Official Luthiers Forum!

I've been thinking about pricing and terms strategies for independent luthiers some lately. My interest arises from my business, of course, but I think the topic is relevant to everyone and worthwhile.


If there's a standard pricing/terms strategy in the custom guitar world, I'd say it's 10-20% down up front and the rest due when the guitar's finished. That helps cover materials costs, helps keep money coming in all the time, and helps (if a non-refundable deposit condition is set up) ensure that your buyer intends to complete the purchase. Pricing is all over the place, but around $2k seems to be about as low as most established builders are willing to go on an instrument.

There are some drawbacks to this approach, however. If you're getting a steady trickle of deposits but only finishing a small number of guitars each month, a problem with any one of them(guitar is refused, shipping damage, etc.) can really crush your finances for the month. Your income isn't necessarily going to increase the next month, so if you've had to overextend to pay the bills one time it may be a while before you can get that new debt resolved.

Another issue is that many luthiers find themselves in the awkward position of needing to charge more for their guitars but realizing that they're going to cut out a large segment of the "players" crowd and move into the "collectors" crowd...often a sound business move, but not always a personally rewarding one.


This isn't earthshattering, by any means, but here's my proposal.

Why not offer two prices for guitars, one based on the "10%-20% down and the rest at completion" system and a lower one for cash up front? As long as you're responsible with your spending, a bird in the hand is worth two in the bush. Having that $2000 in your pocket on January 1, 2007 for a guitar that will be delivered on January 1, 2008 could mean a nice $150+ in interest through investment, allows for a "bad month" reserve to be built up, etc. Having more cash on hand allows you to stockpile materials when they're available at good prices and allows you to buy in greater bulk, lowering your costs. If you've got a prospective client who's struggling with the price, that $100 (or whatever it is) off might go a long way.

Having all of the $ up front obviously all-but-elminates the chance that somebody's going to back out on the deal. And there's a financial incentive in place for people to go that route, but no "penalty" if they don't - it's just that they pay your regular price.


I'm not building guitars for a living and may either be stating the obvious or missing the obvious, so feel free to contribute your thoughts.

My conclusion at present is that I could make my services as a dealer more worthwhile for luthiers if I were to always pay my discounted price up front, which may or may not prove to be the case.

Andrew

Andrew, it makes sence some....
In my personal experience, a lot of my customers order a guitar because they can afford the deposit and the few months to come while the guitar is beeing built they save the rest for the final payment. I feel its harder for someone to let go of a lump sum and still have to wait for the whole building process before taking delivery.

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Peter M.
Cornerstone Guitars
http://www.cornerstoneukes.com

Yeah there are some interesting points here, most definitely. Musicians are more likely to be the deposit crowd, and are also the ppl Im certain most luthiers would prefer to build for - Im interested to see where this conversation goes.
Cheers
Charliewood

First off I think if you investigate deeply, you will find that most custom build luthiers require much more than 10-20% down. More like 50-75% and even a bunch of renown luthiers require 100% down. I require 75%down, but do offer a prorated return of deposit if order is canceled. Thee reason I require a large deposit is I want the client to be as committed to the build as I am. in the early days of building for commission I only charged 20% down. I got several orders in and mostly built when the clients decided to back out. I found my self with guitars with custom woods and inlays that were not easy to retrofit or sale quickly.

Since requiring a 75% up front deposit to get on the build list I get just as may commissions as I ever did but I have only had to return deposits in two due to unexpected client family tragedies.

In my opinion there is a real need to keep the deposit high to weed out the clients that really can’t afford this quality of an instrument. That may sound mean. But in truth would we all not love to have high end custom built furnisher in our homes or shop? Well check out why high end furnisher builders require their money up front. It is the same reasons I do.

I believe with ime you would find you have many more orders that are canceled with low deposits than you will if the required deposit is high.

All this said I regularly work on a payment plan for my Student model guitars. If one of them is canceled then I can sell it pretty easy because they are basic with mahogany or IRW bodies and no custom features. But on Custom Deluxe builds you have to pay 75% up front and the remaining on delivery.
MichaelP39087.5785416667

[QUOTE=MichaelP] First off I think if you investigate deeply, you will find that most custom build luthiers require much more than 10-20% down. [/QUOTE]

You may well be right. FWIW, just checked Kevin Ryan and Jim Olson's sites. Ryan = $500 deposit, Olson = 25%.

$500 will not cover the materials let alone any labor, consumables or utilities. If you have a big stash this is not as big of an issue as it would be for me. Many of the custom builds I do have back, side and top sets that come to near $500

But Like I said my experience with low deposits was not near as positive in terms of client commitment as it is with high deposit.

I am not knocking your theory. I am just saying that my personal experience has been that the additional clients I got by having a low deposit had a much higher percentage of cancellations.

The aggravation of the cancellation in terms of what it does to my build schedule and planning is not worth it to me. (keep in mind I work a real job 8-10 hours a day, then put 3-4 hours a day into the luthierie on week days and 5-8 per day on weekends so mentally, time lost is an issue with me)
MichaelP39087.5947916667

hmmm....

First. The price you charge says a lot about your brand. You need to make sure the brand you want to project is in line with price. I think a lot of people overlook this. You can't sell a "premium" product and price it at the mid-point of the market... that sends mixed signals.   ... there are lots of ways price can get out of whack with the marketing, but that can be a whole separate discussion unto itself.

I think having a reasonably low deposit to place an order $500 - $750 that is 100% non-refundable makes it easy and not a painful decision for serious buyers to get on your waiting list. That isn't so much a "deposit" on the instrument as it is a marker to hold their place in line.

Once the build begins I think it is worthwhile to ask for a sizable portion of the build. 33%?

And the rest upon completion.

I don't think customers (on the whole) have so much of a problem coming up with the money as they want to keep you motivated, on schedule, and doing your best work. The money is their only leverage and this is what motivates them to pay in chunks.

However, I see no reason not to tell them that you are foregoing other revenue opportunities when they get in line and that you are ok with them cancelling their order but they lose their initial deposit.

And, if they cancel during the actual build process the balance of their monies paid will be refunded upon resale of the instrument. That way you are both partners until the transaction is finished.

I think if all of this is clear from the beginning most people will understand, and it is a fair way to both customer and luthier to work.

Brock Poling39088.0261574074

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

I kind of like Brocks approach. I may adopt it in the near future.

I truly believe that a substantial penalty for cancellation is fair and justified. I say this because I know I have lost commissions solely because I could not get to the perspective client as soon as they would like. So I figure that a cancellation in the schedule may very well cost me two clients. One that did not give me the order because I had a back log longer than they wanted and the one that took up that spot in the schedule then canceled.

I guess my wife is right. My middle name is Scruge
MichaelP39087.619224537

I like Brock's approach as well. I will charge 25% of my base price to put the person on the list and another 25% plus the charge for options when the build commences. This way I am not out of pocket for costly woods etc. The balance is due on delivery.

I just charge a flat 50% down and the other 50% on delivery. So far no one has complained about it.

If I made it any more complicated than that my feeble old brain wouldn't be able to keep track.

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Dave Rector
Rector Guitars

How about a buyer's perspective? I stumbled upon OLF a few months back when I was researching a Gibson AJ. I was ready to drop the $2k but I wanted to research other alternatives, and I'm glad I did! I wouldn't have a problem putting a deposit on a hand made guitar. I wouldn't even have a problem paying %75 if the luthier's reputation were on par with some I've seen here on the OLF. However, paying the full price upfront would not be an option for me. As Brock says it's the only leverage the buyer has.

I've got build fever now . So, that down payment has gone to WAS and TAS. One thing is for sure, my next guitar purchase will be from a luthier, not a factory.

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nay

My blogs
Hand Made Gutar
Woodworker++

[QUOTE=Hesh1956] Sorry but I have to disagree here…..

Success sells which I doubt if any one would dispute. A well known and highly successful builder will have less trouble, all other things being equal, selling their guitars.

Part of developing any brand is contributing to the perception that your brand (you) are a solid citizen, not a fly by night, and in this for the long haul.

To me providing a cash discount implies that the builder is perhaps not as successful financially with the business as they would wish to be…….. This in turn breeds fear, uncertainty, and doubt about that builder and perhaps even their commitment to lutherie for the long haul.

Exposing a prospective client to issues pertaining to a builder’s cash flow is unwise in my view.

Brock has nicely said that hand built guitar builders are selling romance. We all know all to well that romance can take time to develop as well……. No jokes please……

One of the most important things that a builder must learn to do is to separate the “suspects” from the “prospects” for the actual sale of their guitars. Who will really buy and complete a transaction and all the steps along the way and who is just wasting your time or not a prospect for you due to differences between what you offer and what they seek and/or can afford. Then there is the “flake” factor too and I am not intending to be unkind – just bringing up the reality that some people could care less about wasting your time……

This is why the deposit is important and in my view a non-refundable deposit is very important. The builder is a skilled artist and his/her time has value associated with it. The deposit does far more than hold your place in line it also reduces the builder’s personal financial risk in sourcing materials. In addition, the deposit is consideration in lieu of the “opportunity cost” that a particular client creates. If you have to tell a prospect that the delivery time is 12 months because you have promised a guitar to a client who has a deposit down this is the opportunity cost if you don’t end up selling to the prospect as a result of the wait.

Everything that a builder does must contribute to the real value of their brand and the instruments that they produce. Quality things have a price and at times a wait as well.

Hand made guitar builders need to drop the mindset that they must compete with the COTS (commercial off-the-shelf) guitar factories and realize that they, we, are indeed a far greater threat to the factories then they are to us. As evidenced by one after another Martin special edition or signature guitar and Taylor’s new hand built offerings. We have their attention and with good reason. Hand built guitars are clearly better and as such should cost more and will require a wait AND a deposit (non-refundable) to get one.

If hand built guitar builders do not represent our creations as the very special and rare instruments that they truly are we are destined to fail in the marketplace.

[/QUOTE]


I am not sure who you are disagreeing with. I agree with 90%+ of what you are saying.

Whereas I always try to focus on the parts where we agree rather than the parts where we don't I would like to make a couple of general comments. (I hope this doesn't pull us off the topic of pricing policies).

The one thing you said that I would be a little careful of though is saying that "hand built guitars are better" and perceiving that luthiers are a threat to factories.

I would phrase it as hand built guitars are different and built with an entirely different set of goals and objectives than factories. They are just different approaches to the market. And if you added up every guitar built by every luthier in North America I suspect we are not even a rounding error to the factories. That is ok with me. Our production is so low that all we need are a few customers a year to keep us going. It is kind of like Ferrari being a threat to Ford -- not really.Brock Poling39088.0246296296

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

Unless I'm missing something, no builder will ship a guitar to the client until payment has been received in full. So the leverage is actually lost before the most critical juncture - when the finished product is in your hands. It's at that point that the buyer will be either pleased or disappointed and at that point that the leverage would be most useful (i.e. this isn't up to my expectations, so I'm not willing to pay the full price for it).

Hesh, you may have a point. I'm viewing the cash discount idea as a win-win that could conceivably lead to a stronger business and more satisfied customers. Want to save $100 on the guitar you just committed to? Pay the money all up front. Don't care or can't afford to? Pay 10% now and the rest when it's done.

I wouldn't use two pricing policies. I think you will end up pulling all your hair out in frustration over that.

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

[QUOTE=harmonist34] Unless I'm missing something, no builder will ship a guitar to the client until payment has been received in full. So the leverage is actually lost before the most critical juncture - when the finished product is in your hands. It's at that point that the buyer will be either pleased or disappointed and at that point that the leverage would be most useful (i.e. this isn't up to my expectations, so I'm not willing to pay the full price for it).[/QUOTE]

I see your point, but there's also timeline leverage to consider. I realize the wait for a hand crafted guitar could be more than a year for an accomplished luthier. To me the remaining 25% is incentive for completion. Yeah, it may take a 18 months, but if all of the money was paid upfront would it take 24? I don't think anyone here at the OLF would conduct business like that, especially not purposefully. From what I've read most of you guys keep a very good schedule for your builds and stick to it. That is the leverage that I was thinking of. I've read the terms of service/contracts that most of the luthiers here have and they all seem to provide a clause for working out the "this is NOT what I wanted" issue.nathan c39087.6554513889

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nay

My blogs
Hand Made Gutar
Woodworker++

Agreed...two pricing policies is tough. I used to offer a discount in the neighborhood of 2% for an order paid in full up front. The problem is then you now have the stress of making a deadline and a customer who may be all over you to get it completed since they handed you all that cash up front. I never had a problem but there are certainly some potential issues.
Fortunately, the one person who availed themselves of that policy is reasonably happy with their guitar and the time frame to completion. Still, there were some hicups along the way which could have given him some stress.

The whole romance of working with a custom builder is that you get to see the progression of your build, and become a part of it. Money paid in full up front can create an anxiousness in the customer which can reflect negatively on the whole process. Make the whole event a nice progression, and the experience will be more rewarding in the long run to the customer, to you, and to your future business.
Don Williams39087.6637847222

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"I want to know what kind of pickups Vince Gill uses in his Tele, because if I had those, as good of a player as I am, I'm sure I could make it sound like that.
Only badly."

Hesh...correct. Money taken in advance of providing service is deferred, and if not in the same calendar year, probably should not strictly be booked as "revenue". It is a liability.

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"I want to know what kind of pickups Vince Gill uses in his Tele, because if I had those, as good of a player as I am, I'm sure I could make it sound like that.
Only badly."

I like Dave's approach best. Half now, half when it's done. Simple. As long as the initial 50% covers the cost of meterials, which it should, in my opinion. If not, you're not charging enough for your guitars...

Shane said it best. Why sell a custom hand made guitar for less than a good factory one?

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I'd like to be able to prove, just for once, that money wouldn't make me happy...

[QUOTE=Hesh1956] I think that you would agree with me that the successful factories are very “brand” savvy and pay big bucks to develop, maintain, and promote their respective brands. Is the “M” brand going to take it sitting down that a Ryan, Lowden, or Somogyi is perceived (and indeed is) as a better guitar then what they produce?[/QUOTE]

You and I are in 90something% agreement so don't take any of this as needling... just discussion of the fine points.

I do agree that the big manufacturers are very brand savvy, and I think they are losing sight of their brand by getting hung up on this "threat". For years guys like John D'Angelico, Jimmy D'Aquisto, etc. were producing guitars considered to be "better" than the production houses (yes, I know they are archtops, but the point remains). Most successful companies lose their way eventually and betray their brand and core values by thinking they can dominate every category they choose to get into.

My philosophy is stick to basics but be so freaking good at what you do that nobody can touch you.


...


With respect to the conversation about hand built guitars being better than production guitars. Again realize that the factories are not trying to build the best guitars on the market on an individual by indivual instrument basis, they are trying to build a great guitar consistantly day in and day out.

They build to engineering specs and when you shape every brace the same, thin every top to the same dimensions, and build each to a uniform specification the bell curve comes into play. Some guitars are going to suck, a lot are going to be pretty average, and a few guitars are going to peel your ears back with how good they are. It becomes about statistics.

If they can do that, maintain a great reputation and not be fussing with a lot of warranty work that is a "successful" business and a good model for them to follow.

We don't operate on those principles. We fuss with every brace, tap it, carve a little, sand and clean up every little spec of glue, try new things on every instrument, take lots of notes, and try to refine the craft. Our hope is to build the best instrument possible with EVERY instrument.

I am not arguing that a good luthier can't build a "better" guitar than a factory. I am saying that I think the comparison is perhaps a bit unfair. It is kind of like asking what is better, Boston Creme Pie or Deep Dish Pizza. Neither. It just depends on what you are in the mood for.

Personally, I think the production houses might as well be selling tangerines for how much they hurt us. We are selling a whole bunch more than a guitar.

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

[QUOTE=Don Williams] I used to offer a discount in the neighborhood of 2% for an order paid in full up front.

Fortunately, the one person who availed themselves of that policy is reasonably happy with their guitar and the time frame to completion. Still, there were some hicups along the way which could have given him some stress.

[/QUOTE]

Yeah, like having to ride that crummy train BACK to North Carolina from Rhode Island...that would have been a hiccup.      As it was my guitar rode in its own seat back on the airplane...but the wife had to take the bus. (heh heh)

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Eagles may soar, but weasels don't get sucked into jet engines.

[QUOTE=Hesh1956] Great post Brock and I completely agree.

[/QUOTE]

ohhhh, where is the fun in that?   

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Brock Poling
Columbus, Ohio
http://www.polingguitars.com

[QUOTE=Brock Poling] [QUOTE=Hesh1956] Great post Brock and I completely agree.

[/QUOTE]

ohhhh, where is the fun in that?    [/QUOTE]

Yeah! More arguments please!
That hardly stirred the pot at all...what's with all the niceness?   

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"I want to know what kind of pickups Vince Gill uses in his Tele, because if I had those, as good of a player as I am, I'm sure I could make it sound like that.
Only badly."