Pricing based on laser wattage

[Jonathan Bowen]

I use my laser almost exclusively for production. I try to stay around $1/min for pricing. This is before I add my normal margins. I'm usually fairly close to market value for similar projects but now we are branching into laser cut tabletop gaming terrain. The process is a little different and should be cheaper. However, I had to cut our margins down to compete in the new market. My laser is on the small size at 40 watts. So the question is should I be compensating my pricing based on our laser wattage? We would probably be more competitive at say 100 watts based on time alone. Some of the issues are my competitors. I try to have enough margin to push our products into wholesale. I suspect my competitors might be pricing their products based laser time without any markup.

I don't want to undercharge myself but the truth is the laser time doesn't have much actual cost to it. I don't want to trap myself in a situation where I'd be losing money if I have to pay someone to run the laser full time. Just curious what others have done in similar situations.

Jonathan Bowen
CorSec Engineering

[David Rust]

Hi Jonathan, I am sure you are going to get many answers. I have a couple of formulas I've tried however I find what works for me is to assess the "worth" of the product and price accordingly.

This is how I go about assessing worth:
1. Conduct an internet search for similar products
2. Gather as much pricing information about the product (don't forget shipping and handling info)
3. Assess differences/ likenesses of the product (Is my product better or not as good)
4. Set a price... If I can't do it for the assessed "worth", I don't do it...
5. Adjust the price as necessary based on sales or lack-of-sales...

Some Jobs I have spent more time on test runs than the time it took to run the job...

Hope this helps...

[Jonathan Bowen]

I find myself making design decisions based on laser time and that has lead me to consider pricing by overall volume of the final assembled building.

I do most of what you mentioned. I do like having concrete numbers to help with pricing but I adjust them based on the market. If a building is too expensive then I use $0.75/min and calculate it again. I'll have to run some numbers based on what an employee at say $10/hour would cost per minute and include that in my pricing. The products that i have released so far have been well received but not many have purchased them. I am right along side most of my competitors on pricing but again I feel almost restricted in the design process. I might work up a formula so to speak that includes volume, level of detail, and laser time. I like to get a ballpark before I go hunting down similar products before I set final pricing.

[Scott Shepherd]

I subscribe to a little different thought process. If you have a machine now that's making you $40 per hour, and you purchase a more powerful machine, why would the price drop? If I have a 1000 watt laser that cost me $200,000, does that mean instead of something that cost the customer $4.50 on a 40W laser should now cost the customer $.50 cents? Doesn't make sense to me. I invested the cash into the machine, I took the risk, and the customer gets the benefit from that risk?

If that's a good model, then it should work no matter what, right? So you'd make more money if you bought a 20 watt machine than a 100 watt machine because you'd be able to charge more based on the time it takes.

I know a lot of people get hung on dollars per hour, but we believe you price to the market and let it fall where it falls. If it makes sense to do, then we'll do it. If the market dictates us making less than it takes to pay the bills, then what's the point? We'd pass on that situation. If we charge $5 for something that runs in 4 minutes on a 45W machine, or we can run the same job in 2 minutes on a 80W, we reap the rewards from taking the financial risk of buying a machine.

[Jonathan Bowen]

Well I'm kinda thinking of the opposite of the situation you describe. The cost per min goes up as the wattage does. So at 40W I'm charging $0.50/min but at 80W I'm charging $1/min. The faster the job the more the time on machine is worth. In my situation, I think my laser is under powered as most of my competitors are running with 60W-100W. So I'd need to decrease what I charge to compete.

Right now I'm pricing my stuff at around the same price as similar items but I know my cutting times are less. @ 40W. My prices used to be cut and dry because I was charged by the min for someone else's laser. Now that I have my own its a bit different. So I guess the real question is, should I pass those savings on to the customer or reap the benefits of the method I developed and have a higher profit margin?

I'll have to sit down and work out some pricing parameters and research what other products are already on the market.

[Tim Bateson]

I shoot for $1.50 - $2.00 a minute, but in reality I charge what-ever the market will bare. Sometimes that may be $.25/minute, other times $10/minute.

I would charge the same or more if I was running at 100 watts. You would have to in order to make the payments on that machine (assuming you didn't just win the lotto).

[Jonathan Bowen]

Well considering that one company made $42k on their first kickstarter and is over $25k on a second that is only a few days old, I might be in a position to buy one out right. I'm going to use this model for my next set and see what happens. It could go big but I just don't know yet. That is why I'm trying to lock down a good pricing formula now because if I have to ship $25k - $50k worth of product in a few months then things get interesting. At that point, I'd probably try to pick up a higher wattage Epilog and upgrade my Hurricane Laser to a 60W. I really need to pin down my costs so that I'll know how much I can spend.

[Rodne Gold]

If you price per minute on products that others also make, you will be beaten into the ground by those with cheaper , faster and more potent lasers. You HAVE to change the pricing model or work out whether it's worth it to you to remain in that competitive market , what to you might be working at a loss can be a handsome profit for others.

[Mike Null]

Price to the market. The market doesn't give a hoot about what kind of equipment you have.

[Michael Hunter]

Here's a little rule-of-thumb that I find useful when faced with difficult pricing decisions. It helps to balance risk against competitiveness -

Take just the materials costs.
If the price works out to less than 3x the costs, then any little problem can wipe out the profit.
If the price works out to more than 6x the costs, then plenty of competitors will want to take the job away.

The only proviso with this rule is that the material costs must be sensible : if you are buying retail and the competition wholesale, then clearly it doesn't work.


The other balancing trick involves delivery time.
My "normal" turnaround is 3 to 5 days from order, but I will take on a low-paying job if I can work it round other better paying ones.
This leads to two prices on the quote - a "have it now" price and a 2-3 week price.

[Jonathan Bowen]

My time on machine is averaging about 7 -10 mins. It depends. The MDF cut run about 15 mins or less and the styrene only runs 2-4 mins max. Each kit is generally 2 cuts but can be as high as 5. Depends on building size. Material costs are getting to be an afterthought. Pricing per min, I'll have $20 in cutting costs and $3 in material. I'd retail that building for $39.99 or so.

You all have given me a lot to think about. The real trick for me is that I'd like to push into retail with them. It hasn't been done yet I've already got several retailers that I work with. I'm going to work something out based on volume, level or detail, and how many times I have to load the machine.

[Martin Boekers]

Well considering that one company made $42k on their first kickstarter and is over $25k on a second that is only a few days old, I might be in a position to buy one out right. I'm going to use this model for my next set and see what happens. It could go big but I just don't know yet. That is why I'm trying to lock down a good pricing formula now because if I have to ship $25k - $50k worth of product in a few months then things get interesting. At that point, I'd probably try to pick up a higher wattage Epilog and upgrade my Hurricane Laser to a 60W. I really need to pin down my costs so that I'll know how much I can spend.

Did the company make $42k or is that the funding they received? I am intrueged by Kickstarter. I know that some here at SMC have financed their equipment that way.
Some may be fine with breaking even after 2 months of work per say or even at a slight loss to pay for the laser. I have seen some projects listed for $5k, then they
hit $100k and wonder if they had a secondary plan to produce much more than they anticipated.

Pricing is very fluid here as i may take on a job that no one else would touch and make it work or vice-a-versa. SMC is a World forum, so some may be in different markets and
price as their market allows.

One thing I find is that some don't taking ing all the costs when pricing, such as shipping and packaging, loadingm, unloading and cleaing the product. Time spent with client for
ordering and pick-up, additional layout time, consumibles etc.... there are many ways for profits to "leak" out.


Good luck with your venture and let us know how things work out!

[Ross Moshinsky]

If you're vector cutting all day, you have the wrong tool for the job. 40w lasers are not designed to cut MDF as their primary job. 40W lasers are more or less designed for engraving and some cutting. If you want to cut, you need to step up to a 80w+ laser. Ideally you want to be well over 100W.

As for pricing, you have to price based on the market and your own profitability. You need to look at what it takes to make the product from start to finish. You need to look at all of your expenses. You also need to examine how you can grow the business in the future. A lot of people start out working out of their home and quickly realize they need some sort of commercial space. Soon after that they realize they couldn't afford the commercial space because the price they were charging didn't figure in any overhead.

[Jonathan Bowen]

Kickstarter is a strange little animal that can bite you BAD if your not careful. My impression is that by the time Kickstarter and Amazon take their cuts your down 8% right off the top. Say you had a goal of $14k for the laser. You going to have to spend that on equipment. In the $42k example, You now have $25k to buy materials and pay people to make them and ship them. You have to pay shipping costs in the US. International has to be discounted or you don't get a lot of overseas orders. You can charge extra for that but try charging $15 or more and you'll have riots. Include packaging and your probably down to $20k with 250 or so orders to fill. Some of which are rather large. For the next 3 months, your doing this almost full time.

Are you going to get rich quick? Probably not. Will you get the funds to launch a company and buy equipment? sure. I'm at an advantage because Kickstarter has taken my industry by storm. So much so, that i'm having trouble promoting and selling my own kits without it. The trick is to set a reasonable goal for just making it and oh crap this went crazy. One miniature company it currently filling $5 million or so worth of discounted orders. So your looking at probably $7-8 Million worth of product that is currently sitting in their parking lot and filling their warehouse as they try to push it out to cranky customers who have waited months for these products. In their defense, They planned for the insanity and was ready with stretch goal and add-ons for up to $5 million or so.

These kind of things are the reason that I need to lock down a sustainable pricing model. I already work 16+ hours a day to manage and fill my current work load and most of that isn't laser time. So the machine is idle but if things go nuts then I'll need to bring someone in to run it and possible a second machine full time for a while. The end result that I'm aiming for is to run the laser more because the work to money ratio is better then the other products that I make now. Some of those are getting outsourced here in a bit as well. Free time would be wonderful but you gotta pay the bills.

[Jonathan Bowen]

I'm on that fence right now. My pricing on a lot of my products is good. Some of them need to be adjusted or discontinued. They don't sell very well but they are a lot of work when they do. I work from the house now and I'm getting close to the point where I need to start setting up for the next stage. Part of the reason that I'm concentrating on the laser more is because that work to profit ratio is nicer. I've got 3 projects running now that can help get me over the hump. I'm to the stage now where I can kinda reliably make my own paycheck each month. The next stage is a small commercial space either built on my property or leased. At that point I can start getting employees.