Claremont Designs

Leave a comment

Pricing an Edison Lamp on a Cost Plus Basis

I built my first Edison Lamp nearly 2 years ago.  I’m not sure yet if I’ve perfected how to price them.  In fact I’ve made some slight changes in pricing based on writing this post.  There are numerous approaches that I could take to determining the right price for a lamp…  Price based on a cost plus model, based on what the market dictates, based on a reaction to competition, or any number of other approaches.  So far I’ve priced based primarily on a cost plus basis.  I know that what I’m doing still isn’t optimal, but I’m working on it.

To put pricing in perspective, it’s important to consider that I’m still building Edison lamps for the enjoyment of the work; it’s still fun for me.  Although the “fun factor” shouldn’t enter into pricing decisions, it’s impossible not to happen when you are operating at a small scale.  In the cost plus model, the fun factor means that my labor is free.  If this ever turns into a job and not fun, my hourly cost would make the lamps only available to the oft-spoken of 1%.  So for now, we can avoid that aspect of the pricing equation…

So if labor is free in my cost plus model, from there I need to factor in all of the costs associated with building a lamp.  The materials costs can add up quickly.  I have the lumber, glue, light sockets, dimmer switch, wiring, wiring nuts, lamp cord, and the finish itself.  In all cases these materials are purchased in bulk – bulk for convenience reasons rather than the volume discounts that I would love to get.  Unfortunately, I don’t order in large enough quantities to get a volume discount.   

The costs that are known and don’t tend to vary much are the dimmer switch, the sockets, and the lamp cord.  I’ve ordered the sockets and switch from the same provider for the last 12+ months.  My “standard” order is 20 light sockets and 5 dimmer switches.  Home Depot has become my de facto provider of lamp cords.  The lamp cord is one area where I should be able to find a lower cost provider.  While there is only 1 switch and 1 cord per lamp, obviously the number of sockets varies directly with the number of bulbs in the lamp.  The table below shows standard costs that I incur for a 1-, 3-, and 5-bulb lamp build.


The costs associated with the glue, the finish and the wiring supplies is tiny.  It’s so small that I’m not even sure what it is.  There might be ~$1 in cost per light bulb in the lamp, but even that is a guess.  That’s not going to make or break the lamp cost, so I choose to ignore it.

Ultimately, the lumber is the hardest raw material cost to factor in – prices differ significantly based on species, supplier and quality.  Additionally, there is a significant scrap material factor.  Lumber is sold by the board foot and priced according to the quality and the species.  I’ve used some lumber that cost as little as $4 per board foot, and some lamps might cost as much as $40 per board foot.  Obviously, I try to avoid building the $40 per board foot versions, but sometimes that’s what the customer requires.  I price the standard versions of my lamps based on a $9 per board foot average cost.  Additionally, I need to factor in at least a 35% scrap factor – this basically means that if the lamp requires 2 feet of material, I need to expect to use 2.70 feet of material.  20% scrap is an industry standard, but 35% seems to be more realistic.  The table below shows how this prices out for a standard lamp (walnut or cherry).


I’ve now basically figured out my Cost of Goods Sold (COGS) for 3 types of lamps.  At the low end, a single bulb lamp is running me $24.80 and a 5 bulb lamp is coming in at $59.51.  Compared to my selling prices, I have pretty decent gross margin (~69%) on the lamps themselves.  I can’t think of anyone in the manufacturing world that wouldn’t love to have margins like that. 


My challenge of course is that I don’t produce (or sell) lamps in quantities that even remotely approach those of a full time shop.  This volume of output factor really hits my profitability when it comes to considering my allocated costs.  I have shop rent, insurance, utilities, equipment and equipment maintenance.  The first 2 are basically fixed costs for me; fixed in the sense that I know what they are each month and that they don’t vary based on volume output.  Utilities should vary with output, but it hasn’t significantly for me.

There are a lot of pieces of equipment required to build a lamp.  The list (in order of use) is: miter saw, jointer, table saw, band saw, planer, dovetail jig, router, router tale, clamps, drill press, and sander.  I would ballpark the cost of all of that equipment combined at ~$6,000 (that’s probably underestimating it).  From an accounting perspective, most of my equipment is old enough that it is now fully depreciated and doesn’t really have a cost for me.  Thankfully maintenance is pretty limited as well – small enough that I don’t need to factor it into my costs.  Basically, this means that I’m completely ignoring my equipment related costs in the pricing decision.  This isn’t the right way to think about it, but this goes back to the “fun factor” which allows me to make illogical business decisions.  The fun factor would almost prefer to see equipment fail, so that I could buy all new shiny shop tools.  Illogical – yes, but this is the difference between a hobby business and a true for profit enterprise.

So if I isolate just the shop rent, insurance, and utilities, I incur a monthly charge of ~$585.  The question then becomes what volume of lamps I would need to sell to cover these allocated charges.  There are a number of ways to get to the $585 figure, but the most direct path would require selling 7 lamps (in one month) – 3 single bulb lamps, and 2 each of the 3- and 5-bulb varieties.  7 lamps per month would be 84 lamps in a year – last year I sold 25.  So the question is if the $585 figure is appropriate…

$585 pays for a month in my shop.  On a perfect month, I might get to make 9 trips to the shop (this is a fun side way to make money, not my career).  So one logical approach might be to take a normal work month of ~20 days and say that I’m able to effectively use 45% (9 divided by 20) of the shop workdays.  Under this math, I would only need to sell enough lamps to cover $263.  I can cover that with just 3 lamps a month (1 of each variety).  Another way to view it is to view my effective usage of the shop at 30% (9 divided by 30) of the average month.  Under this scenario, I’d need to cover $175 each month.  There are numerous ways I can get to that number, but as few as 2 lamps would need to be sold to cover costs.

The only other costs come from my channel partner.  I’ve chosen Etsy for all of my sales needs (at this point).  The fees are fairly reasonable.  In total they charge about 7% of the net sale amount (not including shipping).  These fees are split between the listing, transaction cost, and credit card processing costs.  Ideally that cost should be closer to 5% – 6%, but given the small volume I do with Etsy, I can’t complain.

So where does this leave me in this cost plus world?  Under my current pricing model, I need to sell about 24-36 lamps a year (depending on the mix) to cover 30% – 50% of my shop costs.  That’s not bad, but it’s not where a full functioning business should be operating.  Maybe I have a cost issue, maybe it’s price, maybe it’s awareness of my offering…  There are any number of factors that can be influencing my ability to turn a profit.  I’ll run some tests throughout 2014 to see what kind of impact I can have on my little hobby business.  I’ll have to do an update post later in the year to show what the results are.

Leave a comment

Building Out the LinkedIn Company Presence

I started this blog a little over a year ago to chronicle my experiences in the shop.  With this post I’m expanding the scope of the blog a bit.  While the focus will still be on the shop experience, I also want to address some of the business experiences of having a side business (maybe better defined as a glorified hobby).  This scope creep actually lines up with my original intentions for starting this WordPress site, as I was also doing this to learn more about some of the topics that I address in my big boy job.

Outside of the shop, I’ve worked for years as a consultant.  I’ve been advising clients on how to improve their interactions with customers (and channel partners).  In less consultantese, I help my clients improve their marketing, sales, and customer service operations.  Now of course the execution of these tactics for a Fortune 500 company is a little different than what I can do in a few spare hours during the week.

I’ve already tackled many of the common aspects (this blog, the facebook site, etc.), but now it is time to tackle LinkedIn.  I originally joined LinkedIn September 22, 2004.  Apparently, I created the 1,158,025th profile (you can check your count by looking at the ID number in the URL when editing your profile).  It’s been useful for connecting with past colleagues, finding jobs and researching clients.  About 8 years after I joined LinkedIn, they released their most recent version of company pages.  There have been some additions and deletions from the company page feature set during that year, but things appear stable enough now to actually build out a page.

Fortunately the Company pages don’t cost anything to create; there are a few administrative hurdles, but it’s free – can’t complain about that.  Unfortunately, company pages are geared towards companies that don’t fit my profile.  I’m not trying to attract employees.  My products need to focus on the visuals rather than the words.  I offer custom made pieces, not SKUs.  And while there are many potential customers for me on LinkedIn, professional networking sites are not the best place to say “please buy my products”

So why even bother with LinkedIn?  A significant part of it is simple curiosity.  I also want to see if I can think creatively about how to work within the structure (opportunity?) that LinkedIn offers.  To me, the goal needs to be to use what’s there and completely forget the areas that don’t work.

What doesn’t work?  Careers Pages don’t.  I’m certainly not looking to hire anyone.  Unfortunately, Products Pages don’t work for me either.  It should work, but the LinkedIn structure for products isn’t very well thought out.  The LinkedIn product page offers the company a product description, some really poor options for product fields, a product URL, etc.  I think that 2 items sell my “products” – my photos and the story of the build.  This just doesn’t work within the structure of the product page.

What might work?  The main company page should work.  Obviously you get the basic info on my company (location, industry, website, etc.) and you can get a news feed.  I won’t mirror all of my blog posts to this feed, but I will use it selectively.  Unfortunately, LinkedIn puts the basic “about” info at the bottom of the news feed.  This results in near endless scrolling to get to much of the information that I’m most interested in sharing.  No work around here – just poor design.

The Showcase Pages should work.  I think that LinkedIn intends this for companies with strong unique brands – think Microsoft with separate pages for Windows, Office, SQL, XBOX, etc.  The Showcase pages are linked to the Company page, but they need to acquire their own independent followers.  For me, I’m thinking the independent followers aspect is what I want to be my anchor point.  I want to focus on presenting content to unique groups of LinkedIn members.  For me I’m thinking one Showcase page dedicated to Edison Lamps and one dedicated to the experience of running a side business.

The Edison Lamp showcase page is pretty straightforward.  The content for the page can basically mirror the Edison tag feed of the current site.  Frankly that’s probably how it will start.  Over time I will refine that content strategy.  Whatever I do, LinkedIn is not going to give me an opportunity to highlight photos of the lamps.  But hopefully I can generate a few extra views / visitors for this blog and the Etsy store.

The page re: the experience of running a side business is more interesting to me.  At least more interesting in the context of LinkedIn…  I can imagine future posts on the experience with the WordPress site, creating a logo, defining my sales channels (Etsy), etc.

There are numerous future areas to consider with respect to LinkedIn…  Should I find groups that are associated with furniture making?  If I did would that do anything to help me from a business perspective (e.g., engaging with suppliers, getting new design ideas, etc.)?  Should I consider sponsoring posts (on a cost per click or a cost per impression basis)?  If I did sponsor a post, should the goal be followers, site visits (on the blog), product views on Etsy, sales/orders, other?  I’m sure I’ll also dive deeper into the LinkedIn experience (e.g., frustrating logo sizes, also using a Showcase Page because it offered a better “hero” image, etc.).

More to come on the business side…  But I want to make sure that I don’t change my tone in this process.  All of my digital content will still be presented from the first person perspective.  I will write in a conversational style (while hopefully not sounding immature).  A new year is around the corner, and I’m now exploring another one of our available social media channels.

LinkedIn Company Page