the equation. And there ain't any variable in the formula for that. You have to look for these mark up opportunities; those items where you are truly different (not unique). You have to find those items and exploit them to your advantage. But if you willy-nilly let a calculator set your pricing, you are probably missing some serious bucks.

Next installment will deal with identifying easy mark up opportunities. And please, nobody needs to critcize any plan just because it isn't they way you do it. In fact, if you have a better plan, please start a new thread. I don't want anyone to think that my way is the only way. The more options the better-which is why I offered mine.

[This message has been edited by Bob Carter (edited September 28, 2001).]

[Cheryl Crocker CPF GCF]

Bob, do you price for a box of glass on each frame order and if so, why?

[Bob Carter]

We charge the per lite cost. We basically charge for whatever material we use, but at the cost of the product's full size; a full sheet of glass, a full sheet of matboard.

Like most of us, we have a mountain of dropouts and end cuts. If and when we get to use that remainder, then the cost on that component is zero. But we all have that once in Blue Moon mat or filet that is getting yellow with age, and for that reason we cost out the full stick, sheet, lite, etc. But we don't micro-manage these factors that finitely. That's where my old friend common sense and logic enter the picture. And calculator created pricing from a rigid formula doesn't allow that type of flexibility.

Cheryl you seem to have a good sense of what you do. How do you determine selling prices and how do you (or do you) determine your cost of goods. Do you do it on each workorder, or do you add up all the rocks in the box at the end of month? I'd love to hear other's approaches.

On the HH awhile ago, one long time member indicated that his formula was the only formula that would accurately set pricing and that everyone else was wrong (don't you love it?). It was so complex and convuluted that I honestly couldn't make it work. And I tried. Marc Lizer was helping us on a project that we did in Cal. and we spent some enjoyable time of the phone. This persons formula(about 8-9 steps) came up and figuring Marc to be a pretty bright guy, he couldn't figure it out either. The point is that these formulas get bantered around so often, people start believing them to be useful. It's like the old adage about Canvas art-Remember, you had to slit the dustcover so the oil would breathe? Some of this stuff just takes on a life of it's own.

But I would love to hear other's methods. Heck the method you use might be just the hybrid that will work for someone else.

Cathie offered that a previous thread on pricing might be useful here. It's in the archives for anyone interested, but this thread is about using simplistic formulas. I just think it's way too simplistic and doesn't include thought and analysis-tools of the savvy retailer

[MAX]

I gotta agree with Bob on not having a labor quotient built into your pricing strategy.

I think that is where alot of these "pricing structures" get really bogged down in minutae that are unnecessary.

For example, I know there are alot of one-person shops out there. Are you guys really factoring in a time/labor & overhead component into every step of each framing job?

Doesn't that sound rediculous? It just makes more (common) sense look at the bigger picture & treat these things as they are - expenses. Fixed, variable, whatever - they are expenses and are paid out of gross profit.

[Bob Carter]

Max-I see it all the time, like we are enslaved to time and motion studies. And you are so correct about adding component after component. It's refreshing to see some folks understanding their P/L's more accurately.

But for those folks that have their overhead dissected down to the minute, do they adjust their prices in Feb that has 28 days as opposed to Jan or Mar (both 31 days)? I think a more global approach to pricing, understanding all the components and their affects on each other, is the more effective method.

But I still want to hear from those that really do use the formula method successfully and could you please offer some real world examples. I'm not afraid to learn. I'm a big proponent of "Learn more to Earn more."

[Dermot]

I recall that when I was trying to work out my pricing structure that I read someplace (can't remember where) that the average picture framed was 16x20" I have based my pricing on this average plus wastage.

The market in Ireland just would not stand the full sheet size though I wish it would (we will get there some day).

We have no chop here except for metals.

I factor 25% wastage.

I aim for 28% cost of materials though I understand this can be got down to 25% with prudent buying.

30 % to cover overheads and bits and pieces

The rest to cover my labour and a profit.

The one area I have to watch out for with this formula is the small and large frames they can look over priced, you can over come this by having a fixed charge for a frame plus the average mark up I do not bother with this as I have a minimum charge at which I will accept a job and the big frames I tend to price on a job sheet (a fall back to my days in the printing industry).

I generally have a look at my pricing every month, just a quick look to make sure things are on track.

I have tried lots of different methods to work out pricing with very similar results no matter what you do.

Currently I'm looking at things again with the impending change to the Euro I'm trying to kill two birds with one stone and do agree the more simple the formula is the better, providing it is based on sound business reasoning and it caters for the market you are in and given the nature of picture framing the market is constantly changing.

Like Bob I have a favourite story about the guy in England who was not making money, he took a deep breath and upped his prices by 33% within months he had money in the bank took his family on there first holiday since he started his framing business and the only customers he lost were the ones he did not want anyway the rest understood that he need to make a living and informed him that they though his new prices were quite fair.

Last word watch your time it is the most expensive part of a framing job or that what I have worked out, and the final result must be profit no matter how true an artist you are.


Dermot

[This message has been edited by Dermot (edited September 26, 2001).]

[Vivian Kistler]

Dear Framers,
RE; Pricing custom work is anything but simplistic. The BASIC pricing formula of Actual cost multiplied by a markup plus labor equals the selling price, is a standard in general manufacturing. It takes into account ANY expense you’d like to consider including: overhead, time, materials and waste. The markup can be of your choosing. My research has shown 2 to 2.5 times is what sucessful frame shops doing over $300,000 per year typically use.
There are no quick answers to pricing. You must know the exact expenses, including poorly performing employees or 10 foot sticks of moulding with only 4 useable feet. I prefer prices that are fair to both the framer and the customer.
A paragraph response is not meant to replace an education in finance. Want to know more? Take a course, read a book.
Vivian Kistler

[Bob Carter]

Thanks, Vivian for responding. Your position as an industry expert carries a lot of importance. That's why it is so important that when you offer advice, that it is sound and practical. I doubt very few will read a book or take a course. We're all looking for that quick fix, that 2hr seminar, that short article. That's why I brought your statement up in the first place. But what really needs to be elaborated on, and this trade's quick answer people don't ever say it is the need to understand your market-to know where your prices fit. It's just not mechanical, or worse mathematical.

Amazingly at lunch today I was reading INC. and one of my favorites, Norm Brodsky, was answering a question from a home based printer that had grown his business to the point where he was in need of "formalizing" his business (you can insert the term picture framer for printer any time)and was worried about making a mistake on pricing, since he would now have additional overhead, etc. I'll quote Norm's answer verbatim: "Sam should research the industry. As a general rule, you can charge more in a competitive market only if your quality and service are better than your competitors. Sam should find out who his competitors are, what they are charging, what kind of quality and service they offer, and so on. Then he can makes his own call." Inc magazine Sept 30, page 153.

So my question to you ,Vivian, and all other Industry leaders that we look to, is why aren't these type of issues that are clearly important to all other business people never raised in this trade. I remember you staing that your Dad was an old retailer, and you've often admonished framers for not thinking more like retailers (remember your holiday hours story?)May I politely ask that you include Norm's advice with yours next time? From one old retailer to the daughter of another, I think you'd make the old man happy.

[Jim Miller]

OK, pricing is an important issue. Complexity of the formula depends on how precisely one wants/needs to do it.

Most simply, one might just divide last month's income by the number of frames produced, add a correction factor if needed, and have all-for-one pricing. Don't laugh -- it could work for a production shop where all the months and all the frames are similar.

Or most precisely, one might start with current cost for each component, then add detailed, item-specific factors for direct labor and indirect labor, benefits, profit, waste, acquisition expenses, overhead, taxes, advertising, and every other cost.

Someplace in between the extremes is a formula that will give each of us reasonable assurance of competitive prices and fair profit. Any formula that yields those results is a good one.

Profit is more important than pricing. The most precise pricing formula is worthless if the business has profit leaks.

Equally important to a good pricing formula are productivity, purchasing strategy, marketing & advertising, inventory control, accounting, reinvestment, and so on.

Monitor and optimize everything that affects the bottom line. Pricing is one.

[Cheryl Crocker CPF GCF]

Bob, after rereading, it sounds like my pricing is very similarly based. I recently spent some down time breaking every single item down on a per frame basis..just to see. I am in line with other framers with room to increase my prices given specialties/expertise. (That gets into sales and presentation, how you market yourself and are perceived, etc etc)

I might be misreading what Vivian Kistler wrote, but are we talking about marking up the actual cost of: moulding, glass, mat, backing by 2 to 2.5, then adding labor? This was close to what I had at the store when I took ownership and it was headed down...fast! It took a year of revamping the image, bringing in better, higher end mouldings and slowly, but continuously increasing prices to even make overhead!! I must not be reading that correctly. ??

[Bob Carter]

I guess to take Jim's position as long as there's some money left at the end of the month, you're OK. If not, try to run a tighter ship; stop the leaks. I have no argument with anyone's method of doing business. Hey, it's your business.

But the point I'm trying to make is that pricing is Dynamic. It includes knowing your costs, knowing your expenses, certainly. And if you happen to make a profit, then it must OK. And you can say my prices are right because I make a profit. No argument. But how do you know if you could have made more because you were priced below market. How do you know if maybe you might be losing business because you are too high. The point Norm and I are trying to make is if you aren't aware of your market, then you can't know if you are priced right. Just because you make a profit doesn't mean you could have made more. But how do you know? You have to do your market research and you've got to be consistent and methodical about it if you want to be a successful retailer.

If you don't feel that you are a retailer, but that you are a framer-good for you. But you are missing one of the important hats we all have to wear as small business people. That's why pricing is dynamic. It changes with the market, it changes with the price increases we all just got. But you have to know your market to know just as assuredly as you have to know your craft.

And I just don't know why some of the industry leaders don't feel it is as important. But if you think Norm and I are wrong, go ask the smartest business person you know (and it doesn't matter what field)if they have no knowledge of the market, of their competition, of prevailing prices, of things they do really well. And then tell me thiese things have no bearing on your pricing. This stuff is important and completes the method of proper pricing. You just can't do an effective job of determining the "correct price" without all the components. You just can't do it with a calculator. It takes the most important tool you possess-your thoughtful analysis with all the factors at hand-your brain.

[This message has been edited by Bob Carter (edited September 26, 2001).]

[Bob Shirk CPF]

OK I'll throw in my two cents.

We take a look at our cost of goods by putting the invoice cost next to the sell price on our copy of the customer order. If the order called for 7 feet of molding and the vendor shipped a 10 foot stick the cost for the whole stick is noted. Same thing with glass ect. Total the cost and compare to sell price to determine cost of goods percentage. We do this for a group of orders periodically so that we have an idea of our cost of goods percentage.

We figure our fixed costs by totaling our rent, utilities, labor, ect. for a month. This gives us a good idea of how much it costs to just open the door and turn on the lights.

Figureing sell price based on cost is a good starting point. But if you do not do market research there is a good chance that you are leaving money on the table. We belong to the PPFA. We are fortunate to have a chapter that does a pricing survey. It's the best one that I have seen. It's local, it's specific. The information is sliced and diced in several ways like metropolitan and rural, home based and store front, average price and mean price, various types of mats, glass, mounting, sizes, etc. We are lucky to have Chuck Triska in our chapter and he compiles all of this data and presents it at one of our meetings. I can then take my copy back to my shop and improve my profit by tweaking my prices. He has shown other chapters how to develope a pricing survey. Just one more profitable reason to be a PPFA member.

Bob

When someone says "a penny for your thoughts" and you throw in your two cents, is the other penny profit?

[Bob Carter]

Bob-Your chapter is providing a great service. And it is very important to know where you stand; to see if your prices are competitive or worse, too low. It's such a basic tenet of running a business. Good for you. Now, if others will realize that having a sense of market isn't something unimportant or unethical.

As for a penny for my thoughts-I rarely offer only two cents worth. Profit on a penny? Could be, but if that was my source of income I'd try to find a way to increase that 1 1/4 cents profit, or more.

But thanks for your important response. It was a great story on how people sharing benefits all. Always remember "Learn more to Earn more"

[MAX]

Bob Shirk-

We also used to take a batch of orders periodically and figure our COG's on those orders to make sure we were in line. I thought I was getting a pretty good snapshot of those numbers.

Bob Carter convinced me to do it on EVERY order. I figured, what the heck, if Bob takes the time & does that for his stores, I'll give it a shot.

What I found out by doing this was that I was paying way too much (read: losing net profit)to land my materials. This number stuck out big time once I started to do the analysis on every order. I missed that when I was only doing periodic batches.

Oh yeah, It only takes me about 25 mins a day to do this. I spend more daily time on the internet than that. Give it a try!

[Cheryl Crocker CPF GCF]

I am going to figure my CoG on each order for the next few weeks (though I usually check half the orders). I agree with the importance of knowing your market. Ours is a little skewed being located in not only a college town, but a resort area which has sent property values through the roof.

I keep in touch with my two main competitors as far as pricing goes. All three of us focus on the profit end, rather than quick sales for a quick buck. If we don't try to undercut each other, we all make more and cater to the clientele who want a quality product. Other framers in our area are price driven...this is where the marketing and presentation makes a huge difference (focus on quality or how cheap you can do it?)

I think you have to be careful who you are comparing your business with.

[B. Newman]

Do you all get Decor's "e-tips"? Very timely article on, of all things, pricing. If you don't, e-mail me and I'll forward it.

Betty

[Bob Carter]

Yeah, Betty-I got the same e-mail. What a shameless, self-promotion we've all given Vivian and her new book. I think she owes me a couple of dozen Krispy Kremes, and I hope her book sells well. The more you learn the more you earn. Even if only 25% is applicable, that's still 25% more than some started with. Just don't allow a calculator to make this important decision.

And Cheryl is so right on competition. Make sure you really are comparing your operation to your real competition. And if you have no respect for your competition (you know nobody is as good as you) then double your prices today. If you truly are head and shoulders above, shouldn't you be able to command those higher prices. Remember, knowing your competition is to determine the upper limits of pricing-not the bottom.

But I'll pass on an idea that I passed on privately to a pretty shrewd operator. Take it for what it's worth. Raise every major component on your workorder $1 per item. That's about $6-7 per workorder. If we are as good as we keep telling each other, then your client recognizes your talent. And shouldn't that be rewarded? Do you really think you'll lose that great customer over 6 bucks? Not if you are as good as you tell me. The upside? $6 x 50 orders a week x 52 weeks. You've just made enough without one extra cent of expense to fly to every show in the country, take every class available and still have enough to go to Paris every spring, all for a lousy buck per item.

Send me a postcard from the Eiffel Tower if you're good enough and gutsy enough to do it.
Any takers?

[po' framer]

Off-the-subject disclaimer and prior warning!

Hey, folks, in the midst of all this great and necessary instruction, we just caught Vivian Kistler's Post #1 on the Grumble in this thread, in case you missed it.

Welcome, Vivian, to the Grumble, whatever it took to get you here. It's about time and may there be many mo'. See you in KC.

Steve & Mendolynn Walls
Atchison, KS

[MerpsMom]

I did the COG on each order a long time ago. Ready to do it again, and for another reason. My accountant says my COG is 55%. After picking myself up from the floor, I said, "No way!"--or something to that point. Now I know it's not 55%, but I have to prove it to him or I'll no longer be getting the teakettle turned on for me in the morning. To his credit, he's using an accounting software program to determine his side of the issue; but just as important to my side is that it looks to me like GIGO. After all, he's the one inputting the data, and frankly, my dears, when it comes to some of this stuff, close is good enough for him most of the time. http://www.thegrumble.com/framer/ubbs/rolleyes.gif (Thank God for the program.)

All this aside, I'll do the math on each order for awhile, but I have some questions. It's easy to figure my cost of the frame vs. what I charge. Ditto for my cost of the whole mat vs. what I charge, and the f/c/rag fillers, glass, and fillet. But what about notions: do you just kind of ballpark the ATG, screws, hangers, backing paper, points, and stickers? You can't reasonably ignore them. And I rather think we addressed this before but I can't find it in the archives.

Any help in defeating my accountant's smug "Prove it" is appreciated. http://www.thegrumble.com/framer/ubbs/smile.gif

[Jim Miller]

Bob said:
"...You have to do your market research...just as assuredly as you have to know your craft...You just can't do an effective job of determining the "correct price" without all the components...It takes the most important tool you possess-your thoughtful analysis with all the factors at hand..."

It's interesting that we're shooting at the same target from different angles, Bob. I agree completely. Line-item cost is only one of the factors from which the optimum retail prices are figured.

A pricing "formula" that translates cost into retail price is where the thread started. That seems too finite and maybe restrictive.

I consider price calculations more a matter of business philosophy than a matter of formula. As I see it, pricing philosophy balances prices with profit, revenue, and other factors of the individual business. For example, if I want to discontinue a moulding with 500 ft. in stock, I might price it lower to move it out. Conversely, if an exceptional buying opportunity gets a cost 30% lower than usual, I'll mark it up more and take a boost of "administrative profit". A strict formula doesn't usually encourage that kind of pricing.

[Bob Carter]

Bravo, Jim. That is exactly the point. Some stuff just looks like it ought to sell for more, and some stuff you buy well. Price that bad boy at what it ought to sell for. I couldn't have said it better. There's where that magic variable called "brains" comes to play.

Steve wanted to thank Vivian for participating. Absolutely. I seem to have a knack for bringing people in to the fray. First it was Jay, then John Taff, and Bruce Gehrman. Anyone else we want to smoke out?

[Marc Lzier]

<BLOCKQUOTE>quote:</font><HR>Originally posted by B. Newman:
Do you all get Decor's "e-tips"? Very timely article on, of all things, pricing. If you don't, e-mail me and I'll forward it.
Betty<HR></BLOCKQUOTE>

I get the Decor e-tips, and like them a lot. But I found the quote:
"Markup: The common markup on goods in frame shops is 2 to 2.5 times cost. Yours may be more."
in the e-tips.

I know it is just "tips" and not a "depth" newsletter, but I do have issue with the sentence.

"Common" to who? A price survey? Vendor desires? Failed shops?

"Goods" is what? Nick-nacks? Or converted product? Is this markup pre or post conversion?

As a practice don't different components sometimes factor at different markups?

If you are at 2 to 2.5 MU and you break a glass you are not just breaking even. You are loosing money because of the double labor that was not factored in the original. This is of course, assuming you marked the 2.5 on the glass post conversion, and not pre-conversion. ?

When you price the mldg, and it is with shipping, carriage, cleaning, joining, glue, nails, storage, stowage, the whole shebang, and 2.5 MU it, as a charge to the cust.

If it comes in dented you have addl hrs re-packing and re-carriage, ans well as second shipping costs. etc. This assumes you saw the dent before joining, and wasting nails, glue and join labor time.

Do I calculate the number of v-nails I intend to use at the counter and factor each and x by 2.5? Fractional glue use and waste? ATG on the mats and backing paper? Do I know it will take a yard? 2 yards?

Other issues: If you figure cost of expenses, divide by 5000 hrs, and figure $20 shop hrs rate. What happens for every hour you do not get to bill out to a customer? There are times where you sit on your bottom. Do you double the hour rate on the next order to get the numbers right? For every hour of un-billed time will you be in the hole? Do you just take that debit from the 2.5 MU from the goods side? So now the goods MU is lower, and if you break some glass you are not just double screwed, you are triple screwed?

I think I have a good book to pick-up soon.

I like all the $ discussions. I think we could always use more hashing and re-hasing of basic and advanced biz practice and theory.

After all what good is it to make a shadow box with all the correct mounts, materials, and design, if you loose your ### doing it.

Sure the craft thing, and the artisan thing, and the creative thing are nice ideals, but it is my customers that pay my rent. I need to charge accordingly.

It used to be the secrets in the industry were a bole recipe, or leaf technique. The secret in industry is pricing. And profiting from well studied and implemented bidness practices.

I don't care how good your design is, or how creative you are if you are not making a realistic living doing it.

Sorry, I meant to just say one little thing, and got off on some sort of rant. See what I said about bidness discussion being the ones that are better hashed out over drinks and darts.

[Dermot]

Just to say thanks to everyone this is a super thread, just what I needed right now, seeing as I'm looking at pricing again.

I feel much more confidant about my pricing than I did and how I'm approaching the whole question of pricing.

Though my business is very small I have endeavored to treat it with as high a level of skill that I can both from a business point and from a framers point of view and also that it will most likely grow bigger one of these days, currently it suits us to have it the way it is with the TAX situation in Ireland it is just not worth our while to grow the business at present.

Information about framing is so thin on the ground over here that you could more less describe it as non existing.

The typical attitude is mark the moulding(only moulding no kidding) up 3-4 times it took me only about a month to figure out that if I did that it would cost me money to make a frame, this was the business bit of me kicking in, profits, markets, product mix, customer base, etc.

Once again thanks Guy's you have no idea how helpful you are to a guy working in such isolation, since I found The Grumble in April I have learned so much, but of more importance is it gives me the confidence to put it into action.

If I come across as a bit stupid from time to time (which is true on occasions) it's just my brain socking up so much and it can over load a bit and it's also my efforts to convert some of the terminology.

Thanks everyone.


Dermot

[This message has been edited by Dermot (edited September 28, 2001).]

[This message has been edited by Dermot (edited September 28, 2001).]

[Bob Carter]

Cathie-I'm guessing your accountant is deriving that CoG from a Statement of Income. It's a pretty normal procedure in which he adds up all you purchases (the checks you wrote for inventory and sellable supplies) and divided that into your sales. For example, last month your checks totaled $12,000 for inventory and your sales were $24,000. Your cost of goods would be 50%. What that doesn't take into consideration is a physical inventory. Suppose you bought a lot of product the last day of the month, but wouldn't get paid until the following month. That inventory cost goes against the same periods sales. Yet next month your purchases might be much smaller and you will have the higher sales to decrease your CoG. But if this is a Year to Date figure, then you, young lady, need to stay after class for some remedial training. Before you lower the life boats, ask him if this is a one month or YTD figure.And I'm surprised that someone as sharp as you (I'm serious) doesn't already know that answer. But I'll bet you will know it soon.

A perfect example as how this works is we buy photo frames with a dating program that ships the product soon, and we pay in January after the holiday bonanza. So we generate sales now and pay later. We also buy significantly more in Dec but pay net 30 (due in Jan). Jan Sales are nowhere as good as Dec, and we have all these invoices payable in Jan. You can guess my Jan is not reflecive my day-to-day CoG, and the monthly Statement of Income reflects that disparity with some generally RED numbers.

Contact me privately if you need more help

[John Gornall CPF]

You've just spent an hour on design with a customer and price has not come up. The customer realizes she has spent more time than she thought and heads for the door happy with the design. At the door she turns and says "about how much?". Off the top of your head you say "about 950 dollars". She answers "that's fine - call me when it's ready" and she leaves. When you run it up on the POS it comes to 650 dollars - what do you do?

[Jim Miller]

<BLOCKQUOTE>quote:</font><HR>Originally posted by John Gornall CPF:
You've just spent an hour on design with a customer and price has not come up...At the door she turns and says "about how much?". Off the top of your head you say "about 950 dollars"....<HR></BLOCKQUOTE>

That scenario is one we avoid like the plague around here.

First, I would not spend an hour at the design counter without hinting at a price range and getting good feedback from the client. We try to establish a price range within the first ten minutes.

Second, I would not let a client leave artwork here without some kind of receipt -- namely, a copy of the work order or estimate.

Third, before the client leaves us with an order to proceed, we would agree on a total design and a total price to the penny.

Fourth, we would collect a deposit of at least half of the total before the order is activated.

But to address the base question --
A mistake should be corrected, no matter which way it goes. We would contact the client and resolve the issue as soon as possible. We would not arbitrarily overcharge anyone, nor would we want to sacrifice profit to a pricing error.

Having said that, sometimes it's better to take a small loss than to embarrass ourselves and inconvenience the client. It's a judgement call, with the loss going into our "miscellaneous promotional expenses" account. The operative word there is "small" loss.

[Bob Shirk CPF]

I'll throw out some ideas on incidentals and fixed expenses.

Let's say that you determine that your fixed expenses are $1500 per week and that you produce 50 frames per week. In the simplest method you could add $30 to the cost of each frame job ($1500/50 frames = $30).

If you want to get closer to a real number for each job you could do what manufacturers do. We are in part manufacturers. You could assign a point value to each portion of a frame job. For instance each mat might be worth 1 point. Cutting the frame 1 point, joining the frame 1 point, glass 1 point, dry mount 2 points, needleart mount 6 points, ect. Add up all the points on all the orders for the week. Then take the total number of points for the week and divide that into your fixed expenses to determine a dollar value for each point. Then multiply that dollar value per point times the number of points on each order. Like orders will carry the same fixed expense cost. The way to determine point values for each operation is to consider the number of man hours and equipment hours each operation requires. Now this figures things pretty close and would be a fair amount of work but it might bring to light some things for which you are not charging enough.

I suppose that you could also use total dollars sold in a time period divided into fixed costs for the same time period and multiply the result times the dollar value of each order to get fixed expense for each order. This method makes the assumption that you are charging more for a triple mat than a single mat and that your labor charges are close to where they should be.

For incidentals (glue, nails, tape) I would use the same sort of calculations or better yet include the cost of incidentals with fixed costs for this exercise.

Thanks for pointing out that I should figure cost on all of my orders. I'll try it for a while. Maybe it will become a habit that I will not give up.



------------------
Bob Shirk CPF
Blue Mountain Gallery
Shippensburg PA

[John Gornall CPF]

Jim, I agree basically with what you have said however we have a customer base that we are very familiar with and deal with regularly. These customers account for at least 60% of our sales. In these cases I prefer a casual/trust basis of interaction. These people know generally what we charge and price is seldom discussed at the design table. I would never ask these people to wait for a final price or to sign a work order and receive a receipt. I am convinced that this would annoy them. I also don't have problems that would make me put a formal sytem into place and use it so rigidly. (We have a system and use it for customers we are not so familiar with.) The first thing we do with a framing job after it is in the back of the store is do the real design of the framing. We may have picked the colors and moulding with the customers but we then get into the real fine details of making the job look fantastic. The fact that the price now has some flexiblity allows us to adjust the design in ways which may add to the price a bit such as an extra mat or spacer or whatever we think might give some pizzazz. Now that price in the POS system becomes a guide and we can put the price at an appropriate level to suit the work we do. We would never gouge a customer and if we thought we may have gone a bit too far we would call the customer and get approval. The interesting thing here is that over the past few years we have become more and more bold with what we do and our customers seem to be more and more happy with our framing even as the final prices keep going up. I like this freedom in pricing and I think it makes us better framers.

[Cheryl Crocker CPF GCF]

Thanks, Bob for the idea on the $1 per component increase. I have already made an additional $30 today!

[Bogframe]

I've posted this before, but here goes! This pricing formula is simple in practice, but complicated when you look at it...it's also flexible because to make a higher profit, you lower the divisor (you'll see).
1) Take Length + width and multiply by 2; rounding up to the next whole inch.
(example-16 + 20 divided by 2= 72)
2) Take the join price from the catalog and divide by 4 if you cut your own moulding, or by 3 if you order chop.
3) add .30 each for rag mats; .60 each for 8-ply; .45 for fabric mats; .30 for non-glare glass, $1.00 for A/R or museum glass.
4) add steps 2 & 3 together and multiply by step 1.
5) If you drymount, add $10 if under 16 X 20' $15.00 if under 32 X 40, and $25.00 if over 32 X 40. Also add $30 id the whole job is over 32 X 40.
I don't know how, but this incorporates the cost of glass, backing and fitting.
Try it out and let me know how you like it.

------------------
Seth J. Bogdanove, CPF
22 years framing and still loving it!
As usual, the website is www.masterclamp.com (http://www.masterclamp.com)

[This message has been edited by Bogframe (edited September 28, 2001).]

[Bob Carter]

Seth-I'm sure that this process allows for a fair profit. And that is what is fundamentally wrong with it. It doesn't reflect the opportunity of a great profit, nor does it allow the rewards of buying great. In short, it's mechanical and limited and that's just not good enough.

To beat the example horse to death, Imagine we have three framers. Call one Seth, call one Bob, and call the third Jay. And all three are in the same town. Seth runs a nice shop, buys okay, no great discounts but does okay. Bob has figured out how to maximize his buying to his fullest from the local distributors and pays less than posted in the price books. Then Jay has it all figured out, does several millions in sales and has manufacturers salivating to get his business.

All three punch in their various costs:We know what Seth pays, we can look at the book. We're not sure what Bob pays for the same product, but it's pretty low and then Jay makes us all look like school kids. Should Jay's prices be lower than Seth's or Bob's because he buys so much better? Hardly. Should Bob be more than Jay but less than Seth because his costs are somewhere in between. Not me.But if we used static multipliers, thats exactly what would happen. You can't penalize Jay for his economy of scale anymore than we should price Seth out of the market. We should all get as much as possible.

We should all try to maximize our profits by pricing what the market will bear based on our ability, design and craftsmanship. And you just don't know that unless you shop your market.

No Doubt you can develop a fair profit with a formula, but we ought to be trying to maximize these profits. A fair profit in business is like a fair catch in football; It just doesn't advance the ball. And we ought to trying to get into the end zone and score.

[John Gornall CPF]

I have a friend that is a photographer. If you ask him how much he charges for a family portrait he will answer 5000 dollars. If you say "oh", and nothing more he will be quite sure you are not a potential client. If you say that's a lot of money, what do I get for that much money he will explain that the 5000 dollars is for the full services of a well known, creative artist that will work very hard at creating the portraits that you want in the location of your choice and then working through the design and production of the images to produce a final product to suit your life or business style with everything from wall portraits, to Christmas cards. He will then ask you to pay the 5000 dollars right up front. With 5000 dollars at hand it's very easy for him to get to work giving his clients fantastic service and products. He is a very busy photographer and his clients come back again and again.

Lets try this on custom framing. What if every time a customer came in with an art print under their arm and asked "how much to frame this?" you answered 900 dollars (or a number suitable to you and your shop.) Then when they asked "what do I get for 900 dollars" you could answer "whatever you want." There would be enough dollars that they could have suede, filets, special glass, a fine cup of coffee while you talked , and overnight courier for the chop or mat missing from your stock, as well as a little overtime to conclude with delivery tomorrow. In other words you could offer excellent framing and excellent service and make a good profit.

However most framers are afraid of their own prices. They use formulas and POS software to calculate a price that is actually the lowest price they can do the job and still get wages. That price at the bottom of the screen doesn't even give a good contingency - if they cut the long side of the chop to the short length or ruin a mat they lose money on the job. And they have to make the customer wait while they get new materials.

There is more to custom frame pricing than marking up the materials, there needs to be dollars to pay for everything a good framer offers. And a good framer offers a lot!

[osgood]

This thread has been very interesting. I am all for maximising profit. Its a shame that a lot of other framers don't believe in it too. Some down here must work on the principle that they have to be half or less the price of anyone else then they do a job that fits that price.
I have a notice in my shop that says:
"There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey."
The Law of Business
By John Ruskin (1819 - 1900)
I point this out to customers who moan about the price I have quoted

[Le]

What I find most interesting about pricing is that an 11 x 14 simple black moulding costs more when I add it up at the end of a slow day than it would at the end of a day I am bombarded with sales. I think I have one foot on the scale. There wouldn't be any point for me to be in this business if my markup was only 2 or 2.5x .

[This message has been edited by Le (edited October 01, 2001).]

[John Gornall CPF]

You can go to Burger King and get a cheap, fast meal. You can't go to burger King and sit down to a gracefully served full course dinner. When you want a fine meal you make the decision to drive farther and spend more money going to a restaurant you believe will offer this service. Why do frame shops try to be everything? Back in my beginning in this industry when I wasn't sure I was a Framer yet, I had a lady come in to discuss framing a print. I showed her a selection of mats and frames and after she considered what I had shown her she thaked me and left. I, of Course, thought that either she was undecided or that my prices were too high. A short time later I was involved with her at a community event and in conservation I asked if she had worked out her framing. She surprised me when she answered that she was still looking for a suitable framer as she wanted much more than I had shown her. I was given another chance and showed her fine framing without regard to price. She picked a design 6 times the price of what I had shown her on her first visit. I stopped selling burgers and fries. Not that there isn't a "Burger King" position where a framer could do well, but more framers need to decide where they are positioned in the market.

[kizmet6382]

its all about listening to your customer. i should be able t sell to the burger king crowd....or to the jet set. the majority of people are always looking for the lower price, its up to us to show them that the lower price isnt whats best for the piece. show them what looks absolutely terrific the first time. 8 out of 10 times...they wont want to settle for less. if they do...i bet i can find something that they are comfortable with.
happy trails.....
kirsty

[kizmet6382]

its all about listening to your customer. i should be able t sell to the burger king crowd....or to the jet set. the majority of people are always looking for the lower price, its up to us to show them that the lower price isnt whats best for the piece. show them what looks absolutely terrific the first time. 8 out of 10 times...they wont want to settle for less. if they do...i bet i can find something that they are comfortable with.
happy trails.....
kirsty

[Bogframe]

Bob-
In spirit I would agree with you, but the beauty of my formula is that it's adjustable by either lowering the divisor for a higher profit margin on the moulding and fit, or by raising the inch prices of the, mats, specialty glass, etc.
There's no one formula or method that will work for everyone, and I'm not saying that mine's the best. I WILL say that mine's easy to learn, flexible, and fast, which my customers appreciate.
Once again, this kind of thread is why I stay with TG. Everyone has ideas and opinions, and reading them and sharing expands or knowledge. Keep it up, Bob and everyone else!

------------------
Seth J. Bogdanove, CPF
22 years framing and still loving it!
No longer associated in any way, shape or form with Masterclamp!

[Bob Carter]

Seth is correct in his formula is workable and can be fine tuned to any operation. He is also right when he states this is a great benefit of this forum, members exchanging information. Maybe the best method is a combination of several ideas. But the most important point to always consider-no matter how you determine your base pricing, always make sure you haven't left money on the table. Know your market to be sure you have maximized every profit potential by comparing prices, services and quality.

Then adjust accordingly