Howdy Makers! I wanted to spend a few minutes explaining how we develop pricing for all of the kits and finished products you find here on WeldProjects.com! I think transparency is an important part of trust, and we want to make sure that everyone feels like our methodology is fair and we’re all winning together!

Pricing Philosophy

Generally speaking there are two main pricing methodologies that you’ll come across in the market:

• Cost-Plus Pricing – where a vender adds a percentage to what the product actually costs
• Value-Based Pricing – where a vendor charges what the market will bear, regardless of cost

You’ll usually find “cost plus” pricing used on commodity goods where there’s a lot of competition, and “value” pricing when there aren’t a lot of alternatives. Now, since WeldProjects.com is the only one of it’s kind we could pursue the value based method. But we don’t believe in just “charging as much as possible”! In fact, we think that’s kind of evil. Like that a-hole Martin Shkreli, when Turing Pharmaceuticals, raised the price of the life-saving drug Daraprim (used to treat parasitic infections) by over 5,000%, from $13.50 to $750 per pill.

Instead, we want to change the world – and that means making kits available to as many people as possible!

So, we use a basic Cost Plus calculation in order to set the pricing of our kits. This ensures that even if something would otherwise cost a ton in the market, if we can make the parts cheap – you get the kits cheap. It also means that we’re incented to grow our product library, provide fantastic customer service, and scale to become large enough to generate fair profits for our investors (which at the moment are only myself and my brother Kirk.)

Basic Cost Factors

When we consider what it takes to make a single product kit, make no mistake, it is completely unaffordable! We have full time engineers on staff, a massive manufacturing facility, millions of dollars worth of equipment, fabricators, purchasing, shipping, insurance, electricity, and much more that have to be covered before we can even think of breaking even! It costs a lot, and our staff depends on the health of the company to keep their families fed.

In fact, the only reasons WeldProjects.com can afford to exist is that our parent company Texas Metal Works is absorbing 100% of the overhead and product development costs. We’ve invested several hundred thousand dollars in R&D, processes and infrastructure to bring this dream to reality, on top of all the investments that were already made to support TMW’s manufacturing.

So here’s just some of what the cost calculations have to include:

• Engineering staff
• Physical space, equipment, networks, software licenses, etc. for engineers
• Manufacturing staff
• Physical space, equipment, networks, tools, etc. for the shop
• Shipping and receiving staff
• Space again!
• MASSIVE machines of all sorts, plus depreciation and maintenance
• e-Commerce platforms, order and fulfillment processes, etc.
• Time and material for multiple prototypes for every design
• Packaging, pallets and shipping materials
• Business insurance, inspections, certifications, QA/QC
• Electric, gas, water, cleaning and other routine costs of operation
• Legal, accounting, HR and other overlay costs
• Sales and marketing costs
• And so on…

The Pricing Formula

It’s extremely difficult to account for all costs and ensure that we’re making enough to cover them, plus have the margin necessary to run profitably and ensure all of our employees a long term, stable career with growth opportunities. So we essentially narrow it down to a formula that looks like this.

• Fixed Overhead Cost – Some component of the overall fixed costs of the business must be allocated to any product or project we engage in. This is related to the amount of time and resources devoted to it, as well as the anticipated number of units being sold that it can be amortized across.
• Product Development Cost – For each project, how much engineering time, fabrication time, machine time, and material were used to create it. Take that and divide it by a target number of unit sales.
• Fulfillment Costs – What is the time, material, packaging and shipping cost of sending a single unit?
• Margin – We require 20-30% margin on all products in order to have our investment dollars at work. Otherwise it make sense to shift that capital elsewhere so we can get a better return on investment.

So we have: (Overhead Cost + Development Cost + Fulfillment Cost) X Margin = Product Price

Example:

Let’s assume we develop a simple box.

• A single engineer spends 5 hours on the design, manufacturing files and drawings.
• We send that design out to the shop to prototype it and it takes:
  • 1/2 hour of laser cutting
  • 1/2 hour of welding
  • 1/2 sheet of material
• Shipping requires a pallet, shrink wrap and $5 worth of other supplies.
• Shipping takes 30 minutes to package and prepare, plus put in a shipping order.

In this case, we might have $1,000 in engineering design time, $125 in laser cutting, $75 of welding, plus $300 in material totalling $1,500 in prototyping and development cost. Assume we want to spread that over the sale of 25 units and that’s $60 per unit.

Next, for every unit we already know we have $125 in laser cutting, plus $300 in material (no welding since it’s a DIY kit!), and let’s say $50 for the shipping costs. Now we need to add in our indirect costs as an arbitrary yet hopefully supportable let’s say $100, bringing us to $575 per unit of real cost, which we apply let’s say a 30% margin to, bringing the grand total to $747.50!

Rational Comparisons

Given our example, if someone were to ignore everything and just say, “You want $750 for $300 worth of materials!!!” Well, that would be an irrational and unfair statement, because those other costs actually exist and are real. You don’t get to choose to buy the product and leave out the laser cutting. Or the shipping.

What you CAN complain about is the margin! If a company is charging an unfair margin, like old Martin Shkreli… well, in my opinion you shouldn’t reward their bad behavior with your money!

The other thought process I think all of us occasionally fall into (I know I do!), is that we often undervalue our own time when comparing what we could do on our own to what we could just pay to have done. So going back to our example of $750 for $300 worth of material cost, we might think, “Well, to save $450 I can just design something quickly, pick up some materially locally, cut it myself with a cutting disc, and save some money!”

But that doesn’t account for the cost of all the time and materials required to do all that! At the end of the day you’re probably only ever going to break even, given you don’t have economies of scale, costwise if you try and do something yourself. You MIGHT save some of the margin that the company made, if everything you do turns out perfect.

#TLDR

That was all way too much information! But hopefully it was valuable in understanding how much thought and work we put into the process of developing products and pricing. At the end of the day, my brother and I want three simple things to come out of WeldProjects.com:

• We want our customers to LOVE taking on new projects, get the satisfaction of a job well done, and have awesome stuff that lasts a lifetime!
• We want our employees to have a great place to work, be well compensated and stay with us forever, and be proud of what we do and what we accomplish.
• We want to change the way everyone thinks about what they need and where to get it! You can build it yourself and get a better product than some imported garbage! Or, find a local builder / maker / fabricator and have them make it for you!

Together we can just generally make everyone a lot happier! And make the world a better place. I believe it in my soul! And you should too.