This post was taken from another thread on TB. If you build or are thinking of starting to build as a business or even want to buy a custom bass it is worth the time to read this post.
Posted by Bruce Johnson simply a great post.
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.
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.
Original thread.
http://www.talkbass.com/forum/f8/how-much-should-custom-luthier-make-per-hour-918983/
Posted by Bruce Johnson simply a great post.
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.
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.
Original thread.
http://www.talkbass.com/forum/f8/how-much-should-custom-luthier-make-per-hour-918983/
get automatically I am paying over $600 per month just for myself. I can't imagine how much more it would be if they knew what I was doing for a living..... 
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