The Perfect Porridge
Oh baby bear, everything you have must be juuust right, doesn’t it? Your porridge is the perfect temperature, your bed isn’t too hard or soft, and your chair happens to be in the sweet spot of comfort. You need everything you have, and use, to be perfect for you, which is tough in this day and age of mass production where everything’s made to generally suit everyone. You buy things, and the producer of the product gets close to delivering on what you need, yet, it’s never just right.
That’s why you want items custom-made for you. Although, you’ve always wondered why custom-made items are so expensive. It makes some assortment of sense, but let me break it down for you so you don’t have to wonder anymore.
The Break Down
Time
To start off let’s think about time. I think we can agree that time has value, some would argue it’s the most valuable part of human existence. As humans, we must produce widgets, and to produce widgets we’ve found ways to trade our time for dollars. The question is how many dollars do we charge per hour of our time? Time is our most valuable resource so it must be wisely and well spent. I’m lucky to have chosen and created the opportunity to build uprelief, something I love and happen to be passionate about that also has a greater meaning and vision behind it. However, I’m going to leave my deep philosophical insights for another article.
Anyhow, deciding how much to charge per hour is difficult. A lot of factors play into it and here are a few.
Factors of per hour rate
The amount it costs to live in a particular city the worker/producers lives in. $50 dollars goes a lot further in Phoenix than it does in New York.
What is the maker’s actual skill level? Does that skill level equate to the amount of dollars being charged. Obviously a beginner doesn’t deserve $100 an hour because the quality isn’t as good yet, and they haven’t put in as many hours to learn the skill.
On the other hand, for a master that has 5+ years of experience, you don’t just pay for the hours they are working on your project, you’re paying them for the time they spent learning how to develop that skill set, as well as finish your project in less time. Thus, we pay them more. There’s a great example from a famous designer who finished a logo in 5 minutes that their client loved, the designer still charged the client the full $5,000-$10,000 dollars. This perplexed the client because it only took her 5 minutes to work up the logo. The designer responded by saying, “you’re not paying me for the time it takes to do it, you’re paying me for the time it took me to learn how to do it in 5 minutes.” Now, for what we do it’s a bit different because it typically takes at least 40 hours (often more) to get it right, putting things together just takes time, but we constantly do our best to reduce the amount of time it takes to make something. That’s because we’ve learned how not to do it, so we can do it more quickly than someone just getting into the game. Thus, we do our best to charge you less on time, of which we make up for with profit.
Employees need to get paid. A business doesn’t just pay the owner, so it must also factor in the hourly rate to pay an employee(s). This is an added expense and a vital one for the business, but also for the employee. The business is supporting an individual to exist within this society and the business must have the money to continue to pay that check every month. It sometimes blows me away that the numbers work out for business to pay some employees what they do. Yet, the numbers work out, but only when charging rates correctly.
So as you can see, there’s a lot that goes into deciding what a fair hourly rate is. Obviously, as a business, we want it to be as cost-effective as possible for our customers, yet at the same time, there’s a lot of responsibility and effort that has gone into providing the customer with the best experience. So as I’m sure you would agree, it should be fairly rewarded. If we could give our work away for free we would because we love what we do but, right now, the world just doesn’t work that way.
An interesting little side note: (Sometimes people value an item more based on just the fact that it is more expensive. People will enjoy an item more just because they paid more for it. The perceived value is higher because the price is higher even though it may only cost 5 dollars more to make than the next best alternative. So sometimes it’s better to price a product higher because the customer will actually value your item more.)
Materials
Ready to see a balancing act? Purchasing materials is where the price can skyrocket. As a small business, you don’t have the volume to drive down the price of the materials so they tend to be more expensive. Depending on what the client wants it can really increase the cost. Simply choosing from two different types of wood can also be the difference between $100-$500. For example using (1/4in-6mm) MDF, a very cheap wood that costs about $15 a sheet is a stark contrast to (1/4in-6mm) birch that costs about $30 a sheet. $15 doesn’t seem like much, but when you have to purchase 10 sheets of it, that adds up quickly. You’re looking at $150 for MDF and $300 for birch. That’s also not include the hardware to lock the pieces together.
Something to keep in mind is that most of the time, not all, but most, you’re going to want to spend the extra money. If you’re spending the money on the time, spend the money on the materials because you want it to last. Using quality materials is really what sets a product apart from the rest. That’s part of the reason why Tory Burch can charge $300-$3000 dollars for a purse, and Kate Spade can’t. They are using a higher quality leather, thread, and likely dye that will outlast a Kate Spade purse.
We always try to find the cheapest price on the best materials, but sometimes you can only do so much. Or, in circumstances where it’s possible, we do our best to use the cheaper materials where it won’t have any ill effect. I can’t talk for all craftsmen and makers, but at reliefkey we really do try our best to keep the cost as low as possible for you. We also prototype so the first version we build for you may be with the MDF or cardboard so we can get the functionality and size worked out, that way when we do use the more expensive stuff for the final product it doesn’t go to waste.
Note: Materials for organizing such as bins, and organizers that are not made custom are NOT factored into the price
Other expenses aka overhead
On top of materials, we have other expenses that go into the cost of making something such as the tools we use, the electricity to power those tools, and marketing expenses to acquire you as a customer. These things also should be factored into the price because they are essential to running the business and a business doesn’t spend money on them to not make it back. Although to us, cool tools are like really dangerous toys for grown-ups, so we’d probably buy them anyways, yet, we must be smart business people nonetheless. I have a grand vision, things to do, places to go, people to hire.
Profit
Profit has become such a dirty word. Which is understandable when a lot of the big corporations will do very ruthless things to increase their profit margins. We don’t believe in doing business like that, and that’s not all business, but every business must make a profit. It’s essential to grow the business for several reasons. If you want to take on a loan or investor they want to see that profits are being made. When it’s time to get new equipment or do research and development it’s essential to have extra money in the bank, if you just charge exactly what it costs to make something then you never have any wiggle room to expand, or like we’re seeing with COVID-19 you won’t be able to survive a crisis. There’s also a tremendous amount of risk the founder takes as an entrepreneur and in the long run they should be rewarded for that risk. In the beginning, the challenge is rigorous and they make little to no money, so the profit in the long run, 5-10 years down the road, is what will allow them to take a bigger salary in exchange for living on ramen and going heavily into debt in the beginning.
So where does the profit get tacked on with custom work? Standard profit margins are between 15% and 35% depending on the industry. We like to sit right in the middle of that at 25% profit margin because we don’t want to be greedy, yet we also very much believe that we provide a tremendous amount of value that garners that margin percentage.
Our Price Breakdown
Organizing
Let’s start off by looking at standard organization. What is the exact cost breakdown, not including materials like bins and organizers?
Hours – 15hrs x $55 = $825
Overhead @ 2% – 16
Profit @ 25% – $206 (Remember this is important to grow the business)
Tax – $55.75
Total – $1086
Custom product
For this breakdown, we’ll use an example of building a package holder for the front porch equipped with a smart lock. This way you would be able to give the postman a code that only lasts for a certain amount of time to keep your packages safe from theft.
Hours worked – 50hrs x $100 = $5,000
Materials
Wood – $63
Hardware – $33
Smart Lock – $200
Overhead @ 2% – 106
Profit @ 25% – $1350
Tax – 370.72
Total – $6752
The Value of Custom Work
Speaking of value, let’s take a deeper dive into the intrinsic and extrinsic value of custom work. If that’s what suits you, using off-the-shelf items works fine, but that’s it, just fine. It’s rarely exactly what YOU need, and you’re ‘baby bear’ so it has to be just right. It doesn’t adapt to your specific problems and needs. For instance, if it’s a couch that doesn’t look exactly like you want in terms of material, color, and dimensions. It may only come in brown, grey, and navy, but you want it in teal with pink sequence on the arms. It’s basically like you get to be a queen or king and ask for exactly what you want and then 3 weeks to 3 months later it appears, almost magically, before you. Isn’t that a remarkable experience?
On top of that, you get to have face-to-face interactions with the person who made it, you know exactly who’s hands touched each piece of wood and screwed in each screw. I find that romantic, it doesn’t just appear on your doorstep from China or Taiwan like a mail-order bride.
Now, of course, the downside is the time it takes to make the custom item, however, let’s look at the value of that. Sure, it’s amazing to get things delivered from amazon in one click, but you don’t value them quite as much because if something happens to it you just order another and it’s there, it’s not one of a kind.
On top of that, there’s no anticipation, no excitement. Think about how excited you were as a kid to open presents on Christmas. You’d just count down the days until Christmas morning, you despised waiting, but you were so excited for that morning and probably got up super early when you normally would sleep in on a non-school day. That’s what custom work is like, you have to wait, but it’s an exciting, eager waiting, and when you finally get it you appreciate it much more especially when you experience the relief it serves you by solving a problem that has been frustrating you for years. Then there’s always the bonus of showing it off to friends.
On top of that, think about the years you’ll keep that custom-built item for and how much joy it could bring you. If it’s something like a table and chairs, consider how you may even want to pass it down through the generations to your kids, and how your kids might pass it down to their kids. That’s something you’re not probably going to have the desire to do with a table from wayfair.
Let’s talk price again for a minute, if the item costs you $10,000 to get built, but you factor that $10,000 out over the course of even just 10 years. You only spend about $3 dollars a day on the item. I’m not a fan of this logic when selling, but I do think about this in my everyday life when I purchase something that I use daily and realize that I’m actually getting a pretty smoking deal on what I bought if it lasts well.
Conclusion
Now you have to ask yourself, “is having something that will last, something that’s just right for me and my very specific situation worth paying a premium for?
So in my option handmade custom work is very much well worth the lofty price tag. It’s not for everyone, I’d even go further to say it’s not for most, but for those of us that are ‘baby bears,’ that are particular, and must have everything juuuust right, it will provide them with tremendous value that will last for years to come.
If you have any other questions about our pricing, or pricing other types of custom work reach out to me at @uprelief, or submit an email to me below.