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How does one price part design.
4

How does one price part design.

How does one price part design.

(OP)
I am a Mold designer and I know how to price a mold design designs.  Pretty much based on a percentage of the sale value of the final mold 7% - 15% depending on complexity.  But I have clients and they want part designs too not just the molds to be designed. I have one customer and he wants a single piece say a bottle to be designed and the next one wants an casing for an electronic device say 4 pieces.  Yet another one wants a small house hold product with 100+ pieces. It is very tough to estimate the hours involved until you have done it.  I am keeping a hour log of past jobs and that helps. I know of other designers that charge a set amount for a design say $15,000us to $20,000us for a electronic tester device.  They are a product design office and all they design are products.  Right now I am doing it at $35Cnd - $50Cnd / Hour and charging by the hour (Sorry I am Canadian and the excange rate is 1.6).  It works but I know I am selling my self short by not charging by the job.  My service is quite fair too.  So my question is how do I price one piece and how do I price several pieces.
 
Thanks Rick

RE: How does one price part design.

2
I don’t know much about pricing services in this area…OK I don’t know anything about pricing these types of services.

But I do know something is wrong.

If the competition is charging USD15,000 to 20,000 and you are charging $35 to $50 CDN/hr  then something is seriously out of whack here unless each job takes several hundred hours.

Most people value what they buy in part based on what they spend on it. A friend of mine tried to start a computer repair and servicing company. He thought that he should charge low and undercut the established firms. He had set his charge-out at $15 per hour. After he folded this business he worked for one of the commercial firms doing the same type of work at a charge-out of $50. He only got about $15 of that but he was much busier than he was when on his own.  People who refused to hire him at $15 were asking for him at $50.

When I went out on my own I had a low charge-out rate, I had an opportunity to increase it when I competed with an established firm on price. I charged about 95% of their rate and got the job. I now charge about 95% of the big firm rate and work out of my house. I am busier than I was at the low rate.

Normal charge out rates are around twice to three times the salary of the person performing the task,  does this mean that your salary is between $12.33 and $25 CDN?   I think that you should re-examine your charge-out rates and bring them into line with the established firms. Computer technology now is so powerful and affordable that you should be able to match the services of a large firm.  

If you match the services then match the rates.

If you are having trouble estimating the time to do the work, then that’s a different problem. For the first few jobs take your best guess and learn from the experience. You could ask  a mentor how many hours to expect on a job or  simply charge by the hour with no fixed price.

I am reminded of the story of the man who went to work for an  optometrist selling glasses. He asked how much to charge. He was told to look the patient in the eyes and say $200. If the patient didn’t blink he was to say “for the lens”. If the patient still didn’t blink he was to say “each”.

Anything is only worth how much someone is willing to pay for it. Your asking price says the value you place on your services. If it’s a low value, what does that say about the quality of the service?

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion
www.kitsonengineering.com

RE: How does one price part design.

I feel that it is very difficult to quote some projects and prefer to give the client an estimated cost where-ever possible. This mainly comes about by having to deal with local government and service authorities.

This approach together with a policy to reduce my end fee if time spent was significantly less than the estimate, means that my clients trust me to do the right thing by them more often than not.

This approach takes a fair bit of honesty from yourself and a fair bit of trust on the clients part, but at the end of the day the client generally feels that they are not being ripped off.

This approach may not work for everyone but it does for me.

Regards

sc

RE: How does one price part design.

(OP)
Thank you for your answers so far that is great.   I really need the feed back on this.  There are not that many professionals around here to discuss it with.    Maybe there is a more specific forum for tool and die maker or mold makers business concepts.

I am reviewing this area of my billing.  It is tough thing to get it right and is quite important.  It makes sense to have a Draftsman hourly Fee and an overhead fee in one hourly rate like $50.00/hr  ($25 for the draftsman and $25 for the overhead).  Software can cost 15,000-30,000 per seat,  not to mention other costs like health care, travel, meetings, and blueprinting.  There must be some accounting for the overhead if there isn't then what more can you effectively purchase to run the company.  I am trying to cover one seat of Solidworks now and am having a tough time.  15,000 is about a half a years salary and it just doesn't fit  with out another area of my life suffering.   I am a draftsman who has worked for allot of people and now I am going out on my own and have set up a company.  I never saw what was happening in the accounting department.  But now I have to set the structure for that.   I agree there is a reasonable price for designs and some customers either won't buy or want an absolute bargain too.   In the end I am the one who sets the price.   I have had customers who ask for a specific price and then ask for so many changes the hours increased.  I actually have it in my terms to charge extra for unspecified work.  But that still doesn't help with the base price.  I think the best approach is to keep a job hour log and next time some one asks for an estimate I have a good starting number.  A company can make a million with one bottle design how much is that one design worth?   Then some customers can have an assembly of 100 parts and sell 300,000.00 worth of the product just as an example (obviously the customer has to pay for manufacturing costs, material, labor etc).  I am starting to say the bottle drawing and a solid is worth a bit more than a 10 hours of work.     

Is there a general rule of thumb for this kind of thing?  What is the minimum and maximum price for a design.

Thanks Rick

RE: How does one price part design.

I had my own little one-man design operation for a couple years then ended up hiring on with someone so my experience running my own business is limited, but saying that, this is how I approached it.

First thing I did was figure out what I thought I was worth. I operated out of my house so I took a third of my mortgage and utilities for a year, added any other expenses I could think of such as vehicle operating costs, cell phone, supplies, advertising, etc. took a third of the cost of the computer hardware and software I needed. To that I added the yearly salary for someone in my industry and derived my yearly overhead.

I figured if I was able to bill 80% of my hours I would be doing pretty good so I took my overhead and divided by .8 to get my cost, divided again by .7 to give myself a 30% margin, and divided by 2000 to get my hourly billing rate. I checked with some established companies and found I was reasonably close to their charge out so I kept that figure. I’d take an educated guess at how much time it would take, multiply by my billing rate and submit my bid.

First job out of the gate I got burned, my estimate was ½ what my actual hours were, I ate it and got on with life. The fourth or fifth job I took I was way over on my bid but got it anyways. At that point I did something that surprised my customer, I refunded him. From then on I had all his work. He’s the guy I ended up hiring on with.

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