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Side Buisness prespectives (Kinda long.....beware)

I just had some quick quistions about the whole idea of marketing anything. CBG's, pickups, t-shirts, shoes.....you name it.......

Let's say that there is a product that you can purchase. This product has 4 different price points.

$30.00

$22.00

$8.00

$3.00

Now, you find out that you can make this product for next to nothing yourself, by hand. You can order the material that you need (wire, cloth, magnets etc) and make them. You can churn out 3 of these products yourself, by hand in about an hour. So, you have yourself this little side hobby /skill that you may be able to make a couple of bucks on. You don't want to charge people an arm and a leg, but you don't want to break yourself either....just a nice little side craft you can do to make a few bucks.....no biggie.

You see this product and look at the price points and think "Man, 30 bucks is insane, who would pay for something like that for that amount of money."

You look at the 22 dollar price point and think "Well, this is a bit better, but still high as a cat's back."

Then the 8 and 3 dollar price point you think " Okay, now that is way more resaonable, but I can make 12 of that same product for 7 dollars myself."

You do the math and think "Well, I can buy the material for 7 and sell each one of these products for at least a dollar, (making 12 items each) and still come out ahead. But, since you are making this product, by hand, you need to at least come up with a price point for your time and talent. So, you charge a $1.25 for your product......1 for the product and since you can make one of these things in about 10 mins, you treat yourself to 25cents.

But here is a bit of a catch. You still have these other price points running around from other company's that are making the same product. But, you are selling your items for way less, so you know that the consumer will see that your item is the exact same thing and think "Man, I am coming out ahead and I am saving money because I want this product, but I don't want to pay 30 bucks for it, when I can get it this cheap."

Where are the rules drawn out in the sand? Who says that you can make the same exact thing that Joe Blow down the street is making, for less? Is it all just fair in love and war? Would someone get in trouble if they found out a way to make something, that someone all ready sells, but just for less? A 2 liter of pepsi is a $1.50, but a RC cola is 50 cents.....they both are pretty much the same thing, a bit different taste, but in all reality, who cares if you can save that extra buck.

Is this what they call the american dream? Is this where the rules don't really tend to apply? I can make a single coil pick up, so can that guy, but mine is cheaper, they both sound the same way, his just has a different brand name....but you save money buying my product. The you have thos other guys that say..."Well, his has this going for it, or that, or I like him better, or his comes with this..." It all boils down to a choice that a customer makes. Back in the day, on the farms, if you could not make it with your hands, you really did not need it. This is where guys like the old blues men were born, they saw a need, or a want ( I want a guitar to sound like Son House) So they use what they had.....but then over time, improved upon it, improved upon it, and then Bam, flash forward till now, and look at all of the six strings we have.....but throw guys like us in the mix, and then people get a bit taken out of their norm, get interested and then start making CBG's for themselves.....that is a bit off the subject, but you get the point.

What I am saying is, it boggles my mind that I can make a product, just as good, if now better than the next guy, but how can I get a peice of the action so to speak...Where can I get my foot in and say "Hey, don't pay that crazy amount of money for that product, when I can sell you one for way cheaper than his, that is just as good."

I am not greedy.....really.....I have always just wanted to have a samll buisness on the side, just to do and gain a bit of a cash flow. Is there anything really wrong with that? If you enjoy doing it.....then you should be fine right?

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Permalink Reply by Randy Webb on October 19, 2010 at 4:54pm

Why would you need to say "Hey, don't pay that crazy amount of money for that product, when I can sell you one for way cheaper than his, that is just as good."?

If your product is better, and cheaper, then the buyers will come if there is a demand. If something is as way overpriced as you seem to think some are, then buyers are less likely to buy that product.

In reality, you often get what you pay for. A fine, top quality playable instrument with great fit and finish isn't something that gets built in an hour. For example, the pickup I used on my last build cost $70 and it sounds 70 times better than the cheapo I put in the one before that.

Anyway, im off track, back to my original point.....
If you wanna make something and sell it, do it. But badmouthing others with similar products often backfires and gets you nowhere fast. Let your work speak for its self. If the quality is good, and the price is fair then people will buy it. If the quality is not good, then people wont. It's that simple.

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Permalink Reply by Skeesix on October 19, 2010 at 5:31pm

I found these spreadsheets very helpful in determining pricing for handcrafted items.

http://www.chris-parry.co.uk/pricing.xls

http://www.chris-parry.co.uk/testpricingplan.xls

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Permalink Reply by ChickenboneJohn on October 19, 2010 at 7:39pm

Assuming your product is of decent quality, fit for purpose and marketable, the price you charge is determined purely by the size of your cojones.

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Permalink Reply by Little Soul Eric on October 19, 2010 at 8:12pm

One thing i would say is there is a big differance between a hobby and a business
and these 2 factors also determine your pricing .

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Permalink Reply by Mark on October 19, 2010 at 11:32pm

Once you start to sell stuff you're really in business to some extent - it's really a question of what sort of business. Are you wanting to make a sustained income from it? Are you just selling an occasional item that you no longer want to keep for yourself? Are you selling stuff as some sort of social enterprise? (ie. one that has additional motives as well as seeking to stay in business - for example are you selling CBGs to spread the word or are you selling parts cheaply because you want to help people)

The bottom line is that if you're selling something you have to be realistic about what the sale price implies for you. Even if you tell yourself it's just a hobby and you're not trying to make a big income you still need to look at what it's costing you. For example, you'll have bought materials and tools and spent money on consumables and all the time you're working you're adding to your heating and electricity bills (and that's just for starters, before we even get anywhere near shipping costs and tax returns). Once you work out a sensible total for this stuff and deduct it from your sale price you have a figure for your time and effort. And, for some people who think about "dabbling" in a little side business, I wouldn't be at all suprised if the figure for time and effort ended up as a negative number. To me, that says these people are either very altruistic or quite dumb.

And before anyone says that if it's a hobby it's OK to just break even and make £0 per hour then remember the concept of opportunity cost - those hours you spend on your "hobby" are hours you don't spend doing other stuff and that can have a cost. So if you're going to expend a lot of hours for no profit it had better be very rewarding in some other way.

That spreadsheet from Chris Parry is actually very good as a tool for helping people think about these issues. I think people might be stunned by what they really need to charge to make even a basic living out of making guitars.

If you're just flogging off a guitar you don't use and which is littering up your house then you might look at things a little differently. You could argue that any money you get for it is a bonus. But I could also argue that if you sell it for less than the going rate for a comparable instrument then you're very generously giving away some of the value.

For me, these things come down to a sort of self respect issue. If you're valuing your time and effort at zero or you're giving away part of something you put sweat and inspiration into then what does it say about how you value yourself?

Soulcatcher & His DooFa Diddley said:

One thing i would say is there is a big differance between a hobby and a business
and these 2 factors also determine your pricing .

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Permalink Reply by Bluesdog on October 20, 2010 at 12:40am

No dude, there's absolutly nothing wrong with that. If you can sell your product and people are satisfied about the pickup + the price you are doing it right. Dont worry about other people who sell at higher prices, they won't worry about you either so just go for it!

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Permalink Reply by The Valley Boys on October 20, 2010 at 12:51am

I recently sold a CBG and a buddy asked me "What did you get for it?" I said "I got much better at dressing frets." He stared back at me and I said "Oh you mean money?" The Black Magicians (bankers) have us all thinking we are in
competition and it's turned us into savages. Let's turn off their Magic Box (television) and get back in our shops and
start focusing on making beauty instead of making money. Watch Ben Prestage or Richard Johnston and tell me this
is about money.

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Permalink Reply by Roy Alderman on October 20, 2010 at 1:39am

I am also in a bit of a quandry as to price point. My goals/aims are multiple - I enjoy making cbgs as a hobby, would like to get people involved in music and could use some extra cash flow as well.

My typical build is 3 string, fretless, poplar neck w/CB's economy tuners and a piezo pickup and of average quality. My build time is 2 & 1/2 - 3 hrs. and cost to build is about $13.00 per unit. My primary venue will be grassroots music festivals. I will have 15-20 CBG's and assorted canjos, diddly bows and lever basses.I will also be selling handmade soap. Booth cost is $200.

I would rather move all or most my CBG's than get absolute top dollar for them. Given these parameters - what is a good price point? I was thinking $65 but my wife and a friend think closer to $50. Opinions please??? Thanks, Roy A

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Permalink Reply by Dan Sleep on October 20, 2010 at 1:56am

I keep getting comments from people who say that I am selling my CBGs way too cheaply. Comparatively, I suppose they are correct. But, I am not really doing it for the money, and if I had to do it as a way to support my family, I don't think it would be as much fun, or that I would put as much care into building that I do now. I am reluctant to do any mass production because I feel that if I do, that it starts to approach the commercialized aspect of musical instruments, which is sort of opposite to what the CBG movement is all about.

If I make $2.00 an hour for my time, I call it good. I do it more for the satisfaction than the money. Having someone like what I built and appreciate my craftsmanship is more important to me that how much I sold it for.

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Permalink Reply by MichaelS Country Boy Guitars on October 20, 2010 at 2:01am

As I read this you are paying yourself $1.50 per hour based on your .25 for the build time, and not considering any other time than the building, remember research, ordering parts, packing and going to the shipper are all time you are giving away. Don't undersell yourself.

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Permalink Reply by Bad Finger (Eric) on October 20, 2010 at 2:02am

I'm a small business owner, but not in the musical world. I'd say you have to give yourself a healthy accounting of your present overhead and decide how big you want this venture to be. If it is a time filler and something you enjoy, then you don't need to make so much. But consider what happens if you get 100 customers with orders for multiple items. Then you have to sort out how to keep these people happy with your output. Remember, working fast usually means degrading quality. And then factor in you are under the weather this week and still have to put out 30 items. Now, maybe it isn't wort the couple bucks of gross profit and you wish you were making more. Then you have to hire a buddy or maybe an enterprising youngster to help out. Oh, and you wanted to take a vacation next week. It is more difficult to increase prices than discount. My suggestion is to start with a respectable price below the competition (like 30%) and offer every blessed customer a generous discount when you can find a reason to do so.

Roy Alderman said:

I am also in a bit of a quandry as to price point. My goals/aims are multiple - I enjoy making cbgs as a hobby, would like to get people involved in music and could use some extra cash flow as well.

My typical build is 3 string, fretless, poplar neck w/CB's economy tuners and a piezo pickup and of average quality. My build time is 2 & 1/2 - 3 hrs. and cost to build is about $13.00 per unit. My primary venue will be grassroots music festivals. I will have 15-20 CBG's and assorted canjos, diddly bows and lever basses.I will also be selling handmade soap. Booth cost is $200.

I would rather move all or most my CBG's than get absolute top dollar for them. Given these parameters - what is a good price point? I was thinking $65 but my wife and a friend think closer to $50. Opinions please??? Thanks, Roy A

To this post, I would say you have to consider how much pocket money the festival attendees have and what they will let loose of in a single transaction (assuming you will only take cash). That's more important than anything else, probably. If you figure the average person is walking around with $20 and maybe 10% have $100 (as an example only) then you see your customer base shrinking without factoring in the appeal of your product. I would think you could clear the shelves at $45 faster than $50 and a lot faster than $65. The only way to tell is trial and error.

BTW, my rule of thumb for pricing has been ~3X material cost. Fast and easy (and successful). That leaves you with 1/3 materials, 1/3 labor and overhead and 1/3 gross profit. From the profit come your expenses (fuel, booth cost, taxes, etc) so you may end up around 10% to 15% net depending on how you control the expense and tax side. Too many small business owners use 1.5X to 2X material cost and wonder why they haven't made any money at the end of the day.

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Permalink Reply by Roy Alderman on October 20, 2010 at 2:29am

E D - Good input. I am a small business owner as well. Here are a couple of other facets for you/me/others to consider
in helping me determine price. I agree that most festival goers probably will not be cash rich. There is, however, an ATM on site. Also, we (my wife & I) always go to the festival anyway and the booth cost includes weekend tickets - 1 of us is free to wander around & enjoy the festivities. Isn't the ? how much the ones w/$100 in their pocket will pay?

Iggy - We all do it for our own different reasons. I enjoy the building, but how many do I need? I don't see anything wrong w/turning a buck and sharing this craft/art & introducing music to others, do you? Its fine to spend 50-100 hours on a build for your own satisfaction & pursuit of perfection but that isn't necessarily EVERYBODYS goal. Isn't one of the goals of the CBG "movement" to be accepting and inclusive of all ways and ideas? Not tryin' to be argumentative -just sayin'.

Skeesix - My dinosaur computer will not open an XLS file. Can you post it in any other format? Thannx - Roy

Thanx for all the replies as well!

E D said:

I'm a small business owner, but not in the musical world. I'd say you have to give yourself a healthy accounting of your present overhead and decide how big you want this venture to be. If it is a time filler and something you enjoy, then you don't need to make so much. But consider what happens if you get 100 customers with orders for multiple items. Then you have to sort out how to keep these people happy with your output. Remember, working fast usually means degrading quality. And then factor in you are under the weather this week and still have to put out 30 items. Now, maybe it isn't wort the couple bucks of gross profit and you wish you were making more. Then you have to hire a buddy or maybe an enterprising youngster to help out. Oh, and you wanted to take a vacation next week. It is more difficult to increase prices than discount. My suggestion is to start with a respectable price below the competition (like 30%) and offer every blessed customer a generous discount when you can find a reason to do so.

Roy Alderman said:
I am also in a bit of a quandry as to price point. My goals/aims are multiple - I enjoy making cbgs as a hobby, would like to get people involved in music and could use some extra cash flow as well.

My typical build is 3 string, fretless, poplar neck w/CB's economy tuners and a piezo pickup and of average quality. My build time is 2 & 1/2 - 3 hrs. and cost to build is about $13.00 per unit. My primary venue will be grassroots music festivals. I will have 15-20 CBG's and assorted canjos, diddly bows and lever basses.I will also be selling handmade soap. Booth cost is $200.

I would rather move all or most my CBG's than get absolute top dollar for them. Given these parameters - what is a good price point? I was thinking $65 but my wife and a friend think closer to $50. Opinions please??? Thanks, Roy A

To this post, I would say you have to consider how much pocket money the festival attendees have and what they will let loose of in a single transaction (assuming you will only take cash). That's more important than anything else, probably. If you figure the average person is walking around with $20 and maybe 10% have $100 (as an example only) then you see your customer base shrinking without factoring in the appeal of your product. I would think you could clear the shelves at $45 faster than $50 and a lot faster than $65. The only way to tell is trial and error.

BTW, my rule of thumb for pricing has been ~3X material cost. Fast and easy (and successful). That leaves you with 1/3 materials, 1/3 labor and overhead and 1/3 gross profit. From the profit come your expenses (fuel, booth cost, taxes, etc) so you may end up around 10% to 15% net depending on how you control the expense and tax side. Too many small business owners use 1.5X to 2X material cost and wonder why they haven't made any money at the end of the day.