Make or Buy: Sheds and Canopies

Today it is possible to search the internet and get the prices of sheds and canopies (carports and verandahs). But it is equally possible to search hardware stores and get the price of stock materials. If you are a do-it-your selfer (DIYer), then you can fabricate and construct (install) yourself if get the stock materials and achieve a significant saving over the kit prices. Unfortunately it isn’t as simple as determining the cost of the stock materials and comparing against the price of kits.

Basic costs involved are:

  1. Design & Documentation (D&D)
  2. Development Approval
  3. Stock Materials
  4. Fabrication (workshop)
  5. Transport
  6. Construction (on site)

A rough rule of thumb across various manufacturing organisations is that labour is about 2/3rds the total cost, or materials 1/3rd. In similar manner if search the internet there are various websites offering pricing advice for new businesses. One common rule is to multiply the cost of goods sold, or desired wage, by a factor of 3. So for example if as an employee normally get $20/hr and want to go freelance then would charge $60/h for your service and this would hopefully cover operating expenses. Similarly if we are a retailer and buy some widget for $20 then we would sell it for $60 to cover the operating expenses of the retail store. However to ensure that the fee is not too high or too low it is preferable to work out actual operating costs.

However what this simple rule suggests is that if we find a shed/canopy for $600, then there is a good chance that the stock materials will only cost $200, so if we can provide all the labour for fabrication and construction then we achieve a $400 saving.

Design Costs more than the Building

The problem is we need development approval and that requires drawings and structural calculations. The design and documentation (D&D) can be split into:

  1. Building Design ($900 to $1500)
  2. Structural Design (drawings & calculations) ($700 to $1500)
  3. Workshop Detailing ($900 to $2000)

The complete documentation will then have a price range from $2500 to $5000. This price does not reduce with the size of the building, the price only changes with the complexity of the building: that is expect the price to get higher not lower. The price does not decrease, because a building has the same basic components no matter how small it is, and all these components have to be specified and checked for suitability. If the building increases in size, then it generally does so by increasing the repetition of basic components, and if a component has repeated use it only needs checking once.

So the problem is small things can have design and documentation costs which far exceed the cost of the item. For example, hand operated power tools may be developed over 5 years, and cost a few hundred thousand to design, develop and test. Not only design the product but also all the associated production line and tooling. Such investment wouldn’t be worthwhile if only making one such item.

News and advertising has generally provided the following information about GMH:

  1. Billion Dollar Baby
  2. Annual Production Capacity 100,000

So if research design and development (RD&D) cost 1 billion dollars, and the economic life of a single design is 5 years. Then they have 500,000 vehicles to sell to recover the cost of the RD&D. That is around $2000 per vehicle, on a $30,000 to $60,000 vehicle this is not unreasonable. As an individual you don’t choose a custom designed vehicle if the design and development is going to cost you $1 billion dollars. The same goes for buildings, the cost of small buildings needs to be distributed across the sales of multiple units.

Small Buildings (Calculations Only)

Now if the building and structure is simple then the building design and structural design and workshop detailing can all be provided on one set of drawings. Further more the drawings can be freehand sketches. Though for development approval may require more formal drawings produced to scale. However, for specifying materials and quantities so that can then price up stock materials, freehand sketches are adequate. Also from observation around the built environment probably got a rough idea of the size of structural elements required. For example size of timbers, size of c-sections and size of bolts.

The one thing that the builder, installer or DIYer is unlikely to be able to do themselves is the structural calculations. For a simple building the structural calculations require at the very minimum a 2 year qualified engineering associate, if it is somehow unusual then it may require the services of a 4 year qualified engineer. In the main however the structural calculations required are routine. {NB: Engineering proper occurs when there is no prior art and there is no established body of technical science.}

To get routine structural calculations without any structural drawings, the minimum fee (ignoring Taxes) is likely around $500. As a standard design, then indicative drawings would be required and fee likely closer to $700.

So now have a comparison, a $600 kit shed, versus $200 for materials and $500 for D&D. Instead of saving $400, it costs an extra $100, for the DIYer, its a poor choice. But for the small builder (licensed) or installer, there is benefit in the standard design, they have more than one project involving the same building type.

Even if the installer only has 2 projects, then the cost of D&D per project is $700/2=$350, added to the $200 cost of materials, to give cost of $550. Whilst this is a small saving, it is otherwise profit to the installer as the market price is set by the available kit sheds at $600. Added to the kit fee is the installation fee. The installer has incentive to increase sales of sheds based on the one standard design they have. If they sell 10 sheds in first year of operation then D&D is $70/unit, so costs are $270/unit and saving/profit is $330/unit. After the first year the costs are recovered, and only have $200 of materials per unit. Assuming the calculations hold valid for 5 years, and can sell at least 10 units per year, then D&D can be distributed across sale of 50 units, to give $700/50=$14 per unit.

So main issue for installer is the cash flow and having the $500 to get started, and knowing which size shed for which to get a standard design. The basic answer to that would be the size that matches the shed kit with the highest demand. The more complicated answer would be based on total demand for each size, and determining which would reap the greater profit if had own standard design. It requires the business has been operating for long enough to get some decent statistics about their market demand.

Certificates of Structural Adequacy

Maybe thinking but what about certificates of structural adequacy from say $55 to $110. The problem with certificates is it does not remove the need for calculations, it just replaces the report containing the detailed calculations with a summary. Time still has to be spent on the calculations.

However if the structural form is common and the structure is small, then chances are the smallest available structural section is adequate. The structural designer (“engineer”) only has to have done the calculations once, and they distribute the cost across multiple projects. Thus they only have to charge for the effort of looking at the project specific drawings and written specifications and checking that is adequate relative to their standard designs. They may also have computer programs which aid in quickly checking common structural forms and uses. But not all structural designers do, and therefore the cost of the certificate may stay up around $500 as for the calculations.

Now a project specific certificate is not likely to drop less than $55, whilst the distributed costs of a standard design can drop to less than $1 per unit sold. However, for a DIYer the certificate of structural adequacy can make the DIY path viable compared to the need for calculations.

The problem is design consultancies having the incentive to produce standard designs, and for DIYer’s sticking to the constraints of the standard designs. The need therefore changes into one of standard drawings and specifications, which have already been certified.

Standard Specifications (off-the-shelf)

Therefore would expect that standard off-the-shelf specifications contain:

  1. Building Design Drawings
  2. Structural Drawings
  3. Workshop Details
  4. A certificate or structural calculations

Whether contains certificate or structural calculations, still expect that calculations would have been completed, and therefore the cost remains. So as mentioned above have a minimum cost to produce being from $2500 to $5000. Again assuming that life of the specifications is 5 years, due to need to revise comply with revised standards. then costs recovered at the rate of $500 to $1000 each year. Then assuming will be lucky to sell at least 10 items each year then minimum sale price would be from $50 to $100.

So standard specifications would increase the viability of the DIY market for the smaller buildings. Standard specifications would also help small builders and installers.

Small Business: Market

A quick search of the internet, indicates can get small garden locker type sheds for less than $200, whilst can get larger sheds/buildings for up to $40,000. Above this price likely to have to make an enquiry and get a quote, and get custom design.

So given that the $5000 for D&D is not going to decrease, the next issue is when is it likely to increase? Well for large projects, fees are typically charged at a percentage fee. As to what is a reasonable percentage that appears to be a continuing debate amongst architects and engineers. Looking at from another side, most hi-tech companies invest from 5% to 25% of their annual revenue in research design and development (RD&D) of their products. Consulting fees for construction projects are typically less than 5%, and frequently less than 1%. A look around the internet will see some architects charging fees of 21% or so for small buildings, such as houses, but much smaller percentage fees for commercial buildings.

So basically $5000 is the minimum fee and 1% to %25 is the upper fee. So if total cost of building (materials, fabrication,construction) is over $20,000 then percentage fees likely to start coming into play. With $5000 for D&D at 5% of total building cost, then the building would cost $100,000, whilst at 1% it would be $500,000. In both cases the $5000 seems inadequate, and D&D around 10% seems more reasonable. However it would depend on the structural form, and any other works. For example larger buildings involve earthworks and need to consider site storm water drainage, and there may also be mechanical services, electrical services and plumbing to consider.

Small Business: Installer

As a small one person operation don’t want to deal with large projects which require more than one person for handling and installing. May occasionally employ an assistant to give an helping hand.

The business being considered here is also that of installer, which maybe carried out by home handyman without need of a builders license depending on value of the work. The limit used to be maximum of $5000, but I believe its been changed. The small claims court has an upper limit of $12,000, so that is another useful constraint on project value.

So looking on Bunnings website for example can get a shed 7 m wide x 14 m long, with a 3.02 m ridge for $11,699, the price appears to include delivery. Our proposed installer business therefore has to add installation fee on top of this, which is likely to push the fee over the $12000 limit. But maybe the installer doesn’t buy the shed, the owner does and so the installer just turns up, installs and charges for installation only.

But what is the installation fee? The rule of 3 seems unreasonable, if labour is 2/3rd of the price then materials is 1/3rd therefore labour is 1.5 times the shed kit: $17,548.50. Which seems unreasonable for meccano set assembly.

Most sheds/canopies are set out on a 3m grid, because the cladding rails typically used have a maximum span of 3m. So on length of 14m, expect around 5 frames at around 2.8 metre centres. Cladding is typically less than 1m wide, say 0.75m so need about 19 sheets in length, on 4 surfaces, so around 76 sheets to install. Estimate say 5 minutes per sheet, say 6.5 hours, and estimate 1 hour per frame, so about 5 hours for all frames. Then there are cladding rails and bracings and other items to install. So estimate about 20 hours total install time.

Typical trade at $100/hour charge out gives $2000 installation fee. Though the tooling requirement for operating such a business are low, and doesn’t really require any qualified trade. So low rate of $25/hour may be more reasonable which would drop installation fee down to $500.

The plan area of the shed 7×14=98 sq.m. So the installation fee can be converted into area rates of $500/98=$5.10 sq.m to $2000/98=$20.41 sq.m. Or percentage rates 4.27% to 17.1% of the building price.

We can also determine that the fabricated cost of the materials is $11699/98=$119.38 sq.m. So if we want to increase the area of the shed we can estimate its cost. Alternatively $11699/14=$835.64 per linear metre, so if simply want to make longer we can estimate its cost.

Now if an installer wants to avoid buying such kit they would have to go somewhere like: stratco or apex steel (metal as anything), bargain steel centre, to buy the materials. These places would have to bundle all the required materials onto a pallet, and that raises the question how would this differ from the kits they also supply?

When they supply kits then chances are end plates are welded to columns and rafters. If you buy stock materials then you will have to cut and weld yourself. If shed uses sheet metal brackets for its connections, then chances are that the shed supplier does not fabricate these brackets in house, they are bought. Further if everything is tekscrewed together then there are no holes to drill. Putting your bundle of materials together probably cost more in handling than the kit shed which is already bundled and ready to ship. Which raises the question of why are the kits they sell far greater in price than your bundle of materials, when the kit clearly has no added value? {There is value in terms of they already know what to put in the bundle whilst the DIYer has to find that out.}

The fundamental reason the cold-formed steel shed/canopy industry exists in the first place is all a supplier needs to do, is fill in some punching sheets and send of to a roll-former, order the materials and have them delivered to site. The builder then turns up and installs. The supplier needs little more than a phone as all they are basically doing is organising delivery of material. The more complicated the structure, the more time is required to workout the material purchase order, and maybe some additional fabrication is required to materials have to be routed to other places and then bundled for delivery to site.

Custom Design

This is where the suppliers get into trouble. They do not employ architects or engineers, but promote the idea they can custom design and fabricate. They have no ability what so ever to design, and they do not have the facility to fabricate anything. These suppliers are not general steel fabricators. But these suppliers are also not specialists. If they were specialists they would supply faster and provide over all higher quality of product and service. But at this point in time, people are better of going through architects and general steel fabricators for higher quality: though likely take a lot longer.

The basic problem with the shed/canopy suppliers whether using cold-formed steel or timber, is the suppliers don’t know their limitations.

For our hypothetical business the limitations are the sheds/canopies which can be bought in kit form. The business sells and installs sheds they can buy in off-the-shelf kits only, they do not custom design the sheds.

To provide custom design they need someone who can produce structural calculations in a reasonable time frame. There is a point at which reviewing building design drawings or freehand sketches becomes unproductive and producing separate structural drawings to specify structural requirements is preferable. So installer business cannot stay using freehand sketches indefinitely, at some point they have to produce formal more readable drawings. Further more the $500 cost of calculations will increase to $1500 or more.

Also whilst freehand sketches may work for most of the drawings at some point formal workshop details will be necessary to get part dimensions correct. So the $2000 or more workshop detailing cost will kick in.

So if building costs upwards of $20,000, then expect to start paying upwards of $5,000 for design and documentation (D&D).


… to be continued …


Notes:

  1. Businesses I mention are not recommendations and nor do I get payment from them.

Revisions:

  1. [06/09/2020] : Original
  2. [08/09/2020] : Minor Edits and added extra headings