Cost to make formula

csalt09

Well-Known Member
#1
Just wondering how you guys factor in non material cost's. Do you have a quick and easy formula for adding the cost of a knife not including labor or materials. I mean belts, electricity, sandpaper.
 

Self Made Knives

Well-Known Member
#2
I've came up with a number of about $15-$20 per knife on consumables. Seems like I almost always end up with 2 or 3 belts in the trash and a couple sheets of hand sanding paper on the floor. Some months I go on a spree and make 4 or 5 blades, some months none, but my electric bill on my shop barely changes month to month. Might go up $10 a busy month. For me, a nice round $20 probably covers my non-material expenses.
 

EdCaffreyMS

Forum Owner - Moderator
#4
Here's a little tip when it comes to figuring costs...... if you only charge the amount that materials cost you to buy....you're going to loose. You have to estimate, and charge what it will cost to REPLACE the materials you use. Especially if you use exotic hardwoods, or things like ivory, coral, etc.

When it comes to those "other then materials" cost, think long and hard.....it's not just utilities, or other consumables, but it's the wear and tear on your machines, and tools that will eventually require repair/replacement too. We don't think much about those sort of things when the grinder and other power tools are "shiny and new", but "repairs" are going to happen, and machines will wear out over time. :)
 
Last edited:

coachcampana

Well-Known Member
#5
Here's a little tip when it comes to figuring costs...... if you only charge the amount that materials cost you to buy....you're going to loose. You have to estimate, and charge what it will cost to REPLACE the materials you use. Especially if you use exotic hardwoods, or things like ivory, coral, etc.

When it comes to those "other then materials" cost, think long and hard.....it's not just utilities, or other consumables, but it's the wear and tear on your machines, and tools that will eventually require repair/replacement too. We don't think much about those sort of things when the grinder and other power tools are "shiny and new", but "repairs" are going to happen, and machines will wear out over time. :)
Exactly! Paper towels, gloves, oils, sharpening stones, drill bits, files, tape, respirator refills, and so on and so on. The first 7 knives I sold, I never accounted for my shop supplies that I just don't think about. Now I have it all figured out. And yes, add in electricity.

Sent from my XT1565 using Tapatalk
 

csalt09

Well-Known Member
#6
So do you estimate how many knives can be made out of each item and divide it by the cost of the item. Add them all together and tack that on to the price of the knife.
 

John Wilson

Well-Known Member
#7
My numbers will sound crazy to some people, but let me explain the model I use.

EVERYTHING to me is a material cost, except for labor. I don't use a labor cost model because I don't get paid per hour, I get paid on the sale of a finished product. Labor is baked into my SELL Price. The better I get, the less willing I am to work for cheap. I drive my prices up to drive up profit. It has no effect on my cost to make the knife. If the market won't pay me what I think my labor is worth, then I have to lower prices. This means lower profit, but again, cost hasn't changed.

I figure my cost closer to $70 - $100 per knife (depending on the model) and then I have a $30 cost for a leather sheath, and $5 cost for Kydex sheath since mine are very simple.

Exotic materials are extra. If I am putting a $50 block of wood on it for a handle, then obviously I raise the SELL PRICE to cover that rather than adjusting my cost baseline. Now, if a $50 handle is standard then by all means, that's your cost.


COST vs Profit: The market determines what your knife sells for. Your cost to make it is what determines your profit. If I acquire new skills or machinery that saves me time, then good for me. That's profit. But my material cost to make the knife doesn't go down.

I figure my base-cost this way: What would it cost me to make one knife today if I had no materials or supplies and had to acquire them? Then go see what it costs to buy those things.

Finished materials:

blade steel
wood for handle
pins
epoxy


Hard Costs (add-ons)

tooling / breakage / replacement ($5 per knife)
visors, respirator filters, etc ($1 per knife)
Heat Treating ($15 per knife) I send my blanks out. (I beat this cost regularly by working in batches and getting a discount, but that is my savings for being smart.)

consumables:

Abrasive belts
Abrasive sheets
epoxy
kydex
leather
Electricity

Miscellaneous:

rivets
thread
vinyl gloves
stir sticks
epoxy cups




For things that you buy in a package quantity, such as epoxy: I estimate.

Epoxy: I use 5ml epoxy + 5ml hardener per knife (ON AVERAGE). I buy it at a given volume. Divide by average usage, then ROUND UP to the next whole dollar. For GFlex650, a 32oz kit = $60 (with shipping)
32oz = 946ml
946 ml / 10 ml = 94 knives.
$60 divided by 94 knives = 64 cents per knife. = ROUND UP to $1 per knife epoxy cost.

Pins: a 12 inch mosaic pin is $50. I use them in 1-1/4" lengths.
12 inches divided by 1.25 inches = 9.6 pins, therefore, I get 9 pins from one $50 rod.
The extra .6 of a pin becomes sawdust or trimmings, but I still had to pay for it. So my cost is: $50 divided by 9 pins = $5.55 per pin. ROUND UP to $6 per pin

I round up always. Why? This is how I build the cost of goods shipping into my supplies rather than track shipping costs every time I buy something. If I pick up a bag of rivets that I will use for six months, I have no idea what I paid for shipping because I ordered it with 20 other items. Rounding up to the next whole dollar fudges this cost in. (This shipping refers to when I buy materials, not when I ship the knife. Delivery shipping is paid by the customer and added to the finished price of the knife.)


Now I know what it costs to buy materials to make a knife.

I don't use up a whole belt? Hooray for me.
I get a great deal on wood by buying quantity? Hooray for me.
I get smart about ordering things so that I get the most product with the least amount of shipping? Hooray for me.

These savings mean that my profit margin just went up, but I don't adjust my cost. My cost is an AVERAGE BASE LINE. If I can beat my own cost, hooray for me. This isn't McDonald's. I don't know my actual cost down to the last pickle. I know my AVERAGE cost and I try to be smart about beating it when I can. Sometimes I win, sometimes I lose, but ON AVERAGE I can forecast what it costs me to buy materials to keep making knives. The more "hooray for me" savings I earn, the more cash sits in the kitty for things I didn't budget for or tools I want to buy. -Or covers the loss on materials I wasted on a botched project, or whatever. There is no benefit to calculating the actual cost for every knife I make. It's irrelevant because nobody is paying me based on cost. I don't charge based on cost. My cost is for my own benefit to keep track of how I purchase my raw materials.


Tools, wear and tear, etc, is a line item that I build into the cost. I don't track it because I buy these on an as-needed basis. But they are real costs and you need to have some amount of money baked into your sales price to cover these things. $5 per knife seems reasonable. It's probably low, but my volume isn't high enough to know. If I made folders and used up a lot of specialty tooling, then certainly I'd have a much better numbers. As it stands, this is where I am. I'm a hobbyist, so my ultimate goal is to have enough in the knife account to stop stealing from the family finances. I toe that line, and still sometimes cross it. I've gotten to the point where sometimes I'm proud to tell my wife that "knives paid for this" when the kids get a treat. For a long time it went the other way... it was me keeping the knife supplies coming by dipping into the family money.
 
Last edited:

John Wilson

Well-Known Member
#8
So do you estimate how many knives can be made out of each item and divide it by the cost of the item. Add them all together and tack that on to the price of the knife.
Personally, I do that to determine my cost. My sell price has nothing to do with my cost to make the knife. I sell my knife for what I think the market will bear. My cost is my problem, meaning I need to sell the knife for more than it costs to make. After some time, that's not an issue anymore because your prices are determined by what someone is willing to pay and it will be several times your cost.

In the beginning, trying to set your sell price is hard. You need to know your cost. Cost x 2 or 3 is a great place to start. But don't ever let that hold you back. If someone will pay you more for your work, your cost no longer has any relationship to what you sell for. Your cost will then simply drive your profit margin.
 
Last edited:

Rated G

Active Member
#9
It might be a worthy venture to calculate these costs if you were a manufacturing company, pumping out vast quantities - but to factor say the electric bill or number of latex gloves on a custom one-off knife seems almost crazy to me. Im curious now - do artists factor in the ounces of paint they use on their work? I would highly doubt it.
 

John Wilson

Well-Known Member
#10
The biggest mistake anyone can make is not tracking costs, at least to some degree. You'll get this crazy notion that it costs you $10 to make a knife because you bought one foot of steel for $5, your brother gave you a block of wood for a handle, and you bought some pins for $5. You already had some sandpaper and some abrasive belts. And a drawer full of files. And some JB Weld. And some acetone. And a drill press.

That's all fine and good until you run out of those "free" materials you didn't account for. But if you keep making knives you have to buy all that stuff when it runs out.

Or worse, you sell your knives for $40 because you think you're making them for $20. You sell five knives at $40, exhausting your supplies making those five knives. Then lo and behold, your next order to replace your materials is $400. You just checked up short of break-even by $200, yet you thought you were doubling your cost. If you keep losing $200 every time you sell five knives, you won't be making knives very long before your wife takes a skillet to your head.
 

John Wilson

Well-Known Member
#12
Don't get me wrong. I don't do a cost calculation every time I make a knife. But I do know what it costs me to make a knife, so when someone asks me "what does it typically cost you to make a knife?" I know a real, no baloney answer. I've done the math. I can't make a knife start to finish for much less than $75 to $100. That's a real number. That's my baseline.

If somebody wants "x" material vs "y" material, I know whether I need to raise my sell price to cover it. How? Because I know what I pay for stuff, and if "y" costs more than I pay for "x" I need to sell the knife for more money to cover it. If you don't, you are paying for everyone's upgrades out of your own pocket.

Do I count latex gloves when I use them? No, of course not. But I pay ten bucks a box for them every time I go to the store. I know there are 50 in a box, which means I'll get 25 knives from a box. Therefore, I kinda sorta know that latex gloves cost me fifty cents when I make a knife. Does it affect the sell price? Nope. But I know to buy them on sale.

Abrasives. You need to treat belts like they are free. But you better be making money on your knives in order to afford belts, because they aren't free. The trick is that anything that is built into the sale price of the product IS free. Your customer buys it, and he doesn't get the quantity discount. If you are using belts like they are free, you better be selling your knives with the cost of belts built in.

Question:

How much profit did you make selling a knife for $300?

Answer:

Not as much as you think.


If materials cost you $100, your profit was $200. NOW labor matters, because your labor was worth $200 on that knife. Would you make that knife again if you got paid $200 to do it? That's your call. But at least you have a real number, and it all begins with knowing what your fixed cost of materials is.
 

EdCaffreyMS

Forum Owner - Moderator
#13
Here's another angle to the cost thing. As I write this I'm sitting in the airport, headed to the Blade Show.... Another BIG expense to think about... Plane tickets, a ride to the hotel, hotel cost, table fees, feeding myself..... And this stupid bag fees! So, even before I've sold a knife, I'm already approx $2k in the hole.


Sent from my iPhone using Tapatalk
 

John Wilson

Well-Known Member
#14
Here's another angle to the cost thing. As I write this I'm sitting in the airport, headed to the Blade Show.... Another BIG expense to think about... Plane tickets, a ride to the hotel, hotel cost, table fees, feeding myself..... And this stupid bag fees! So, even before I've sold a knife, I'm already approx $2k in the hole.


Sent from my iPhone using Tapatalk
Exactly. That opens up an whole other bag of worms: annualized cost of doing business.
 

EdCaffreyMS

Forum Owner - Moderator
#16
Not for me... It's one of my hardest working weekends of the year. If you do a show "right" you're exhausted by the time it's over.[emoji6]. Of course these 3 hour layovers in Denver don't help.[emoji33]


Sent from my iPhone using Tapatalk
 

csalt09

Well-Known Member
#17
This is greats advice. I used John Wilson's model and ran some numbers. It is costing me almost twice the amount to make a knife as I thought. Ill use this formula for now on thanks.
 

John Wilson

Well-Known Member
#18
I'm very happy that you found some value in my model. The benefit I got from knowing my real costs was that it gave me courage early on to raise my prices. It also took the stress away from using more raw materials to get the job done faster. I discovered that it is false economy to scrimp on supplies like cutting my pins too short, mixing too little epoxy, or trying to milk the last ounce of life from a belt. If all of your materials are paid for by the customer, INCLUDING inevitable waste, then you can forge ahead at full steam knowing you aren't losing money.
 

BossDog

KnifeDogs.com & USAknifemaker.com Owner
#19
A couple other things to consider.
cost of a personal web site
mailing expense
"rent" on your home shop -- this sounds crazy but it's a tax deduction, that makes it an expense. Consult with your tax person.
mileage - do you drive for supplies?
do you advertise at all? by that do you pay membership fee's to forums, associations, etc
Do you use your computer for knife business?

I always figured in $5 machine wear and tear. That sounds like a lot until you have to buy a replacement motor or speed controller.

absolutely consider getting detailed advice from a tax expert. skipping tax deductables takes 30% profit right off the top.

Part of making any money in knife making is making sure you don't lose a third of it to taxes because you are missing valid and legal deductions.

Making money off knives sold for me was always about what new tool can I buy now?
 
Top