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3:40 am
May 13, 2010
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Shouldn't we have a Business heading?
When I am quoting a job, doing a time and materials job or just keeping track of profitability of a job and I need to build a job specific tool I will count that in my time for the job. If I need a specific piece of tooling such as an odd end mill, router cutter or drill bit, or expect to prematurely burn out consumables such as blades or cutters that all gets charged against the job.
Where I sometimes have trouble deciding how much of new tooling to charge against the job is on tooling that I expect to use on other jobs. For example I just finished a job making 100 mixer teeth, I had to modify a set of hammer dies to have a larger radius on the edges but I have a feeling these may become my primary set of dies. I also got a piece of heavy plate burned out to a 7" radius as a bending shoe and made a set of tongs to hold 5/8"x2" on edge. While I would like to include ALL these costs in my price for the job I can price myself out of a job as well. New pipe dies for the Hossfeld can be pricy as well if the job they are needed for do not require that many bends.
The other thing to decide is when the parts I am making are consumables and I hope to make the parts again do I charge the whole tooling expense against the first time I do the job. Some of my most profitable jobs are jobs that I did not do well at all on the first time I did the job, but once the tooling is made and sometimes redesigned and rebuilt, the second and third time are really profitable. Of course there is usually no guarantee that I will get the job again, but had I included all my tooling costs in the first order I would not now have those repeat orders.
I do try to charge the whole dedicated tooling cost and a portion of any common tooling. What do you guys do?
I have been told by a few people that in most automotive part contracts the part price the automakers pay, goes DOWN through the life of the contract. The automakers realize that companies innovate and become more efficient making parts and THEY want that extra profit rather the company making the parts.
4:50 am
March 22, 2010
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I really think its a gut thing.... If the tooling your building or the equipment your buying is really specifically to do the "job" then I think at least for your own records it should be billed against the job... maybe just mentally, not actually "billed" to the the job but rather just tallied up mentally as a expense/not added to the bill you hand the customer.. My feeling is If your buying or building it to do the job, its part of the job... even if once the job is done you use it daily to do other work.... I just did a $18,000 job that required the purchase of a $11,000 machine... (It didnt require it, I could have farmed the work out for about $4,000) Maybe most would say $4000 of the cost would have been billed to the job... But the way I see it is my labor was free and the job bought the machine.... Now its mine to make money with in the future....
Whatever you are, be a good one.
Abraham Lincoln
5:11 am
March 22, 2010
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Hi Larry,
Got our interest, what is the machine??
Gene
5:13 am
March 22, 2010
Offline7:54 am
March 18, 2010
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Be more fun if we could just do the work and get paid what we want. Oh well, if it was easy, everybody would do it. I don't like doing a job and "hoping" I'll get the job again. Been there, done that. I like "hooks"! How about this approach: The parts are $100 each plus $200 setup each time I run them. Plus a one-time tooling charge of $800. Now, don't say you'll do them for less in the future, offer a "tooling rebate" of $20 per part until the $800 is paid back.
Think about it; you always got customers who want a price based on 100 pieces, right? And then they order 10! That's where the setup charge really helps you. If they order 100, the setup only adds $2 per part, but if they want 10 it adds $20 per part! That way you don't have to try to come up with quantity discounts - it's automatic! Makes them backup their words or pay.
The "tooling charge and rebate" allows them to see the actual cost and why they're paying it. It also brings them back because you're giving them their money back! But (lucky for you) it doesn't go on forever, once the $800 is all rebated you're getting full price.
This only works if you got "business balls" (Larry knows all about them). Never ask if the price sounds good, TELL THEM the price is good! Half the time they don't even know, but they're trying to read you. Don't say timid things like "How about blah, blah"? Never, ever make it a question! Questions require answers. "How about" is a negotiating term, you're not negotiating, you're quoting! If they think you're negotiating, they'll negotiate! Always say "the price IS blah, blah. Here's the price $xx tooling, $xx setup every time I run the job and $xx per part! No mention of "rebate". Yet! If they seem too hesitant (they should always be a little) THEN and only then you can bring up the tooling rebate. "Tell ya what I could do; you say you get these parts regularly so I can do this......... See, now they've become "Mr Negotiator; (“I talked him down”!)
We're all proud of our creativity in the shop. Well, you really should learn to be just as creative in the office!
“There are painters who transform the sun into a yellow spot,
but then there are others who, with the help of their art and their intelligence,
transform a yellow spot into the sun.” ~ Pablo Picasso ~
4:54 am
May 13, 2010
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Interesting way of doing things Grant. So if I understand you right, using your scenario if a customer ordered 10 parts the first time You bill them $800 ($1000-10x$20) for the parts $200 for the setup and $800 for the tooling. If the second order is for 30 parts, you bill them $200 setup then $2400 ($3000-30x$20) for the parts. You then get a third order for 100 parts, charge is $200 for setup $10,000 for the parts.
6:23 am
March 18, 2010
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Yeah, works for me! Instead of giving them a price of, say, $125.00 flat out and hoping to recover the tooling cost. It also yields a gradient of lower unit cost as time goes on, as you were mentioning. They sometimes ask "what about if/when the tooling wears out"? I tell them all tooling maintenance is on me. I figure if I do enough to wear out the tooling I can probably afford to repair/replace/maintain it. Make sure they understand that they are getting a lower unit price because you don't have to cover your ass. It's not just additional cost for them, it's a way for you to keep the unit price down for them.
The thing is, the tooling cost should not be a hindrance for them because, if they are serious, they will get it all back. And you don't have to put extra windage in the unit price in case they never come back. And you have a nice quantity based price structure automatically.
You have to have the setup charge, otherwise you have to figure out some complicated quantity based formula.
“There are painters who transform the sun into a yellow spot,
but then there are others who, with the help of their art and their intelligence,
transform a yellow spot into the sun.” ~ Pablo Picasso ~
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