Pricing is a critical step in the mold building process that does not get the attention that it deserves. Shops use several methods, and some are more effective than others. A solid understanding of the proper way to price molds can increase revenue and profits and improve customer relations and forecasting. While no magical solution fits all companies in every market, you need to be aware of the following key considerations:
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The first step in establishing the proper price for a mold is understanding your business by identifying all of the costs associated with operating the business. This includes costs associated with making the mold or molds that you are pricing and any additional costs associated with the project, such as shipping or sampling. A thorough comprehension of internal processes, capacity and the value statement that you offer are also essential.
Once you establish an accurate picture of the costs incurred and the value that you offer, it is then necessary to look outward. You should use benchmarking and competitive analysis to establish the value that other companies offer and the price that they are charging for that value. Awareness of the needs of your customers, the abilities of your vendors and the overall economic climate are important elements of which to be aware as well.
The most significant point to remember is that all of these things can change. If your current pricing model is from the s, there is a good chance that it is irrelevant and potentially causing harm to your operation. Constant monitoring and re-evaluation are the only ways to ensure that the data that you are using to arrive at the price is accurate.
There are several ways to use this information to price a mold project. Regardless of which pricing approach you use, the proper price should cover the costs necessary to complete the project, reflect the value that you are offering to your customer and allow for a profit. Opportunity cost must also be a part of the equation. If you win the project that you are pricing, evaluate how that affects your shop’s capacity and its ability to win other projects or complete other molds.
Constant monitoring and re-evaluation are the only ways to ensure that the data that you are using to arrive at the price is accurate.
Other errors that companies make when pricing include chasing sunk or irrelevant costs, setting prices solely based on experience, setting prices solely based on competition and improperly using discounts. It is important to ensure that the revenue that you generate from building molds is sufficient to cover all of the costs associated with running the business. However, rigid pricing models that force the inclusion of factors like unused capacity run the risk of creating profitable job loss. This model could lead to more unused capacity, which forces higher prices and eventually causes a death spiral in the demand for your molds.
Pricing based solely on gut feelings, hunches or “because this is the way we have always done it” is another recipe for errors. Experience is a plus when it comes to formulating how much to charge. However, you should not base prices on statements like “this should take two months.” Instead, you should use data to review historical times for similar projects and processes. This provides support for, or potentially tests, the theory of the hunch and facilitates greater confidence in the price.
The prices that other mold builders are charging is a very important consideration. Only using industry standards or market pricing without understanding internal costs and value could lead to poor pricing. The comparison must be apples to apples. For example, consider lead time and quality. If these two factors are not the same, then the price must reflect the difference.
Discounting can be a very valuable tool when you use it properly. Offering discounts is a part of marketing, similar to social media or print advertising. It is an expense that, which on its own, reduces profit. You must measure the return on investment on the discounts that you offer to win new business. Discounts can also be an important part of negotiations. However, you must match price decreases to service decreases or differences. If a customer needs a specific dollar amount, you must work with them to see what changes to design, volume purchasing, lead time, material or tolerances can be made to save money. Strictly reducing price is rarely the right thing to do, especially if you determined the original price using these other steps.
The final step in pricing is to evaluate the relationship of forecasted costs to actual costs through and after the mold building process. If actual costs diverged from estimated costs, then research is required to identify the reason and to take corrective action. You can then use the information that you have acquired for future pricing.
Regardless of which pricing approach you use, the proper price should cover the costs that are necessary to complete the project, reflect the value that you are are offering to your customer and allow for a profit.
Increasing revenue and reducing costs are two ways to improve profit. A robust pricing strategy can help with increasing revenue by growing incremental income per mold or by stimulating the sale of more molds. It is vital not to lose focus on reducing costs wherever possible. Often, raising the price is not the right answer. Eliminating waste and improving the process is.
I hope I’m not breaking any forum rules, if so, Mods please remove.:o
Currently I’m selling products that I have designed and made from my catalog of parts. But I’m looking into taking custom orders. Now I have a question about the “mold cost” and who pays for it?
Lets say customer Joe wants a custom part mold cost is 300, part will sell for 200. I assume you charge Joe 500. BUT now who has the rights to the mold? given I design the mold and part, do i have ownership? Now lets say another customer comes by and wants the same part, now that joe has already paid for the mold and now its made, do you charge just the 200?
Basically I sell car parts. there are certain project customers want which i dont mind developing and cataloging, but since I;m not sure how well those parts will sell, I will not invest in eating the mold cost just to sell one (which will most likely break even for the mold cost) meaning i just invested all this time for a mold with no profit (if no one ever buys that part)
any advice/ suggestions?
Sorry if this is too personal, Just not sure who else/where else to ask. Thanks
-Benny
I make motorcycle parts, I do not charge customers the mould costs but swallow that myself and then I am free to do whatever I want with subsequent parts from that mould.
However I only make parts for motorcycles that I want to and I have not undertaken commissions for one of examples as the true cost is really high for plugs, moulds and then the final part, though I have made parts for race bikes that were built in rather small production runs, ie less than 50.
If the customer is paying you for all materials and time spent on making the parts then I would imagine that the moulds belong to him.
There are so many ways of doing business that it is not a straightforward answer to this.
I would imagine that if a customer wants a unique custom part that generally means one part only, if you produce a number of parts from the mould, the part is no longer unique.
If a customer pays for the mold cost and production of the mold, it technically belongs to the customer as they are paying for a service and for the tooling. I also am in the automotive field and I produce and eat mold costs for customers cars I design. Then we have the rights to the molds and design and it is branded under my company. If another shop comes to me asking us to make custom parts for them, we charge them the tooling costs and labor/services. We set prices before any production of tooling or parts is started along with minimum quantity. Once it is all agreed upon we set up a contract and then once the parts are completed, we give the customer the choice to renew for another production run or to take the tooling with them.
I understand where you guys are coming from and agree with the customer owning the mold then…
But what would you do if a customer came to you with a part they wanted, which you thought would be cool to offer BUT its a very low demand item? Generally i would eat the cost of the mold for products i sell (because i believe i can sell multiples) but if i eat the cost of this mold for this sale, i mostlikely will end up breaking even leaving me with no profit, just another item i can catalog…
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However I am still new to the market (just over a year old) and I dont want to lose the potential sale… Would you still take on the job?
I would recommend the customer to get a group buy for the part, figure out your costs of making the mold and each part and find a profit margin for yourself. Then calculate the costs and and see how many parts to turn a profit. Set your profit expectations and that is the minimum number your customer must purchase. Either you do the work trying to sell the items or have your customer find a way to get more orders so you can produce the part and not worry about loss.
If you believe this is good marketing for your company since it is still new, it might not really be breaking even if you can get other customers by making this product. What exactly are you making if you don’t mind sharing. I know some people like to keep things top secret so no offense if you don’t want to say.
The way our company does it is like this. A customer comes to me with an idea for a part. I estimate a mold price and a part price. The customer pays for the mold. I keep the mold and only make parts for the customer out of his mold. He pays me 50% deposit of the mold and 1st part before I proceed. I’ve seen too many great ideas for me to invest my money in and have been left holding “the bag” when I didn’t collect money to begin with. A wise man told me to use other peoples money to build parts and that has worked well for me.
Me too…I get a non-refundable deposit (unless the failure is my fault) before I make custom orders. Been stuck a few times with “what the heck am I going to do with this part now”?
I’m leaning more towards this. just to have more examples of work we (I) can do. The product the customer wants is a Carbon fiber door skin - not to be confused with a door- just the outer skin. this will retain the stock door structure, allowing him to cut the door skin and remove the rebar to save some weight. This is ONLY intended for race use WITH the proper door bars installed/integrated with a cage. The car is a drift car so the intentions (lol) are to smash em up and replace:laugh:
Sounds like a good moto lol.
Thank you all for the advice!
What ever you decide, I think it’s important to communicate very well with the customer and make sure there are no misunderstandings.
For instance if I came to you and ask you to build a custom part - you might think that it’s going to be a really cool part to be able to offer, so you decide to only charge for the part and pay for the mould yourself so it can be added to your catalog. But from my point of view - I’ve come asking for a custom part, I may be very happy that it’s not costing me as much as I thought. But then in a couple of months if I saw someone else with my custom part I may be very very upset…
Good communication is key to so many businesses, just make sure that your customer is on the same page and you’ll keep them happy and avoid any messy situations.
Actually I am not charge mold but everytime I decide if this mold will bring me money. If the mold is only for one or 2 parts then I charge the customer.
I’ve done it several ways. I articulate the agreement very clearly in a contract.
Option #1 - The customers pays for the cost of the mold and buys parts from the mold for an agreed upon per item price. There are no demands on the number of parts produced. The part price has a time frame for which it is good. The part price can be renegotiated once the time frame expires. Discounts are offered if they buy in multiples. The mold is their property, they have exclusive rights to the production of the parts, and they can request that the mold be delivered to them at any time. This works great if the customer is unclear about how many parts they need produced.
Option #2 - I pay for the cost of mold fabrication and the mold is my personal property. I figure the mold cost into cost of each part. This is based on the # of expected parts that the mold can produce before a new mold needs to be constructed. I have rights to produce parts from the mold and sell them on my own. I only do this if I think that the part is worth the effort. Part prices for the customer include a time frame for which they are good. Prices can be renegotiated when the time frame expires.
Option #3 - Require that the customer purchase a predetermined batch of parts. I factor the cost of the tooling into the batch price. I also get to determine the number of molds and the mold construction to meet the demands. The customer holds exclusive rights to selling the product. All tooling gets destroyed if the contract is terminated. The parts are delivered in batches for an agreed upon price within a specific time frame. The price of each batch can be renegotiated.
The hard part about a composites business is knowing the unknowns - how much time and money will it cost to box up and ship the parts to the customer - bookwork - time spent on correspondence - R&D time - fabrication failures - liability insurance - taxes - miscellaneous shop costs - employee mistakes - not appropriately or realistically determining the cost and time it takes to cycle a mold - equipment breakdowns/replacements/and upgrades - shop utilities - surprise rises in material costs - changes in employee taxation and insurance costs.
It’s theses things that make or break the business.
Sounds very reasonable and well thought out wyowindworks.
Just wondering what kind of margin you would add to each of those options? Cost plus x%?
I’m guessing that #1 would be most expensive per part? Followed by #3 and #2 being the least expensive per part since you would plan to sell additional parts on your own?
The cost of a piece really depends on the fabrication labor that is required. Some parts are more complex and timely to construct. I never use designated margin based on material cost. The labor is what really effects the cost. The constraints of the project directly effect the labor.
The charge price for each part in option #1 is the cheapest since there are no tooling costs incorporated into the price for each piece. The tooling costs are paid for by the customer. This is a low risk option for you as the manufacturer. The tooling gets paid for up front. Each requested piece gets paid for. If the customer wants more you make more. If the customer only wants 2 then you make 2. If the customer wants the tooling then you send it to them since they contracted you to make it. I work this option when the customer is unsure of the number of needed parts. Since they cannot commit to a batch order then they need to pay for the tooling up front.
If your charged tooling price is $ and each part price is $100 and they order 2 parts you make $. Each part ends up costing them $1,100. If they want 10 parts made then you make $ from the deal and each part ends up costing them $300. The burden of profitably is not on you but rather on the customer.
The parts in option #2 have a portion of the cost of the tooling incorporated into the price of each piece. This makes the charge price for each part a little higher. The burden of profitability is on you. You need to sell parts to recover your time and materials that were spent on tooling. This is a last resort for me.
Option #3 is for batches. You know how many parts you are going to have to produce. You know what kind of tooling is going to be needed to produce the batch. This is often the most profitable because the expectations and predictability are clear and the production can become efficient through repetitive fabrication. The entire fabrication facility can be set-up to produce this one product for a batch run. This repetitive fabrication and facility designation typically doesn’t happen with option 1 and only sometimes happens with 2.
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