How much?.

[skelf]

Taken from a TB thread. I know Bruce through another forum and his insight is always spot on and his work is nothing short of superb. A subject of interest to me and most builders and customers.Thoughts anyone.




I'm a pro Luthier/Builder. Most of you would consider me successful at it. I've been doing it nearly full time for 21 years, I have a good reputation, and I usually have a waiting list for my basses and services. But let me enlighten you with the ugly financial reality of this business. The net income numbers some of you are tossing around are pure fantasy. Most of us Luthiers make a net hourly pay less than minimum wage. When I visit my tax accountant every year, he shakes his head and tells me to shut it down and go get a real job. I'm not kidding.

First things first: I've set a basic rate of $45 per hour. This is not my "pay", it's what's called an Hourly Composite Rate for the business. I need to make an average of about $30 per hour for 40 hours per week, just to pay the overhead (rent on my building, utilities, insurance, etc.). Those are fixed costs that have to be paid each month. So, if I charge $45 per hour, and complete 40 hours of Billable Work (see below) in a week, my actual pay is really only $15 per hour. That's $600 per week, which is less than most people with real jobs make.

But here's the missing part: Trying to complete 40 hours of Billable Work in a week is much, much harder than it first appears. I only get paid $45 per hour for time spent actually at the bench, working on an instrument to be sold. I don't get paid anything for answering the door, talking on the phone to customers, writing e-mails, writing on forums, sweeping the floor, sorting lumber stock, ordering parts, driving to the lumber yard, etc., etc. I get paid $0 per hour for all that time, but yet it's all completely necessary to run the business.

For those of you who've never run your own business, that's the fundamental difference between having a job and working for yourself. At a job, you automatically get money for every hour that you are there, almost regardless of what you do or how hard you work or how many parts you successfully make. Working for yourself, how much you make per hour is completely dependent on how many parts you successfully complete per week. You can seemingly bust ass all week and end up making almost nothing. In reality, I work about 80 hours per week, every week, and I'm doing well if I actually complete 40 hours of billable work. That's a 50% ratio of Billable hours to Total hours, which isn't bad for a small business. Many small businesses have a much lower ratio than that, like 20%-30%. But what it means to me is that I actually get paid only $7.50 per hour, for all those hours, and only if I complete those 40 hours of billable work.

Now, most "real" businesses charge a much higher hourly rate. For example, most small auto repair shops charge $75-$100 per hour. The mechanic working there makes $20 per hour if he's good. The rest of it is for the fixed overhead costs and that ratio of Billable Hours to Total Hours, like I described above. By any standard small business model, I should be charging $75-$100 per hour. When you think about it, my business is very similar to an auto repair shop in the size and costs. My next door neighbor used to be a one-man Porsche repair shop, and we used to compare notes. He charged $75 per hour, which he said was the minimum he needed to pay the overhead and take home a modest wage for himself. He thought I was completely nuts to be only charging $45 per hour. I mean, we had identical size shops, with the same overhead rates. I'm older than him with much more education and experience. I even used to be a Porsche mechanic!

Okay, so why don't I charge $75-$100 per hour, like I really should? Because you guys (the customers) won't pay that much. It's as simple as that.

Look at it from the cost side:
A hand-made custom bass neck takes 8-12 hours to build. I'm not speculating. I've built hundreds of them, and I keep very accurate time records. The raw materials (wood, metal, and fretwire) cost about $60. So, at $45/hr plus materials, I price a 10 hour neck at $510 plus shipping. That's just for a basic custom bass neck. If I charged $75/hr, it would be $810. At $100/hr, it would be $1060. So, how many of you would pay $1060 for a custom neck? Just about none. But is that unreasonable? It's the same quality of neck that you'd find on a $2000-$3000 bass. But if you read TB, you'd know that any neck over $250 is waaaay overpriced and not worth it. That's the way this business is. Most instrument customers are completely spoiled by two decades of very cheap imports, and don't appreciate the work and costs that go into building a custom bass. That's the main reason why I no longer build custom necks at the retail level. It doesn't make any sense financially.

Full instruments are the same way. My new AMB-2 Scroll Bass, which I've just developed and introduced this year, takes me about 60 hours each to build. The materials costs are $320: (Case: $110; wood: $50; metal: $30; purchased hardware: $90; plating: $40). So, with those materials costs and charging $45/hr, I need to sell them for $3000. That's about right for the market (I hope!), in terms of what customers are willing to pay. But at $75/hr, I'd have to get $4820, and at $100/hr I'd have to get $6320. It would be very hard to sell them at those prices.

And that's my simpler, lower-priced model. My fancy Series IV AUB-2 models that I built from 2006-2011 took 110 hours to build with about $400 in materials. I was selling them for $3900 and losing my ass on every one. That's why I stopped building them. If I priced them at $100/hr, they would be $11,400. That's nice to dream about, but not realistic.

Now, I'm a little unusual as a builder, because I build almost everything myself. I make most of my own metal hardware (bridges, tailpieces, etc.), plus I build my own pickups from scratch, and do all my own painting, in addition to the woodworking. So, my cost numbers have higher labor hours and lower materials costs than most builders. If I were to offer a custom made high-end Fender-like bass, using purchased hardware and pickups, and still painting it myself, the costs would be around $700 for materials and 35 hours labor. At $45/hr, I'd have to sell it for $2275. To me, that's about as low as you can go, a minimum realistic price for a custom made, basic pattern instrument. To me, any builder who sells for less than that hasn't really counted up the labor hours. Or they have a shop situation with no overhead. More likely, they are trying to set their prices based on what customers are telling them, and not understanding how much money they are losing.

Again, that's the nature of the business. Being a Luthier is a "Glamour" business. Lots of guys want to do it because it looks like fun. And it is fun and rewarding building basses. As a hobby or a tax-writeoff sideline. But trying to do it as a rational business to make a living from is just nuts. The finances don't add up.

If all of the above isn't depressing enough, that all assumes that everything goes great. Unfortunately, this business also has an enormous risk factor. When building an instrument, there are hundreds of ways that you can make a small mistake, and end up ruining weeks or months of work. A small slip in a router fixture, a bad piece of wood, misreading a dimension, dropping a tool on a finished paint job, forgetting some feature that the customer asked for, etc., etc. These tiny things can instantly cost you an entire weeks' worth of billable hours, or more. Remember, this is a fixed-price business. If I agree to build you an AMB-2 for $3000, that's assuming that it's going to take me 60 hours to build. But that's the best case scenario, with no mistakes. If I get a couple of spots of contaminant in my spray gun and end up having to repaint it twice to get it right (a true story), I end up spending 90 hours on that instrument. And nobody is going to pay for those extra 30 hours. While I'm repairing that damage, I'm not working on other billable hour jobs. And the overall problem is that there are so many fussy steps involved in building an instrument, that it's nearly impossible to go all the way through the process without making any mistakes. Only after years of making the same instruments do you eliminate most of the mistakes. The financial penalties are huge, and you can easily get into a position where you've already lost so much money on an instrument that it seems pointless to finish it. If you know that you're going to make less than $5 per hour, and you still have a long way to go, is it even worth it? Meanwhile, the customer is calling you every day asking if it's done yet. See the thread about MikeysWood.

Also, custom build jobs always have ten times the potential for mistakes and labor over-runs. Trying to do custom builds on fixed prices is setting yourself up for huge losses. There are so many ways for things to go wrong and wipe out any money you would have made. That's why I stopped doing custom builds a long time ago. Happy customers, beautiful basses, and $5 per hour. Most Luthiers, if they survive more than a few years, eventually move to building only their own models with a fixed set of options.

I hope this helps you understand how the finances work in this business. And why we Luthiers can sometimes be cranky and evasive and refuse to answer the phone.

To go back to the original posters' question: Most small shop electric bass Luthiers effectively charge $35-$45 per hour. That's driven by the market; what customers are willing to pay. Established guys like me get "paid" $15 per hour at best. Guys getting started are usually making approximately nothing. You can usually make better money just doing repairs, with some careful management. The setup guy at Guitar Center makes more than I do.

So, you're probably wondering why I keep doing this. In 1995 I was making 100K at a corporate job. Last year, I busted ass all year and grossed about 55K. On paper, my "pay" was less than 5K, for the whole year! I barely paid the overhead and the groceries each month. I work 7 days a week and hardly have any money left over to play with. I couldn't possibly support a family or a wife doing this. But I'm okay with that. I'm a hermit mad scientist wacko type, and I've chosen this lifestyle. It's just me and my dog, in a building full of machines, making cool stuff day and night. This is how I want to spend the rest of my life.

[skelf]

Part two.

Absolutely. Fodera doesn't charge $10K-$15K for a bass because they are greedy and evil. They have to charge that much, because that's what it costs to build them. When you step up from being a solo Luthier to being a small High-End Bass Company, the cost structure is just as tough, and even more unforgiving. Fodera and Ken Smith are good examples of shops that build expensive basses, with just a few employees.

As soon as you hire real employees, you get hit with a whole new layer of laws and costs, such as Worker's Comp and OSHA requirements. You have to pay those costs, or you are in big legal trouble. But thing is that, as soon as you have employees, you are now obligated to pay them, regardless of whether they successfully completed Billable Hour work. The guy doing your painting may have worked hard all week spraying a group of basses, but on Friday he makes a careless mistake and messes them up. As the boss, you still have to pay him for the week's work, plus next week's work when he has to redo them all. But you only get to collect the billable hours for painting them once. Out of the company's income, you have to pay for ALL of the mistakes and ALL of the non-billable hours. It's real outgoing cash, not just wasting some of your own time. Because of these factors, you have to set an Hourly Composite Rate for your company that is 2-4 times what you actually pay your employees.

I'm guessing here, but Fodera probably works with an hourly rate of around $100/hr. Their employees probably make $15-$30/hr, a decent living, but not a whole lot of money. Their instruments are probably in a similar range of materials and labor to mine; $300-$400 in parts and materials and 50-75 hours of labor. So, as an example, a low end bass would be $300 in materials plus 50 hours at $100/hr. That's $5300. That's what it actually costs Fodera to build it and have it sitting in their warehouse. Built into that is a certain amount of rework of mistakes and wasted unbillable time.

But now you have to sell the bass. As soon as your production level moves above a couple basses per month, you have to add people whose job is selling. Those are the dealers. They need to get paid too, or they aren't going to do it. A dealer likes to make 100%; that is, sell it for twice what they pay for it. That's what they need to cover their own overhead and wasted hours schmoozing the tire-kickers. On a high end bass, they may settle for less, but not too much. So, the dealer buys the bass from Fodera for $5300 and tries to sell it for $10,600. If it sits for a while, he may sell it for $8500. So, the dealer paid Fodera $5300 up front and made a profit of $3200. That may sound like a nice chunk of cash, but remember that his overhead keeps ticking away and he has to keep steadily selling those basses, or he goes home with nothing that week.

My point here is that, when you move up into the small company range, then numbers add up and the business model works. It's still risky, but it adds up. But, they have to operate with a composite hourly rate in the $100/hour range. If Fodera tried to operate at $45/hr, they would go broke.

The pricing of a Fodera is rational and reasonable. No one is being greedy or making outrageous profits or getting rich. If you looked at Vinnie Fodera's tax returns, I doubt that he makes very much money from the instrument business.

The irrational part is us one-man Luthier shops selling basses for $2500. We're nuts.

[lowdowner]

As a small businessman (the business is small by the way!) I totally get this, but most people don't have any experience of how a business works, and how the figures are arrived at. They assume that if you charge £3K for a bass - that's all instant profit into your pocket for some reason (or a good proportion). I'm constantly amazed at the price of a hand-made bass being so low to be honest: we are prepared to pay £10K-£30K for a mass produced sh*tty, rust in 10 years if you're lucky - car, but asked to pay £4-6K for a piece of skilled hand made perfection that will last longer than the owner probably will and we complain. It's mad!

Of course, a sh*tty car is 'useful' and is marketed well so we eat it up...

I hope you don't stop, there aren't enough craftsmen around as it is and it would be depressing to keep losing them because many people don't understand the value of craft.

Oh, and I am well aware that there are a *lot* of people who *do* understand the value, but don't have the money, it's just ironic that those of us in that position are most likely the ones without the means and the one's that can afford quality choose to buy mass-produced cheapo rubbish...

[lojo]

I've been self employed since 1995 and most employed people have no clue that your billable hours need to cover wages, overheads, tools, insurance, sick pay, holiday time, vans, cars, phones, pcs, office supplies, etc etc

And those billable hours as the first post said is around half of the hours you actually devote

Most of these craft jobs are a lifestyle choice rather than a great money making career

[gub]

Wow ,never really though of it like that ! Putting it like that seems they are too cheep !

[TheGreek]

I had this very conversation with somebody recently about how Bernie Goodfellow stays in business - especially when he doesn't charge for upgrades, etc.

People here are always saying what a great guy the builder of their favourite bass is (read here Bernie, Rob Green, John Diggins) and how they were charged a rediculously low amount (sometimes F.O.C) for some work on their instrument, rarely with a thought about how much that "free" work actually costs. I remember having John install a new pick up and upgrade the electronics on my Jaydee - he charged me £117 - and that included the price of the pick up!!! Obviously I was happy and I may have generated one or more orders by spreading his good reputation but realistically that is far too cheap..

We all like to earn a fair wage for what we do but as the person drafting the article says, what he actually earns is significantly less than a fair wage..

So buy now....those handbuilt beauties from our favourite Luthiers may not be around forever....

[Matt P]

this just reinforces my belief that custom instruments are actually bargains, unfortunately i'm going to have to save for quite a while before i can order the Recurve Classic Single Cut 5 that i've got my heart set on, but I'll get there one day!

Matt

[TheGreek]

[quote name='Matt P' timestamp='1348414749' post='1813321']
this just reinforces my belief that custom instruments are actually bargains, unfortunately i'm going to have to save for quite a while before i can order the Recurve Classic Single Cut 5 that i've got my heart set on, [b]but I'll get there one day![/b]

Matt
[/quote]

If they're still in business!!

[Blademan_98]

My father was self employed as he wanted to 'live the dream'.
He went bust because he also didn't charge enough to cover his overheads.

I tried to do something similar a few years ago but the numbers just didn't work.

It is a shame but thats so called progress for you!

[Matt P]

[quote name='TheGreek' timestamp='1348415111' post='1813328']
If they're still in business!!
[/quote]

that's why i'm saving as hard as i can! i might go for a graft series as that would take me less time to save.

[xilddx]

Great stuff, very interesting and not at all a surprise. Thanks for posting it. Who's Bruce then?

[JimBobTTD]

Yup - this is why I run a small business on the side. I put in a few hours here and there and usually reinvest every penny I earn. I live off my salary from my proper job and enjoy the benefits of having a company (VAT, trade prices etc) without having the overheads and the worry.

[skelf]

[url="http://www.xstrange.com"]http://www.xstrange.com[/url]

[4000]

Very interesting Alan, but not really surprising to me. Thanks for posting.

[arthurhenry]

This is the reality of self employment for many people. I know several people in what is considered by some to be a lucrative business (plumbing), who only keep going because their wives have decent jobs.

[xilddx]

[quote name='skelf' timestamp='1348421357' post='1813430']
[url="http://www.xstrange.com"]http://www.xstrange.com[/url]
[/quote]
I wondered if it might be him. I saw one of his in the Bass Gallery last year. Thanks.

[Big_Stu]

Like almost all self-employed jobs a great deal of it would depend on where you were geographically, how well known & how much local competition you had.
I live within striking distance of Manchester & know of at least two techs who do guitars & amps in the area who have a minimum charge (1st hour) of £50. Which is a fair bit more than the US charges, all of which could be explained by any or all of the 3 variations above.

JayDee is a great guy & usually has a waiting list of around 18 months for a build and a month for odd changes, refins etc. I believe he has his son working for him most of the time & is still busy but I've never known him working solo and has grafted for years to get where he is in the business - with a few "names" to endorse his product along the way.

[Wolverinebass]

This in many ways is totally unsurprising. If anything, it reinforces my opinon that a bass that doesn't cost at least £800 isn't worth playing. I've never found one under that price range I'd wish to own even if I got it for free.

I used to think that Fodera were kind of having a laugh with their pricing, but on the other hand it's not like their making P bass clones for £6k a pop. They're making top quality gear. I wonder what Alembic or Wal are getting give or take. I would assume about the same. It's a travesty that in some cases people who put such beautiful instruments into our hands can't get enough to break much more than even for the ludicrous amount of work that has been put in.

[LukeFRC]

I still want an ACG

[funkypenguin]

Great article Alan, thanks for posting this. My regard for Shuker, Fodera, your good self and all the other custom luthiers out there just went up several notches

Edited September 23, 2012 by funkypenguin

[gelfin]

I have a good friend who is a self employed audio / Tv engineer. His rates are £55minimum charge (first hour) excluding parts. Some of his customers are outraged at being asked to pay this for just changing a cheap transistor or other basic component. It has to be pointed out that he had the skill and knowledge to find the faulty component. And has all the overheads mentioned in the OP.

I have worked for the last 27 years in the HI Fi, Custom installation of multi-room audio & video systems. The majority of these customers accept the quote for the kit and labour but a sad few want you to work for nothing, even though you are the only person local to them that has the skill and knowledge to provide them with their toys.

Just been made redundant so what do I decide to do? I decide to do the same thing on my own. I'm fully aware of the pitfalls but at my age and lack of educational qualifications it seems I am unemployable. Wish me luck.

With the type of kit I will be working with i.e. PA & multi media systems I will be able to offer good deals on certain products to BC members. Look out for a post on off topic when I give myself a plug.

[chuck_stones]

Reading this just makes me want to buy a real hand crafted bass, and equally frustrated that I don't have the means to do so. I spent a period of time producing top level intaglio prints as a self employed venture and if the market hadn't dried up so badly I'd still be doing it. Similarly to the luthier business, the hours were long, financial rewards were small and the pitfalls of messing up each and every print were many, but I loved every moment of it.

I work in a 'real' job now and I long for the days when I would spend half an hour scrubbing the printing inks from my hands at the end of a long, hard, physical days work. There's an irreplaceable satisfaction gleaned from crafting something and being able to say 'I made that', or seeing the customers pleasure in seeing their design brought to life. I have the utmost respect for those such as the OP who persevere in a demanding and difficult industry so some of us can enjoy playing their arts.

Seriously, if there are any Kent based luthiers who need someone to help out for gratis to make their life easier, PM me. I'd say an exchange of my time for skills and experiment in this noble art is more than a fair trade!

Cheers to the OP and others who've contributed, it's been an enlightening read

[BassTractor]

Thanks to Skelf for posting that.
IMHO, people need to be aware of this stuff.

As some others have stated, it doesn't only go for instrument builders or small handicraft companies, but for many companies in many branches - often, but not exclusively, small operations that care about their customers and about the quality of their work. I've also seen these numbers for factories, importers, and retail.

Someone mentioned a markup of 100 %. However, IME that mostly is about a retail price including VAT, with the in-price being ex-VAT and before any type of overhead.

As one of many different typical examples for a medium sized shop in Norway or The Netherlands:
in-price ex-VAT: £ 100
in-cost: 4% = £ 4 ==> £ 104
overhead 25% = £ 26 ==> £ 130
income before tax 20% = £ 26 ==> £ 156
VAT 25% = £ 39 ==> £ 195 retail

Those 26 quid are then taxed 48%, leaving slightly more than £ 13 to the shop-owner for doing the work and taking the risks of the investment.
Add to that the market's demand for discounts and other stuff, and the shop-owner is one lucky b* if he sometimes does indeed get those 13 quid on a £ 195 sale.

Me personally, for years I charged £ 30 per hour, but in reality was left with £ 3.50 as an hourly income. Not much in expensive Norway, but it did give me the life style I was interested in, so no complaints.

best,
bert

Edited September 23, 2012 by BassTractor

[lettsguitars]

Whats with all the $ signs? We is in the uk huh? $3k for a guitar? I wish! Maybe in another 15 years I'll be hitting that 55k mark myself and I'd be pretty happy with that. A house with a decent outbuilding is the only way to go in this business. You gotta be dedicated and stubborn and obsessed with making the best basses ever made coz that's all there is. Money comes and goes, in that order, with about 5 minutes inbetween. + I reckon Vinny's doin alright out of it! He manages to employ half of his family and has the best job in the world to boot.

[xgsjx]

Being self employed is a hard (but rewarding) job. I was a self employed signwriter for many years & only stopped because business got tough & vinyl stickers took a lot of business away. Yes I could have went into doing vinyl, but it wasn't something I wanted to do. But I know how much hard work is needed for little in the way of money. My other 1/2 has started her own business as a cake maker & when people who usually get their cakes from a normal baker's find out the cost of a cake, they at first can't understand why a single teir cake is @ £100, but when they compare what they get & the level of detail that goes into it, most are happy to go ahead.
There's very little profit for the amount of work & cost of overheads, but the enjoyment is worth more than money.

Edited September 24, 2012 by xgsjx