MONEY FROM STEEL
By: Jay Hisel, Owner, Big River Companies. Lansing, Iowa
Last Updated 01/26/2013
Chapter 1, What is Plasma
Chapter 2, The Business Plan
Chapter 3, Your Equipment
Chapter 4, Location, Location, Location
Chapter 5, Marketing
Chapter 6, Your Designs
Chapter 7, Copyright Laws
Chapter 8, Your Customer Base
Chapter 9, Accounting
Chapter 10, Insurance:
Chapter 11, Profits
Chapter 12, Employees
Chapter 13, Wholesale
Chapter 14, Consignment
Chapter 15, Shows and Flea Markets
Chapter 16, Credit Cards
Chapter 17, Custom Orders
Chapter 18, Offer some low priced product
Chapter 19, Pricing product
Chapter 20, Plasma Users Groups
Chapter 21, Final Thoughts
If you are reading this you are probably looking at buying, or have already purchased, a PlasmaCam or similar plasma cutting table. I am here to give you as much information as I can to help you make the right decisions and learn from my experiences and mistakes in business. Please keep in mind that these are my opinions based on my experiences and observations. I have over 25 years of machine shop, fabrication, engineering, mechanical design and quality control experience. Hopefully you can take away from this article some useful information to help you along your way. Your particular situation is unique and you should use this information as a reference source only. This information will be a work in process. I will add to it as things come to mind. Please check back often and see what's new.
But what is
One common description of plasma is that it is the fourth state of matter. We normally think of the three states of matter as solid, liquid and gas. For the most commonly known substance, water, these states are ice, water and steam. If you add heat energy, the ice
will change from a solid to a liquid, and if more heat is added, it will change to a gas (steam). When substantial heat is added to a gas, it will change from gas to plasma, the fourth state of matter. (Excerpt taken from Hypertherm's web site)
So plasma it is... But which one to buy? So many choices, in so many price ranges. More research needed to be done. What a great tool this internet stuff is. Research companies, find out information, chat with other users of the same equipment, find out the pros and cons of each machine. Time to make an educated decision.
I went with PlasmaCAM for a number of reasons: I liked the simplicity in design. Repair parts were available from more than one source. It had a very user friendly control program. I was able to import my .dxf files directly from AutoCad. I could use the hand held plasma cutter that I already owned. It was modular, meaning that if the computer went bad I replaced the computer and if the plasma power source died, I could have it repaired and use a loaner for a week. Best of all it was in my budget.
Getting your business up and running the right way...
The Business Plan:
When you are starting your own business you need a business plan. I don't care if it is a lemonade stand or a multi million dollar acquisition, you need to have a business plan if you want to be successful. A solid business plan will also be required if you are looking for financing. Even more important, your business plan forces you to look ahead and make a roadmap of where you want to take your business; how will you go about manufacturing and marketing your products to get where you want to be in 3 or 5 years. There are many software programs out there to help with this. I use "Business Plan Pro" by Palo Alto Software ( www.paloalto.com ). I refer to it often making changes as my business changes to help me plan for the future.
There is something magical that happens when you write things down. Things start to happen that pull you in the direction of your goals. You will start to notice little signs along your way to success telling you you're on the right path or if you need to make corrections. Be open to these signs and be flexible enough to allow for corrections in your plan.
If you are looking at buying a plasma cutting machine I can only tell you from personal experience that I like my PlasmaCAM. (www.plasmacam.com) It does what I want it to when I need it to and for the price you can't go wrong. A couple of years ago I traded in my 4 year old 98-Z for a new DHC model. This new model is far superior to the original 98-Z machine in rigidity, speed and overall design. They also made some nice changes in the software. I was able to get this new machine up and running in one day with only one call to George at PlasmaCAM. George had the answer to my problem figured out half way into my first sentence. (Certain Hypertherm PowerMax Models require a 33,000 ohm resister to be installed in the trigger wire). The video that is supplied with the machine is very detailed on how to assemble and setup your PlasmaCAM and also in wiring your plasma cutter to work properly with the digital height control. I am happy with my PlasmaCAM and I see now that an offshoot of their company has started to make a larger machine under the name of Samson CNC (www.samsoncnc.com). This new machine has a 5' x 10' cutting capacity and is going to be in my shop in the not to distant future.
I am sure that if you own another brand of cutter you will probably say the same thing about yours. The information that I am sharing with you can be just as useful with a brand other than PlasmaCAM.
The Plasma machine cannot perform cutting on its own. You will need a plasma cutter (I prefer Hypertherm www.hypertherm.com ), a computer (Dell is the only way to go in my opinion www.dell.com ) and a dry source of air. Do not skimp on your air compressor. The harder that a compressor has to work the more moisture that will be produced in the lines and the shorter the life of your already expensive consumables. Plan on also using some sort of air drying equipment used exclusively for the plasma cutter and as close as possible to the plasma machine. I use a desiccant dryer attached directly to my Hypertherm.
There are also some modifications that I made to my table that has made it more user friendly for me. The first thing I did was to build an extension onto the table to allow me to set full 4 x 8 sheets of steel onto it. I slide the sheets all the way onto the machine, cut what I need from a 4 x 4 area, do a "cutoff" (I have a simple line cut that I import into my drawings that will cut a 4 x 8 sheet of steel in half allowing me to easily get rid of the assortment that I just cut). This way I just slide the unused piece of 4 x 4 steel onto the table and work from that part of the sheet.
If you have done any plasma cutting before you know how much dust, smoke and noise is created, so the next modification was to make a water table with a drain in it which mounts below the grates of the machine. (**Some words of CAUTION on doing this: Make sure that you keep a few inches of space between the material you are cutting and the water surface. Cutting aluminum at or below the water's surface can produce highly flammable hydrogen). The water table not only cuts down on the smoke and dust, but also catches parts for you. After about 100 hours of cutting you will need to clean this out. Drain the water about 2 days before you need to clean it out; evaporation dries out the nasty mess that is left over. I don't mind doing this because that nasty mess is almost pure steel which gets recycled along with my other left over material. Please Note: You probably do not want to drain this liquid into your sewer system. Drain it onto an area of ground that you wont mind looking like rust. Other people have made downdraft tables that work well for them but the water table works best for me.
I also made racks attached to the legs under the machine to store steel before it is to be cut. I have 5 layers of racks and keep different gage material on each rack. The racks also keep your valuable floor space open for more equipment and also adds weight to make the machine very stable.
The last modification I made to my machine was to add a vent hood with curtains and a blower fan to exhaust smoke out through the roof of my shop. This combination gets rid of almost all of my problems with smoke and dust.
Cutting grinding and finishing simple silhouettes is one thing. Manufacturing products with many parts, welded components, bended areas and moving parts require more equipment. A good start would be: a small 110 volt MIG welder ( Miller www.millerwelds.com ), angle grinders for grinding slag and burrs, some type of bending machinery, and drill press with drills and countersinks. Other more specialized equipment can be purchased as you start to make money. A good source for some useful machinery is "Shop Outfitters" www.shopoutfitters.com . Another source to try is Eastwood Co. www.eastwood.com , they have hard to find sheet metal forming equipment and finishing supplies.
You also need to think about what kind of finish you want your parts to have. When I started out I was painting with cans of spray paint. This was fine for starters but I soon decided that something more professional was needed. With my experience in industry I knew that Powder Coating was what I was looking for. I started with a $75 powder coating kit and some powder from www.columbiacoatings.com . They are also all over Ebay (Search "powder coating"). I then picked up a broken electric kitchen stove that I still use today for curing small parts. Powder coating is an amazing process in which you can make your finished product look very professional without most of the problems associated with liquid paint. I do my powder coating in a separate room in my shop that has great lighting. I have a small paint booth to filter the overspray and a overhead lift on a track that runs to a larger electric infrared oven that I built myself. I have recently purchased a more expensive industrial powder coat spray system for my primary colors but still have 5 of the cheaper guns in service because I don't like taking the time to clean the guns between color changes. These cheaper guns work fine but I make modifications to them also. You will find that the trigger mechanism sticks. Take it apart and replace the spring with McMaster Carr www.mcmaster.com part #9657K77. Purchase a cheap air pressure regulator from www.columbiacoatings.com and attach it directly to the gun. You will then attach the moisture separator (that came with the gun) to the regulator and finally the air line to the moisture separator. Here again you will need a good source of dry air. For a while the foot control switch works fine but soon starts to malfunction. Replace the footswitch with a toggle switch directly at the power source. These are the only problems that I have found with these units and I still have the original unit that I purchased over 7 years ago. More information on powder coating can be found at http://www.pcoating.com .
Location, Location, Location:
If you are just starting out you will want to keep your overhead as low as possible. You will probably start as a part time business as I did and work your way up gaining experience as you go. It's possible that you may have room in your garage to set up your plasma table to get your business up and running. This may be a good start but keep in mind that you are going to quickly out grow a typical sized garage.
If you are thinking that you don't need a good location, that you are going to create a flashy web site and orders will roll in, think again. Try doing a search for metal art and see how many people are already doing that. Don't get me wrong, I have a web site and feel it is necessary part of my business and I do sell a fair amount of product through it, but certainly not enough to make a living on. More on web sites later.
As your business grows you will want to have a shop and showroom in a high traffic area. It works well to have your showroom attached to your shop so that people can see that everything is in fact made right there and not in China. Also don't make the mistake that just because you made it, people will buy it. You must have products to show people. Some will buy these standard products-- but the biggest secret is being able to do custom work for people. Get your business to the point of being able to make ANYTHING that your customers want. 65% of my business is custom orders, 30% comes from about 20 products that I have designed, tested and keep as standard items in my showroom. The other 5% are assorted miscellaneous items that I have in stock to give people ideas on what can be done. I will show you later how you can profit from my 30% and the countless hours that were spent designing, testing and manufacturing these products.
When my wife and I were looking at moving we were lucky to find a town that we liked, and that also offered the high traffic flow that a business needs.
01/01/07 ***As a note to the above statement. Because of our growing product line we have been forced to expand. We have recently built a new, larger shop building in a not so well traveled area. However we feel that we have developed good name recognition and trust in our community that will allow the business to grow despite it's location.
I have found that the most important marketing tool for me, is to market myself along with my business. You need to be a highly visible person in your community. I encourage you to join your local chamber of commerce, your volunteer fire department, city council, school board or any other active volunteer group. By becoming involved in your community you are not only more respected as a business owner, but you are also helping to improve your community, which in turn creates more business opportunities.
Get to know your local news paper reporters. They will come to you when they need a story. A great source of free advertising.
Get professional help with your business cards and brochures. They need to look professional and be of very high quality.
Traditional wisdom has told us to manufacture a product and market these products to the masses. This is totally the opposite of what you should be doing. You need to find out what your customers want and make it for them. In our area there are a lot of summer cabins so many of my products are directed to that market. It's also a great area for hunting and fishing so I have other products that are directed to wildlife and outdoor sporting enthusiasts. Marketing your products is much harder than manufacturing them I have found. Find the market first and make the products for that market second. I think you get the idea.
In my showroom I have a inexpensive computer that has all of the digital pictures of the orders that I have done. I run a continual slideshow of them for people to view--and they do. TAKE LOTS OF PICTURES of everything that you make. You can also use these on your web site or make a CD of images to send to prospective customers.
Ebay ( www.ebay.com ) and other online auctions can be a good source of extra income. They are also a good way of getting your products seen by a lot of potential customers. Once you have sold to someone on an auction site, ad them to your database of customers and include them in your marketing plan. Most auction sites have a way for you to receive and leave feedback for items that you have bought or sold. This feedback rating is a good measure of the character of the person or business you are dealing with. You can check mine out on Ebay. My Ebay ID is "bigriverforge".
I talked a little about web sites before and feel it is a must for my business. This may not be true for everyone but for me it is a valuable tool that I can refer to customers for purchasing products, see samples of my work, find directions and hours of operation, and contact information. I also have a page dedicated to customer designs on which I post their layouts for approval or changes. You can check out my web site at www.bigriverforge.com . I use Microsoft Front Page as my web site authoring program. ( www.microsoft.com/frontpage ) It's an easy to learn and powerful program.
Your Designs: ***VERY IMPORTANT***
You will eventually want to have a separate area for doing design work than the computer that runs the PlasmaCam. You will be spending countless hours designing and you will want to make it as comfortable for you as possible. If you will be in a separate office within your shop you can network the computers together so vital information does not need to be kept only on the shop computer. You could also transfer files by burning a floppy disk, CD or a USB removable storage device that is amazing and simple to use.
Your designs, not your equipment, will soon become your most valuable asset. As you build a database of designs you will remember projects that you have made in the past and use them to create future projects. You will need to organize these project files in your computer so that you can easily refer to them whenever you need to. A typical file structure for a customer might be like this: c:/BigRiverForge/Plasmacam/customers/smith,john/cabinsign.pcm . I keep all of the information for this project in this file including the original AutoCad .dwg file, the Corel Draw .cdr file, the .dxf file that was transferred to PlasmaCAM, the final .pcm file that PlasmaCAM creates, a word document if I've done a quote or made notes for the job and a digital picture or pictures of the finished project.
If its one of your products that you sell on a regular basis: c:/BigRiverForge/Plasmacam/products/(product category here)/(product description here).pcm . Example: c:/BigRiverForge/Plasmacam/products/birds/3dheron.pcm . Also include all of the above information in this file.
When you get ready to cut your parts you arrange them on your sheet of steel so that you get the maximum amount of product on a sheet as you can. Do not go crazy with this because your time is more valuable than spending 10 extra minutes trying to save 10 cents worth of material. These "assortments" as I call them need to be saved in a separate folder called "assortments". Organize them by material thickness and assortment number. Example c:/BigRiverForge/Plasmacam/assortments/1094_assortment_0156.pcm . The 1094 being the material thickness (in thousands of an inch, .1094" = 12 gage) and the 0156 assortment number (my 156th assortment in that thickness material. Doing it this way you wont have to worry about things getting out of order. Even your first assortment should be numbered in this way starting with assortment 0001. Be sure to use the 4 digits and you will be okay for 999 assortments. Get the idea? You also need to print out a paper copy of this assortment and keep them organized in three-ring binders for future reference. I refer to them often when I am trying to take up some extra room on a sheet so I can move it off of the table.
This is how I do it and it works well for me. It may sound like extra work and sometimes it is--but the future benefits of having this information organized is priceless.
When you are trying to develop some products get your thinking out of the 2 dimensional world. I sell a fair amount of silhouettes but most of my sales come from products that have 3 dimensional characteristics. Products that have some sort of function are much more likely to sell than items that are just decorative.
One thing you need to understand about plasma cutting is that it is not a cure all for everything. It has its limitations. It can not be expected to cut very intricate small detailed items like a laser. If you could afford a $250,000 laser machine you would need to do other things beside decorative ironwork to pay for it.
I have not had much luck cutting any font style either positive or negative under 1" in height. Some fonts work better than others at doing this but my rule has been to stay away from anything that is smaller than 1". Also designs that have many pierces take time and eat up consumables. Expect about 250-400 pierces per set of consumables. Also keep in mind that most letters require more than one pierce, especially if you are trying to do the negative image of it.
You will find that plasma shines when you are doing simple parts, or parts that do not require 100's of starting and stopping as in many, many pierces. Try to keep your designs simple and cost effective.
I use mainly three programs for producing my designs: AutoCad, CorelDRAW 12, and of course PlasmaCAM software. I also use Vextractor ( www.vextrasoft.com ) for bitmap to vector conversions and DeskEngrave ( www.desKAM.com ) for arc aligned text. The PlasmaCam program works well for preparing most images for cutting but you will soon find that you need a bit more power. CorelDRAW works great for importing clip art images and exporting them as .dxf files for use either with AutoCad or PlasmCam. For more detailed designs I start from scratch in AutoCad and import into it clip art as .dxf or .wmf files. The designs are then finished and saved as a .dxf file and imported into PlasmaCam for linking of the segments and creating cut paths. Again, it sounds like a lot of work but it gets much easier after you have done it for a while. Of course there are many ways of achieving the same results, but this is what works best for me.
For those that want to venture into the world of AutoCad, start with an entry level program such as AutoCad LT2005. This scaled down version of AutoCad is still much more than most of you will ever need. More information can be found at http://usa.autodesk.com/adsk/servlet/index?id=2498418&siteID=123112 . You can even download a 30 day free trial version of the software.
Become proficient in the use of the Windows Explorer program installed on every Windows based computer. It is the best way that I have found for organizing your files.
As I said before, your designs are your most valuable asset. Take care of them and do regular backups onto CD's, another computer or even onto the internet.
At last count I had 18,254 separate drawings from AutoCad saved to my computer and backed up on CD's that I keep in a safe spot far away from my main computer in case of a fire. In addition to that, I have over 3000 PlasmaCAM files from the past several years. All organized in a nice clean and easily understandable format. Try and place a value on that.
I do need to bring up a sticky issue here as far as copyrights go. Many clip art images are protected under copyright infringement laws. That means if you use an image in your designs and try to sell the finished product you might be opening yourself up to some litigation. Try to use images that are either:-- 1) Completely designed by you. 2) Images from royalty free sources. 3) Images from sources that have given you permission to use them. Simply changing some feature on an image may or may not protect you against a lawsuit. Do not produce products that are obviously in violation of laws such as a "Harley Davidson" sign or "Green Bay Packers" logo etc. etc... You need to decide what level of comfort lets you sleep at night. Indiscriminately manufacturing and marketing products such as these could result in repercussions for everyone who produces decorative ironwork. Please help keep us all in business.
Your Customer Base:
You need to know your customers and be on a first name basis with as many of them as you can. I have customers that may come to town only once a year but if I can remember them and call them by name I am sure to make a sale of some sort.
Having a free prize drawing is a great way to create a mailing list; have them fill out entry forms with their address, phone number and e-mail if you can. You can then add them to a separate file in your accounting software marked as potential customers. You may want to have two boxes for the entry forms so that if they happen to purchase something, their ticket goes into a separate box for customers. This can then be added into the software under a customer file. You also need to enter address information from any check that you receive into the customer file. Again this is more work but will pay off in the future. About every three months I send out information on a special or a sale that I am having to these customers. I sometimes extend a special unadvertised sale for past customers to let them know they are appreciated. Customers that have bought your products in the past are much more likely to buy from you again if they are satisfied and valued.
Always give a 100% money back guarantee on any and all products that you sell. This is a must and people will respect it. If you are doing your job right you won't have to worry about products coming back.
Having the e-mail address of your customers is a very inexpensive way to target them and keep your name in front of them. Be sure to have an option to "opt-out" of your e-mail list for those who don't want to be emailed.
I use QuickBooks basic edition by Intuit. ( www.quickbooks.com ). It is a easy to use program and is also the same program used by my accountant.
Look for an accountant that you trust. They will become a valuable source of tax and general business knowledge for you. If you're unsure of the best accounting software for you, ask for your accountant's recommendation.
You will most likely need to get a state sales tax number, a federal ID number and possibly a sellers permit from your local county or city.
Do not forget to charge local and state sales tax. You will need to pay this back to the government monthly, quarterly or yearly depending on your sales volume.
If you pay yourself or have employees you will need to hold back social security, FICA, and state and federal income taxes, and also unemployment insurance.
I automatically deposit 10% of my business income into a separate savings account to help me pay these expenses.
Insurance is a must not only for your building and equipment but also for liability. I use "The Hartford" (http://www.thehartford.com/). They have a plan that fits my business as a blacksmith and steel fabricator. You will have to decide on the amounts and limits that best suit your business and budget.
Invest as much of your profits back into the business as you can. At least 10% needs to go to back into updating and purchasing new equipment. As your capabilities grow, so will the variety of services that you offer to your customers. As you expand your capabilities more profits will be available for more/better equipment. More or better equipment means more sales. If you can stick to this 10% you can see that it is like compound interest in a savings account.
Try to avoid having employees as long as possible. At some point when you will feel that you need extra help, hire part time employees. Full time employees are a major step and should only be done when you are sure that the business can handle the extra burden. This full time person must be able to run the business and perform all of the shop duties without you being there, freeing you to concentrate more on running and marketing your business rather than doing all the work yourself.
I have a number of items that I sell to wholesale customers. It is a wonderful source of extra cash that repeats itself without you doing the selling. I have wholesale customers that place orders from me every year at about the same time. Be prepared to knock 40-50% off the retail price for your wholesale customers. The advantage is that they order multiple items. I have set a minimum dollar amount that they need to order at a time. If you are going to try to market on the internet be sure to target wholesale customers. You will not have to spend all of your time selling one item to one person... you will be selling dozens of items to one person at a discount. Remember that you still need to be able to make profit at this discounted price... If your not making money, why do it?
When I was first starting out I had a lot of product that I put into consignment shops. This did not work well for me. I was able to sell some products but the paperwork and trying to keep track of what sold (and what didn't) took way to much time. Also be prepared to give up anywhere from between 10-35% and possible space rental fees.
Shows and Flea Markets:
Try these-- depending on your products you may do very well. Rusty metal garden art does well at flea markets. More specialized shows such as "Rendezvous" and historic "Encampments" are good for selling products that are related to the type of show. You may consider hiring a part-time sales person exclusively for this purpose.
You must be able to accept credit cards. I find that about 30% of my customers pay with a credit card. It is also necessary if you want to do business over the internet and also to take orders over the phone. There are many companies that provide this service. I have been using "Merchant Solutions" ( www.merchante-solutions.com ). You'll have to either purchase or lease the credit card equipment. The processing company will take a small percentage of the transaction, depositing the remaining funds directly to your bank account.
As you read earlier, you must have the ability and the equipment available to do custom work. Being able to do custom work allows you to tap the minds of all of your customers for new product ideas. Some of my best selling products came from my customer's ideas. I try to refrain from taking money up front for custom work. My customers respect this and I don't feel as pressured to get the order done as quickly. Some of my customers wait as long as a year for an order. Some need things done in a day. You need to decide what you can handle and what can wait. Be honest with your customers about how long the process might take.
Offer some low priced product:
Have at least a couple objects that you can sell for about $5.00. You are not trying to make money on these. It is a way for your customers to remember you every time they see or use the object. Key chains work great for this as the see it many times a day. One of my key chains is a small fish that gets cut, drilled, cleaned and powder coated.
This can be tricky. You want to be able to get top dollar for your products but you also don't want to over price them. I usually start high and lower the price until a product starts to sell. I have some products that take me 10 minutes to make that sell for $100 and some products that take and hour that I can't seem to get $10 for. You need to decide what labor rate works for you depending on your overhead. As a general rule of thumb in industry you need to be charging a labor rate of three times wages. Example: If you have an employee that gets paid $12 per hour, you need to be getting at least $36 per hour for his or her labor plus material cost. This covers all of your overhead such as rent, insurance, his/her wage plus benefits, electricity, heat, machinery payments etc. and about a 10% profit margin for yourself as owner.
Another rule that I find is fairly accurate is to charge by the sheet. Example: The products that are cut from a 4' x 8' sheet need to retail for a minimum of $400 plus the material cost. This can vary of course depending on the intricacy of the parts being manufactured but it is a good place to start.
Plasma Users Groups
Another valuable source of information is the many users groups available to you through Yahoo. I know of three dedicated to just PlasmaCAM users. ( http://groups.yahoo.com/group/PIGINFO/ ) ( http://groups.yahoo.com/group/PlasmaCAM_TechTalk/ ) ( http://groups.yahoo.com/group/PlasmaCAM_User_Group/ ). There are also groups for other brands of machines and groups for plasma cutting in general ( http://groups.yahoo.com/group/plasmacutting/ ).
I hope that the information that you just read will help you to make your decision on going into business for yourself a little easier. You never know what will happen until you try. At the end of my life I want to look back never having to wonder what if. What if I took a chance? Would my life had ended up any different? It is better to have tried and failed than to not have tried at all. When you make a mistake, learn from it and try not to repeat it.
If you would like more information on Big River Forge & Ironworks, please drop us a line and be sure to check out our web site below.
Check out our Home Page here... or email us at this link...
If you are looking to jump start your business or need that extra idea to get things started on the right track
please click here to find out how I can help you more...
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Thanks, and may the future be yours...
Big River Companies
1828 State Hwy 9
Lansing, Iowa 52151