How do you work out how to price a product you make?

JTEX

JTEX

Well-known member
Just curious to hear what others have to say on this. Do you have a magic formula or rule of thumb, such as, for instance, 5x the cost of loose components? (I actually got that one from a highy respected studio gear designer). Or do you actually calculate everything, like cost of parts, bench time spent building it, amortizing the development cost etc? Or you just do it for the love of it and don't pay yourself?
 
JTEX said:
Just curious to hear what others have to say on this. Do you have a magic formula or rule of thumb, such as, for instance, 5x the cost of loose components? (I actually got that one from a highy respected studio gear designer). Or do you actually calculate everything, like cost of parts, bench time spent building it, amortizing the development cost etc? Or you just do it for the love of it and don't pay yourself?
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I think a lot of this would be based on your business model. Are you doing income taxes based on this, or operating as "a hobby". If you are an employee of your incorporated entity, or if you 'have a real job' and do this on the side.

Generally in business you must charge at least 67% more than cost to cover the bases, in other words cost * 3. The more the merrier.

I was making anhydrous CBD pain relief salve with infused soybean oil, beeswax, shea butter and cocoa butter. The 2oz containers cost 70 cents, the cost of the ingredients was 67 cents. I was selling them to a dispensary (since it's HEMP not WEED it's legal) for $15 each, they sold them for $40. Crazy huh? This was several years ago, right after the 2017 farm bill legalized hemp at the federal level.

Soon afterwards Newsom made it illegal by requiring so much documentation and packaging requirements that you have to have at least a 15 person corporation to operate..... I hate that man.
 
Honestly for me it's a balancing act. For me, enclosures are one of the most expensive line items on any BOM (~$11-15 for a custom drilled, UV printed 125B). If I'm using a 3rd party PCB - the PCB is then usually up there - unless there are odd chips like an MN3007.

Ultimately I have to compare what I can charge vs. what the market looks like. Clones are going to have to fall in the range of other clones on the market. Original pedals are going to have to fall in the range of what pedals that sort of do the same thing go for from the "big boys."

Edit - and Retiredunit1 makes a great point - if you're doing this as a "side hustle" the math is likely different than if you're trying to make an actual business out of it. For me, it's a "hobby business" and I need to cover expenses and enough to play with on the side. If I ever wanted to make a "real business" out of it, the math would have to change immediately.
 
only took about 3 or 4 pedals to figure out I don’t like selling, it takes the fun out of it for me, but I do get approached about it semi regularly. I add up all parts, and any shipping costs and double it. Then recommend a cheaper used option on reverb to weed out who isn’t serious,
 
Paradox916 said:
only took about 3 or 4 pedals to figure out I don’t like selling, it takes the fun out of it for me, but I do get approached about it semi regularly. I add up all parts, and any shipping costs and double it. Then recommend a cheaper used option on reverb to weed out who isn’t serious,
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I have this conversation all the time. "Dood, you shuld start a bizness." never comes from people who have started and/or run a small business.
 
Mentaltossflycoon said:
I have this conversation all the time. "Dood, you shuld start a bizness." never comes from people who have started and/or run a small business.
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You can say that again. When I was contract programming I would do the billing, but my wife did all the rest of the cr@p. Deductions, taxes paid quarterly, self employment taxes, HER wages for doing that, and yadda yadda yadda.

As insane as it sounds, we made more money by having her as an employee than I would have made doing it all myself. I was charging $125 an hour, but even with all the work she did as a professional tax accountant, we only kept around $60 an hour. Taxes $uck!

As a programmer, I had no raw materials. It all came out of my brain. There was no real product, nothing you could touch. It's a stressful existence.

Lumber Jacking has the highest mortality rate, followed by computer programmers second. A lot of my programmer friends died in their late 40's and early 50's.

I am lucky to be alive and healthy, the secret is that while I had to sit for 8 to 12 hours typing, the rest of my life was spent standing up. I'd even eat dinner standing.

I even fell asleep standing and have the scars to prove it, lol....
 
Paradox916 said:
only took about 3 or 4 pedals to figure out I don’t like selling, it takes the fun out of it for me, but I do get approached about it semi regularly. I add up all parts, and any shipping costs and double it. Then recommend a cheaper used option on reverb to weed out who isn’t serious,
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I am a terrible salesman... When I was building amps on the side, I had one guy that I'd build the chassis for, he'd do the rest. Eventually he got sick and stiffed me for quite a few amps. I finally got them back from his widow after he died and they were mouse rusted. Piss and poop all over them. I have eight 5e3's setting on the shelf that need to be refurbished and sold, but I don't need the money so there they set.

The other way I did them was to build heads or combo's, and a local studio in Burbank would take them on rent/consignment. They'd rent them to people recording at the studio (they couldn't take them home), with option to buy. Actually made some decent money on that for quite a while till personal studio's became affordable and my buddy closed shop.
 
You build a website, with a warning on the first page that there is a 3-year waitlist for the pedal. If someone puts in an order for your $400.00 pedal
you contact them and say you've had a cancellation, and one is available for immediate shipping once payment is processed!
 
Paradox916 said:
only took about 3 or 4 pedals to figure out I don’t like selling, it takes the fun out of it for me, but I do get approached about it semi regularly. I add up all parts, and any shipping costs and double it. Then recommend a cheaper used option on reverb to weed out who isn’t serious,
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Same here.

Double my cost - but just to friends, and only if they ask.

Works out to a crap wage (I work slow), but at least it covers the cost of the next one I want to build.
 
here's my rough cost-based pricing formula based on my experience in pricing and margin analysis for both small and large businesses:
-10 cents per resistor/diode
-30 cents per cap
-2 bucks per pot (includes knob)
-1 buck per switch
-5 bucks for 125b, etc
-3 bucks for footswitch
-3 bucks for jacks (DC and 1/4")
-cost of PCB
-cost of ICs/transistors/transformers/specialty diodes/etc
-50 bucks for labor (I might adjust this for a mod or combo pedal or stuff like that; this is where you decide what your time is worth)

it ends up being about 100 for a dirtbox, 120 for a chorus or something and 150+ for FV1.

it's a very, very crude approach, and ultimately the price depends on many other factors than just the cost of goods sold (eg. paying with cash, buying multiples, previous client, etc). remember that shipping costs and inventory/component storage provide value as well. also, some folks prefer a blank enclosure with no knobs so they can design it themselves.
 
Paradox916 said:
only took about 3 or 4 pedals to figure out I don’t like selling, it takes the fun out of it for me, but I do get approached about it semi regularly. I add up all parts, and any shipping costs and double it. Then recommend a cheaper used option on reverb to weed out who isn’t serious,
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I totally get that. Some of my family members have said something to me along the lines of, oh, you could turn that into a business and sell your pedals! I do appreciate them taking some sort of interest in this incredibly niche hobby of mine, but that's all this is: a hobby. And I am perfectly happy keeping it that way. Given my geographical location, I couldn't imagine even selling enough to cover costs. It just isn't worth it. There are two small pedal builders in Ireland that are, "successful," for which neither it is their full time job, I believe. I don't think the stress is worth it!
 
^Yup, pedals are (usually) quite labo(u)r intensive to put together. Hardly a good business plan if you happen to be in a high income country. The one pedal I made into a product, I bent over backwards at the design stage to minimize the need for internal wiring (big time sink) and to make it as easy to assemble as possible. It sold well, for a good price, yet I'm still not ready to make another commercial pedal.
 
mzy12 said:
I totally get that. Some of my family members have said something to me along the lines of, oh, you could turn that into a business and sell your pedals! I do appreciate them taking some sort of interest in this incredibly niche hobby of mine, but that's all this is: a hobby. And I am perfectly happy keeping it that way. Given my geographical location, I couldn't imagine even selling enough to cover costs. It just isn't worth it. There are two small pedal builders in Ireland that are, "successful," for which neither it is their full time job, I believe. I don't think the stress is worth it!
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As someone who turned their amp building hobby into a business, and ended up HATING it and not touching a soldering iron for a few years as a result… I respect your desire to keep it as a hobby.
 
Giorfida said:
As someone who turned their amp building hobby into a business, and ended up HATING it and not touching a soldering iron for a few years as a result… I respect your desire to keep it as a hobby.
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I still have ex-clients call me and offer me obscene amounts per hour to install new features to programs I did for them.

***¡NO!***

Besides Social security would just deduct my earnings from my next payment, there is no motivation and after being independent for 12 years I am totally burnt out on programming.
 
RetiredUnit1 said:
I still have ex-clients call me and offer me obscene amounts per hour to install new features to programs I did for them.

***¡NO!***

Besides Social security would just deduct my earnings from my next payment, there is no motivation and after being independent for 12 years I am totally burnt out on programming.
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Don’t blame you there. Other than the occasional script or code I wrote to make my job easier, I vowed off programming the day I graduated.
 
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