iDRY Vacuum Kilns

Sponsors:

Business model question

Started by dad2nine, September 11, 2007, 12:57:07 AM

Previous topic - Next topic

0 Members and 1 Guest are viewing this topic.

dad2nine

What's a good business model for selling to retail hardwood yards?

(BF Log cost * 2) + (sawcharge) + (KD charge * 2) + (S2S charge *2) + (straight line rip charge * 2) = BF price

too simple?

beenthere

What does  *2 mean to you?  squared or doubled  ?

Work out some test numbers, so we have a feel for what you are plugging in...pls   :)
south central Wisconsin
It may be that my sole purpose in life is simply to serve as a warning to others

Ianab

A formula like that doesn't actually take your ACTUAL overheads into it. It might be pricing you out of the market OR you might be working for peanuts per hour.. who knows  ???

I think you are better to add up ALL your costs, plus what you need to earn per week. Divide by how many bdft you will produce per week and thats your minimum price. If the market lets you charge a bit more, great. If the market wont pay that price, then it's not worth you doing it, modify the plan and run the numbers again.

Cheers

Ian
Weekend warrior, Peterson JP test pilot, Dolmar 7900 and Stihl MS310 saws and  the usual collection of power tools :)

Ron Wenrich

Profit = lumber value - log costs - mfg costs.   For your example, lumber value = log costs + mfg costs + profit.  If you want profit to be a % factor, then your lumber value = (log costs + mfg costs) * (1 + profit/100)

Putting fudge factors in that double expenses or income will really blow your model out of the water.  There has to be an element of reality to your plan. 

Your costs don't have to be to the penny.  I've put some plans out that measured everything in board feet and used an annual production number.  You can run that back to a daily number, as long as each day's production is pretty representative.  For management purposes, I have even looked at the costs per minute.  It usually opens up some eyes when you tell a mill owner how much it costs to do a certain operation.

Never under estimate the power of stupid people in large groups.

dad2nine

I should have provided an example. Lets say we are looking at a grade 1 or 2 oak log and for grins lets say it's .50 a BF  or 500.00 MBF delivered. Lets also say I'm going to charge .50 a BF to QS the logs into lumber. At this point this is all just an example, I'm trying to get a feel from you all if I'm way off base or somewhere in the ball park. I haven't factored in a delivery charge yet, but that's usually a separate bill Item.

Green Lumber ($500.00 MBF on the log and .50 a BF to QS)
(BF Log cost * 2) + (sawcharge)
.50 * 2 = 1.00 + .50 = $1.50
So if I were going to sell it green it would be $1.50 a BF or $1500.00 MBF

KD rough cut (kiln charge .70 a BF)
(BF Log cost * 2) + (sawcharge) + (KD charge * 2)
(.50 * 2 ) + (.50) + (.70 *2) = $2.90 a BF or $2900.00 MBF

S2S and Straight Line Rip. Lets estimate .20 a BF for planing (S2S) and .15 a BF for staright line rip
(BF Log cost * 2) + (sawcharge) + (KD charge * 2) + (S2S charge *2) + (straight line rip charge * 2)
(.50 * 2 ) + (.50) + (.70 * 2) + (.20 * 2) + (.15 * 2) = $3.60 a BF or $3600.00 MBF

This is pretty dog gone close to what a retailer would pay isn't it? I look at retail prices, knowing they are on a 33%, %50 or %100 profit margin and try to work my way backwards. I know what grade logs cost from a logging outfit, I know what a piece of lumber sells for on the street and I know what I need to saw the logs into lumber. 

I don't grade my lumber, other than being a sudo woodworker, if I wouldn't use the lumber myself I toss it in the slab pile. The rest goes in the for sale pile, I think this is called mill select but can't be for sure. I have very little waste since I'm buying 3 or 4 clear face forest logs from logging outfits.

Just trying to figure out a simple business model, a guy like me needs simple. At this stage of the game, I would rather try and keep the blade in the log and lumber out the door than have to be concerned with all kinds of fancy models.

Thanks

Larry

You can get a good estimate on wholesale market prices from the Hardwood Market Report if your willing to pay the subscription price.

From your pricing model the processing costs are all too high...especially the kiln drying, at least in my part of the woods.
Larry, making useful and beautiful things out of the most environmental friendly material on the planet.

We need to insure our customers understand the importance of our craft.

dad2nine

Larry thanks...

Do you have another model that you use? I'm way open to suggestions, I be a green horn, ya know?


customsawyer

If you can get that much for kiln drying the wood I think I would sell the mill and build a kiln. ;D
Two LT70s, Nyle L200 kiln, 4 head Pinheiro planer, 30" double surface Cantek planer, Lucas dedicated slabber, Slabmizer, and enough rolling stock and chainsaws to keep it all running.
www.thecustomsawyer.com

maineframer

I am not sure what model they use but I have dealt with a lot of local sawyers and it seems  to go like this----- Log price 260/1000      Green lumber 500-550/1000
                            Log price 400/1000      Green lumber 750/1000
We can have our beams/boards planed for .12/.15 cents/BF
My .02 cents.

David
David

scsmith42

Re the KD wood prices, I'm the guilty party.  Keep in mind that Jeff is referencing the costs associated with slow drying species such as oak and sycamore.

Here's the numbers:  I've got over 20K invested in my kiln setup, including the Kil-mo-trol plus control system.  Then there's the 60K investment in the equipment to move the large piles of lumber around.  If you look at a 5 year ROI, depreciation, utility costs, labor costs to load/unload and baffle(two men 1/2 day minimum for 1K - 2K bd ft), 15 minutes or so per day of time checking on the load (that adds up to five and a half hours or so of my time during a single load), maintenance costs on the equipment (one controller for my unit is $500.00 and I've had to replace two in the past 4 years) plus a modest amount of profit, .70 bd ft is pretty reasonable.  Especially when my goal is to produce the highest quality furniture grade lumber possible, (not the fastest drying,) which means that my crew is taking their time when stacking and stickering to ensure that the placement is accurate.

I did some research a while back on KD prices, and found that they ran anywhere between .25 to 1.00 a bd ft for 4/4.  Gene Wengert had some pretty insightful information that I turned up; basically he said that you needed to charge 25.00 per day per 1000 bd ft to cover costs and make a reasonable profit.  That seemed pretty reasonable to me considering the numbers that I've seen associated with my operation.  Also, when I built the kiln a common statement was that there is more profit to be made in post milling (ie drying and post-processing) than milling, which also makes sense.

I know that there are a lot of folks who charge less than I do for kiln drying, and a few that charge more.  I'm comfortable with what I charge and the profit that I make (and it's not much considering the aforementioned costs), and the quality of the product that I produce.

Scott
Peterson 10" WPF with 65' of track
Smith - Gallagher dedicated slabber
Tom's 3638D Baker band mill
and a mix of log handling heavy equipment.

dad2nine

Scott a guy pays about the same either way, one way of looking at it is - find the low baller and use him for kiln drying, eat the cull because he did a  p i s s  poor job or find someone who charges a little more, takes his time, does a great job - resulting in next to no cull. You don't need to justify to me, I already know how good of a job you do drying my lumber. I take the lumber right from your kiln to the customers who buy it. Would I do that with someone else? doubt it, I would need to sort through and pull out the cull first...

ME DON'T LIKE CULL  >:(

dad2nine

Quote from: maineframer on September 11, 2007, 09:11:24 PM
I am not sure what model they use but I have dealt with a lot of local sawyers and it seems  to go like this----- Log price 260/1000      Green lumber 500-550/1000
                            Log price 400/1000      Green lumber 750/1000
We can have our beams/boards planed for .12/.15 cents/BF
My .02 cents.

David

Interesting... so they sell green lumber for about 2 times what it costs for the logs.

Ron Wenrich

Those prices you are looking at are very misleading.  Those green prices are for 1 Com and better.  I don't see where there are any prices made for blocking.  Blocking prices are right around $350 right now.  On some logs, that's where a good deal of the volume goes to.  Believe me when I tell you that mills are not doubling their sawlog prices into lumber prices.

You might want to see what some of the industry averages are at.  Your competition isn't only the retail outlet, its the other guys doing the work on a daily basis.  Retail outlets only sell the upper quality of woods.  The lowers have been culled out.  They have been sold at wholesale prices.  You have to average all those prices together to come up with some realistic idea of any type of business plan.

You have to sit down and crunch the numbers.  If you're unwilling to do that, then you're just shooting in the dark.

$25/Mbf/day would yield a cost of $9125/yr.  Does that include the price of energy or is that simply a carrying cost?  Does that revolve around kiln capacity, yard capacity or production rates? 
Never under estimate the power of stupid people in large groups.

Norm

If I was kiln drying green off the deck lumber I'd charge along the lines of what Scott does. When I had my kiln running I'd air dry first to save money but the degrade went way up especially in the oaks. I never did a comparison but would be willing to bet that it's money well spent to send it to someone that knows kiln drying and has invested the time and money to be a professional at it such as Scott has.

Dad2nine one of the things I've thought about doing to use up the lower grades is to make flooring. I have seen some pretty good money made in rustic flooring if you're in the right area of the country. I see you're qs'ing the oaks too, good idea. I can almost name my price for the thicker qs wo and the red oak qs sells much better and the grades don't seem so important to the woodworkers that buy it.

This has been an interesting thread, thanks.

dad2nine

Quote from: Ron Wenrich on September 12, 2007, 05:59:09 AM
Those prices you are looking at are very misleading.  Those green prices are for 1 Com and better.  I don't see where there are any prices made for blocking.  Blocking prices are right around $350 right now.  On some logs, that's where a good deal of the volume goes to.  Believe me when I tell you that mills are not doubling their sawlog prices into lumber prices.

You might want to see what some of the industry averages are at.  Your competition isn't only the retail outlet, its the other guys doing the work on a daily basis.  Retail outlets only sell the upper quality of woods.  The lowers have been culled out.  They have been sold at wholesale prices.  You have to average all those prices together to come up with some realistic idea of any type of business plan.

You have to sit down and crunch the numbers.  If you're unwilling to do that, then you're just shooting in the dark.

$25/Mbf/day would yield a cost of $9125/yr.  Does that include the price of energy or is that simply a carrying cost?  Does that revolve around kiln capacity, yard capacity or production rates? 

Ron, I've got a lot to learn and I really appreciate your responses, they are making me think about things I've not thought about before. I'm really not interested in sawing out blocks or pallet cants. I guess the way I'm looking at it is why even bring low grade logs into the yard? Why not just spend a little more and get grade 1 and 2 log then when you put the blade in the log you can be pretty confident good lumber will fall off... 

Thanks

Furby

But even grade 1 and 2 logs have a low grade center. ;)

dad2nine

Quote from: Furby on September 12, 2007, 03:17:34 PM
But even grade 1 and 2 logs have a low grade center. ;)

yeah nothing is perfect in life is it?

Thank You Sponsors!