One of the hardest things to figure out in the laser cutting business is not how to set up your machine or how to create designs, but how to figure out the price of your products. At least it was for us when we first started. Price is driven by the market and depends on so many different variables that it’s almost impossible for anyone other than yourself to find the correct pricing for your product/service. So if you came here so we can tell you how much should you charge for product X, this is not going to happen, sorry to disappoint you. But what we can do is give you some figures commonly seen in the industry as well as guidelines so you can do it yourself.
Now, there are 2 main ways you can make money with your laser cutter. One is offering laser cutting service and the other is selling products you created. Let’s start with a simpler one…
Charging for laser cutting SERVICE
This is basically you renting your machine to someone who needs it for their work.
Setting the price on this is pretty standard – it will depend on the overall time machine was working. The “industry standard”, or should I say the most common number that gets quoted is $1 per minute (obviously this can be $0.5 or $2 and more depending on location, product, industry, etc). But, unless you run a makerspace and quite literally rent time on your laser cutter, this is not a good way to do it. You will quickly realize that some jobs take very short time on the laser but a long time to prepare (for example engraving pens can take 10 seconds of laser time but can take a lot longer to set it up correctly), while other jobs require some post-processing (sanding, assembling, etc) that you will also need to spend your time on.
Instead of setting fixed costs for laser time, try to come up with an hourly rate you are trying to make. If you are also doing design work your hourly rate should not include designing time because that should be quoted separately. You don’t have to disclose your hourly rate to the customer (and its better if you don’t) but you should use this to determine how much you should charge for a specific job. This way you set a value for your time and not just the machine time. Just figure out how much you need to earn to make it worthwhile. This can range from “cover my expenses” if you do this for fun to “full-time hourly rate” if it’s your primary source of income.
LaserHint: when trying to come up with an hourly rate ask yourself these questions:
- How much can I make per hour if I find a regular job for my current skill level
- How much per hour would it take to pay back the machine if I took one year loan from a bank to buy it
- How much it costs you to own and operate a laser cutting business (this includes taxes, utilities, expendable materials, parts, etc)
Here is an oversimplified, easy to calculate example:
Say that you can find a job that pays $10 per hour (McDonald’s hourly rate).
If machine costs $15 000, divide that by about 1500 working hours/year (40-hour work with without vacations, sick days, lunch hours, etc) in a year and you get $10 per hour you will need to pay back for the loan (these imaginary banks don’t like interests 🙂 ).
Add another $10 for all other expenses of owning a business (taxes, electricity, etc).
This will get you at a rate of $30 per hour.
Now you have an absolute minimum hourly rate under which you shouldn’t go. Your hourly rate should be higher than this. For anything below that it’s more (economically) feasible for you to go and get a regular job with a pension, insurance, paid vacation, fixed working hours, etc.
Hourly rate is only supposed to serve as a base on which you build on. There will often be a reason for a price to go above your hourly rate and even some situations when you should go bellow it.
You should charge above your hourly rate if:
- You are too busy. If you have more work than you can handle it usually means that you are underpricing your service. But before you do, make sure that you are not too busy because you are not managing your time correctly.
- You are the one providing materials. This should not only factor the cost of the materials but also the cost of resources and the time it took for you to go and get the materials.
- You can finish your work faster or offer higher quality compared to the competition.
You should offer discounts if:
- Its high volume order (what exactly qualifies as high depends on where your business is at). It’s much easier to make additional 10 items on top of the original 100 for a single customer then it is to get another customer for those 10 items. This is why it’s a good idea to offer volume discounts (110 at a price of a 100 for example) especially for small items like key chains where the cost of the material stays almost the same but you provide additional value to your customer.
- This job is good for your “portfolio”. Lowering your rate to make sure that you get a job for a famous brand will increase credibility and reach for your brand. Maybe you can even make a deal with them to promote you on their social media accounts.
Charging for laser cutting PRODUCTS
This one is a lot more complicated because there are so many different products you can make with a laser cutter. And all the usual variables like time or amount of material spent are basically worthless. You can sell one product for 10 times more money than that other product which took the same amount of time and material to make. It’s all about the value it provides to the customer and marketing.
What time and money spent on the material can provide you with is a minimum price you should charge for that or a minimum viable product price. Same with a minimum hourly rate, this is a price under which you shouldn’t go or you will end up losing money.
LaserHint: to be able to price your product you need to know what the market value of it is. One of the easiest ways to find the market value of a product is to check similar products from competitors in your area and see what they charge. You can also lookup prices in online stores (like Etsy). But don’t undercut them – it just hurts the entire business. Competitors who are in the business longer than you have adjusted the prices over the years to account for expenses you at this point don’t even know you will have. What you should do instead is look to add value and stand out from the competition in that way.
Checking competition prices should give you a rough idea of how much can you charge for your product. As with selling a service, you can also increase or decrease the prices of a product based on different circumstances.
The price of your product can go DOWN if:
- You can make it in batches/sell at volume. This allows you to optimize your production process. It’s a lot easier and efficient (time and material-wise) to make 20 pieces of the same product once than it is to make it one at a time 20 times.
- It’s a returning customer. You can offer a discount to customers that regularly buy products from you as a sign of appreciation for their loyalty. Not only that it doesn’t cost you anything to market to old customers, but the returning (and satisfied) customer is great for advertising your business.
- You can sell it without packaging. Packaging and shipping cost time and money and if you can sell it at a fair or local market you can afford to lower your prices.
- The product doesn’t sell well. You can reduce the prices to try to increase the sales, but that can harm pricing on your other items since customers will perceive them as too expensive in comparison. It’s usually better to just change the product or focus on popular ones.
The price of your product should go UP if:
- It’s customized/made by order. This is the opposite of batch production. Customized products are made individually and if you make personalized products you have to price accordingly. Basically anything that requires modification or additional work will drive the price up.
- It’s unique. If no one else sells (or can make this) then you can charge more for it.
- The product sells well. This means there is a demand for it and you can bump the price. But do it gradually and carefully so you don’t overdo it.
Note that some of these tips are going to apply (although in a slightly different way) if you sell your products wholesale (selling in batches to a retailer who then sells it to a customer). This will make your life a lot easier since you don’t have to deal with individual customers and your product can reach a wider audience but retailers will take a big percentage of your profit (at least 50%) to make it worthwhile for them, so take that into account as well.
If there is one thing you should take from this article then it’s this: Your product is worth as little or as much as your customers are willing to pay for it. Often it’s very different from what you would pay for it or what you think its worth. Don’t sell to yourself, you are not your ideal customer.