Turning Waste Wood into Profit

One of the most common ways mills and custom-wood-product manufacturers turn their wastes and scraps into a profit is by turning those scraps into shavings for sale as animal bedding or landscaping ground coverage.

This can be accomplished in either of two ways - in house or by selling (or giving) the scraps to someone else who turns them into shavings. Not only is there a value on the top line through the sale of the shavings but also to the bottom line because typically a disposal fee is required to get rid of those scraps. Here, we will discuss the benefits and risks of operating a shaving mill in-house.

Let's take a quick and simplified look at running a shaving mill. The basic requirements are:

• Shaving mill
• electricity source to run the mill (they require immense power)
• labor to run said shaving mill
• marketing of the shavings
• bags for shavings
• enough wastes to necessitate a shaving mill

Shaving mills are NOT cheap machines. This factor alone makes the entire venture questionable. The fixed cost required to even begin shaving wood wastes in-house can start from $10,000 (if you find a decent working used mill at a great price) to $100,000 for a new high-capacity shaver with a loading mechanism. You can easily spend more money but for the sake of this, we will stick to a $50,000 machine.

In my experience, you will spend additional money setting the mill up with electricity - running lines, transformers, and breaker boxes that can manage the huge draw a mill can put on the current electrical system at your location. A generator could be used but who wants another machine to maintain? Besides, you have to feed generators. Let's price this ordeal at $5,000. The monthly electricty bill for running the shaving mill 40 hours per week is $300 (this is cheap), which comes to $3,600 per year or $10,800 over three years.

Now, we have a shaving mill and electricity to power it. All we need to start making shavings is waste materials (logs, tree cuts, or blocks or scraps of wood - and they MUST be untreated) and labor to load the machine and keep it in operation. For the sake of argument, let's drop the problem of having enough scraps and say that we DO have enough scraps to run this machine non-stop five days a week for the next one hundred fifty-six weeks (three years).

Now we need labor. Let's say one person run constantly for 40 hours per week. The work costs the company $10 per hour after benefits and labor taxes. This is cheap labor, by the way, but the point of this discussion is a simplified analysis. At $10 per hour, 40 hours per week equals $400 per week, times 52 weeks per year equals $20,800 per year. Over three years, this yearly salary comes to $62,400.

Let's get to the production numbers, which brings up the number of bags we need. Let's assume, one person running the mill can shave and fill 80 50lb bags of shavings each day - this is pretty great production from one person. Either way, we need 80 big clear plastic bags each day at a cost of about 40 cents each which comes to $32 per day. Over a five day week, this equals $160 and over a 52 week year it equals $8,320. Over three years, this will come to $24,960.

To recap: We can now make and bag shavings. The variable costs per year will be $3,600 (elec.) + $20,800 (cheap labor) + $8,320 (bags) for a total of $32,720 in variable costs. This does not include admin costs, returns, gas for forklifts or other equipment used to help operate the mill. It also does not include maintenance costs or other unforeseeable costs that might arise.

$32,720 per year in variable costs.

At $3.00 per bag (often the going rate), we need to sell 10,907 bags per year to cover those simple variable costs. We produce 80 bags per day X 5 days per week X 52 weeks oper year for a total production of 20,800 bags per year.

At $3.00 per bag, the revenues from 20,800 bags comes to $62,400. This is a profit of $29,680 per year. Keep in mind that we did not figure in any ads for the shavings, our really super-productive labor is really cheap, and we are working in an environment with zero mishaps.

Other costs that need to be subtracted from this profit are: the costs of marketing your new products, sales costs (salesperson, labor to load or deliver), payments made on the shaver, and maintenance costs.

There you go. Money can be made from turning wastes into shavings but all aspects have to be carefully managed and costs need to be kept to a minimum.