Blacksmith Business: How to Determine Your Hourly Buying Rate
How to price and charge for your work.
Blacksmithing, like any trade, requires a lot of thought when it comes to putting a price on your work. We all struggle with what we think should be a fair price. We often enjoy work so much that it seems difficult to put a price on the work that you should have to earn a proper living.
Let’s take a look at the reality of pricing your work when you work in a specialized, labor-intensive trade. The numbers I will use may be a little different for your country or location, but I am sure you will be able to adjust the numbers to suit your situation.
In my area, the minimum wage is about $ 8.00 an hour. This gives a mere subsistence in quality of life. So what is a reasonable salary for the type of work we do?
Let’s first look at the nature of our business. We use specialized equipment to create precision metalworking parts. We assemble our creations in complex shapes and functional elements.
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 as do your own accounting and bookkeeping. There are many hats that we have to wear as one-person business traders.
The manual skills required in the blacksmith business, as well as technical knowledge, are closely related to the skills of a welder, auto mechanic, or machinist. There are some differences in each of these trades, but the skill level is roughly the same.
In my area, auto and machine shops charge between $ 75.00 and $ 100.00 an hour. Individual mechanics and welders are paid between $ 25.00 and $ 35.00 per hour.
So let’s take an average of $ 30.00 per hour for a 40 hour week. That is $ 1200.00 per week multiplied by 50 weeks (remember you should be able to take two weeks of vacation and this pays). So 50 weeks gives a total income of $ 60,000.00. This is considered a good solid income in my country.
They only pay you for the work you sell. The time you spend consulting with your clients does not pay you. The time spent designing the door or grill is not paid time. The time spent obtaining materials and supplies for which you are not paid. If you do your own bookkeeping, you don’t get paid. If someone else does your bookkeeping, you will have to pay them.
There are many areas where you have to spend time and for which you are not being paid directly. Everything is paid for with what you sell, so you must take into account all the time you spend outside of the smithy.
To calculate how much your time is worth when you are working in real blacksmithing, you will first need to keep strict records of how long it takes you to make your items. You should include time to paint and finish your work. If you ship to your customers, you must include the time it takes to package it.
You should also keep a record of all time spent on work but cannot get paid. You will need to keep your log book very detailed so that you can isolate what proportion of your time generates income and what proportion supports your income but is not paid for.
You should also calculate all your costs for consumables, electricity, rent, business insurance, vehicle costs, etc. and add them to your salary costs. This will give you the total you need to bring in one year.
The next step is to calculate the number of hours spent in unpaid work. This includes running around and inquiries, or sitting at the craft fair selling their wares. This should be part of your log book too!
If you keep track of all the time spent on your business and the actual manufacturing time of the products, you will probably find a 60/40 ratio. That is, 40% of your time is working on salable products. 60% of the time is dedicated to related but unpaid work. You will need to determine this ratio from your own log book.
Let’s take a look at some sample numbers in the equation. These are approximate annual totals.
Salary $ 60,000
Electricity purchase $ 1200
Tent rent $ 3600
Commercial insurance $ 1200
Vehicle costs $ 6000
Show rates $ 2000
Advertising $ 2000
Equipment repairs $ 1000
Total $ 77,000
You may have other expenses that you only incur since you are in business. These will need to be added to this list. We are all a little different and check with your accountant.
Our real equation looks like this:
Hourly store rate = (target annual salary + business expenses) / (proportion of hours paid per week x 40 hours x 50 weeks in a year)
Now let’s connect our time relationship.
0.40 x our available paid hours (40 hours per week x 50 weeks per year)
0.40 x 2000 = 800 smithing hours paid in one year
So $ 77,000 / 800 = $ 96.25 per hour plus your material costs. This should be your store rate. As you can see, your actual salary is much less than what you have to earn.
Going back to the beginning of this article, you can see why my local mechanic and machine shop is charging between $ 75 and $ 100 per hour. Your blacksmith work has the same value!
Let’s add another twist to this scenario.
Suppose you hire an employee. The obvious expense is wages and deductions. When I was hiring employees, it took a month before they were trained enough that I was making a significant amount of money. It was a week before they broke even and I was able to use the components they were making. If you pay $ 10.00 per hour, the first week they can break even. The second week they can get up to $ 20 an hour in production for you.
After a month, I found out that they could make around $ 40.00 per hour if I kept them busy. If you have the job rolling, that’s when you start making money. Remember you still pay them $ 10.00 an hour. If your job runs out, paying employees is a quick way to go broke.
In short, you need to start keeping a log book of how much time you spend on each facet of your business. Time for everything. Then break it down into time spent directly manufacturing your products and time spent on non-billable support hours. Do the simple math to find what you should charge in your circumstances. It will probably be more than you imagine.