Why Everything You've Been Told About Custom Knife Pricing is Wrong
Spend any time at all on the online knifemakers forums or Facebook groups and you are sure to run across the following discussion... "I have been making knives and mostly giving them as gifts to friends and family but now I want to start selling them to help pay for materials and better tools... How should I price my knives?"
What follows is usually something like this: "take the time spent, multiplied by your desired hourly rate and add material costs and 'overhead'"
Well, I have a news flash for you... It doesn't work that way.
You don't determine the price of a knife - the market does based in the price of other knives of similar style and quality.
The 'market' I'm referring to is the people who want to buy a custom knife. They don't care about your time or materials - only the finished product compared to other knives of a similar style or quality.
Maybe a little thought experiment would help...
Imagine you decide you want $20/hr, so you will price your knives based on that plus 3x material cost. You have a knife that cost you $35 in material ($35×3=$105) and took 8 hours to make (8x$20=$160) so you price it at $265. Will it sell at that price? Your answer would probably be "I don't know. I'd have to look at it" EXACTLY! You would need to examine it and mentally compare it to either other knives of the same style or other knives that cost the same. You wouldn't care how long it took me to make it or how much I paid for materials. Imagine it had taken me 10 hours to make - is that knife suddenly worth $305? (10x$20/hr + 3x$35 = $305) Imagine it only took you 2 hours...is that knife now only worth $75? Imagine that instead of paying for materials you used a scavenged leaf spring and some wood you found in the forest...is that knife now only worth $40? I hope you see why using any formulas that take time in materials into account are not an effective way to set a price.
So what does work? Well, the best way to find out how much something is truly worth is to have an auction with lots of potential buyers. You will quickly discover what the true price should be and this method is actually called 'price discovery'.
If an auction is not practical, the next best way is to compare your work to knives of a similar style and quality and guess at a price. If it sells quickly then you can up the price in the next one and continue inching the prices up until they stop selling in an acceptable amount of time...or...price it at the top end of the range and gradually drop the price I until it sells in a reasonable amount of time.
All of that being said, if you are doing this to make money, it is still valuable to keep track if your knifemaking costs for your OWN analysis. It's one thing if you are making knives strictly as a hobby and would do it for free if you could. For you 'profit' is not really the issue and even if you sold a knife for less than the cost if materials, you are still ahead of where you'd be if you gave it away.
But for those of you who want to actually cover costs and be compensated for your time/talent, it's a little different.
...an that's what I'll cover in the next post in this series as well as what you can do sell for higher prices (and margins)