Competing on Price in a Tough Market
Lately referrals are slow coming in. One client whom I've done 4 jobs for is buying a home that she wants all new cabinets for. This is not a track home. It is in a gated, guarded community and has a fairly lavish floor plan. She is outright saying she has got several bids and is pressuring all contractors, remodel, flooring, cabinet shops, etc to give her below rock bottom prices, and that everyone is saying they have the best quality and not much work in front of them.
Of course she is playing hardball. My thinking is maybe we develop a semi-custom lighter duty product that is not our normal custom pricing. I don't like to work hard and give 110% and not get paid fairly. I could work out the costs and see how the numbers come out.
Has anyone else done a major refocus in either their quality or who they are targeting? It seems to be a buyers' market out there, and I guess it comes down to what people can live with. I would appreciate hearing what others are trying that is working.
From contributor G:
Also make sure she is comparing apples to apples. In other words, let's say your bid is with pre-finished maple ply and the other guy is using melamine, you're giving her maple dovetailed drawers, the other guy birch plywood butt construction, and so on.
From contributor P:
Explain to her that you could have gotten her a house for one fifth of what she paid, just as some people will supply cabinets for one fifth of your price. Same thing with her car. But, she bought the house, drives the car, and needs cabinets of a suitable quality to her new location. Stay on the positive and show her where the quality is. Don't dis the other shops, just boost yourself, and play on your relationship with her. To her you are a proven performer. The other shops are unknown to her; you just have to convince her that you will continue the relationship in a way that will benefit both of you.
There are plenty of snakes coming out to further exploit the small shops. They don't talk to the larger, established shops since they know how that will go. They drive around, listening for the sound of a saw and sawdust coming from some little rental space, then dangle work in front of ol' dusty to see how hungry he is.
From the original questioner:
She has a bid for the whole house of cabinets for 40K from a custom shop, 20K from semi-custom, and under 7K for just the kitchen from cheap modular crap. She says "I am not paying 40K for cabinets." The kitchen is huge, and all the above quotes are raised panel alder.
I guess I'm trying to tell you that she is the one who is driving hard on price. I'm aware about having her compare apples to apples. That's easy. But I feel to get this job, I need to build differently. Selling her on high end when she isn't spending for that right now, and when she knows shops are hurting and are willing to slash prices to keep people working, just isn't going to bring in work for me.
The mindset you are suggesting to sell on quality will not work on all customers. If I want to keep business coming in I feel a change is necessary. Has anyone readjusted in how they build and the materials they use to suit those buyers who either can barely afford their lifestyle or just plain want cheaper because they know they can get it?
In normal times we wouldn't be having this conversation. Has anyone successfully adjusted along the lines of building cheaper and giving them what they want, or am I the only one thinking this way?
From contributor P:
Sorry, I missed your point. I can say that we have had the discussion here, more than once, but have stuck to our guns, and are as busy as ever. Our product mix is only 25% cabinets, but we are more expensive than anyone else around, and we have seen more than one cheaper shop close.
About 2 years ago, during some previous economic downturn/panic, we seriously discussed coming out with a whole line of "builder quality" product at a much lower price - and different materials and methods. "Give 'em what they want." Had we done this, it would have been disastrous, since that is the work/market that has vanished. We are working harder for what we do get... But it is better than climbing down in the trenches and slugging it out in the mud, blood and beer.
It has not been said here on WOODWEB for awhile, but the wisdom is, "sell what you make, not make what you sell." Hang in there.
From contributor L:
I recently bid a job and kept my numbers tight. I was outbid by a guy willing to do the "same" job - and install it - for less than my material costs alone. You can't cut your own throat and still eat.
From contributor J:
What are you referring to as "cheap modular crap"? Are you talking frameless cabinets compared to face framed, or are you talking about junk being produced in China? The trend I see is for consumers to expect lower prices, and they also expect contractors to bend over backwards for them. The wealthier want you to bend over forwards for them. For new construction, what was previously crap is now deluxe. And now they are also downsizing the heck out of the newest homes, so there will be less places to put cabinetry.
From contributor M:
I have been facing this issue for some time now. I was busy building a small shop and client base when the sh*t hit the fan economically. My focus was high end custom cabinets and millwork, and suddenly most of my work evaporated. Convincing people that now was the time to invest in their homes was impossible. The same logical explanations to justify the higher price didn't cut it. People were either too frightened or knew they could put the pressure on.
So, instead of letting my standards slip or paying to work, I shut it down to wait it out. I now am employed by a builder who has no problem with lesser quality work (even though he states otherwise) and I build it for him. It has been months since I finished a job, looked back, and was satisfied with the work. The clients don't notice or mind or even know the difference in quality, I guess.
To answer your question, I opted out rather than changing my building standards. It was a matter of what quality of work I wanted attached to my name and my business. If you have the resources to weather this storm I would urge you to try without compromising your standards.
However, the issue seems to be that of adaptability and survival. I was not established enough to survive without adaptation. Are you? With or without you this client will get what she wants - cheap cabinets.
From the original questioner:
Contributor P, I see your point too, and I won't try to compete with builder quality. I feel it is easier and less risky to deal with the homeowner directly, finding out exactly what they want, being able to qualify them personally. They appreciate the one on one we give them.
My definition of cheap modular crap mostly means big box store bottom line stuff with 3/8 thick sidewalls hotmelted together with 1/8" backs and a lacquer finish. I saw one of those come loose from the back panel at the left end panel with the whole thing full of dishes. The modulars are trying to blur the line with dovetail drawers and almost full extension undermounts. I don't consider frameless cheap unless it is fabricated that way. I do both face frame and frameless with all the bells and whistles.
Last week I bid a small cherry kitchen with 42" uppers, extra deep pantry cabinets, custom sizes, etc. It was a steal at 10,400. The guy said I was out of reach for him. Big box came in around 5K he said, but with all standard sizes. They look nice on the outside, and fool a lot of people. But it's also what people can afford. Some are just glad to get rid of the 40 year old stuff they've been living with. Most of my customers choose us because they've seen our work at a friend's or referral acquaintance.
I guess I'll just run the numbers using thinner materials, ask my suppliers for discounts and see what happens. All the TLC may have to go, but it's almost impossible to not go the extra mile - that's just the way we are.
From contributor S:
We all have to do what we feel is right for our survival, but lowering the standard that we are known for seems to be a bad move in my opinion. All of us that build quality cabinets have earned that reputation the hard way. These lowball guys have always been out there. We have all had to go in and clean up after them. I think that before long there is going to be lots of unhappy homeowners wanting their cabinets replaced again because the lowball guy can't give them the quality they thought he promised or they will come to realize that you do get what you pay for. Those same people will then be looking for the guys that have always provided a well built, top notch cabinet. That's just my thought.
From contributor J:
I don't think it's a good idea to lower your quality. First off, I think you might want to push frameless cabinets to start with. As you said, you can still do a high quality frameless box and the costs are going to be a lot less than the face framed cabinets. You can also cut costs a bit by using some of the less expensive hardware, but even Blum has reduced its prices on things like Tandem slides. It seems that many folks don't know anything about quality cabinets, so you can easily use the buck-a-pair slides and most homeowners won't know the difference.
I am currently working on an office design for a client who just bought a condo for something like $500K. The drawer boxes for the kitchen and bath are exactly the same 18" depth in spite of the fact that the kitchen cabinet depth is about 24". The drawer boxes are white painted MDF with 3/4 extension epoxy coated slides - cheap ones. The standard height of these drawer boxes is 3 1/2", so to create a 7" drawer box they just glued two in a stack with the 1/8" bottom removed from the top one. Did the client notice any of this? Not until I pointed it out, and they still bought the place.
From contributor B:
Lowering standards in order to get the work hasn't worked well for us in the past. One of two things would happen - we wouldn't be able to stomach the product and would build it right (and take it in the shorts doing so), or our staff would get in the "slap it together" mindset and when the time came to build the expensive stuff, they would still be accepting lower standards from themselves.
From contributor P:
I totally agree, once you get in the habit of cutting corners by any means, it's a hard habit to break. It's hard to walk away from any kind of work nowadays, but never lower your quality. Remember what they say - "you're only as good as your last job."
From contributor I:
This is one of those rare opportunities to vent some built up wrath upon some tirekicker that is best kicked to the curb anyway. I usually string them along, playing up my desperation, letting them get comfortable with the idea of abusing me, and just when they think they've beaten me down as far as possible... Wham! I go off on them like a roadside bomb.
Or I have (kinda) agreed in principle to take their job for a beat down price, they can hardly contain themselves (and of course have refused to pay a deposit to sweeten their deal and strengthen their perceived authority over me), then when they call in 6 weeks to say they are ready for their cabinets, I tell them I misplaced their plans for a while and am tied up on a big project and won't be able to get to them - ever.
I get plenty of mileage out of one of these type customers, and have never regretted it for one fleeting second - a good to great job usually comes in just about the time you start on these thrifty type projects. Spend your efforts and assets perusing better clients.
If she liked your product (you did mention you'd worked for her in the past), what's with kicking you in the sack now? Has the cost of materials and related business expenses and overhead suddenly, and irreversibly, gone down?
From contributor E:
It's amazing. Some of you guys should look back through posts from two years ago or so regarding pricing. You remember when we were all booked for a year in advance, wouldn't get out of bed for less than $500 a day, fed customers crap, patted them on the back and told them this is real high end stuff?
What we have now is the back end of a building boom. For those who can remember back to the early 80's we went through it then too. I personally built my home then. We bid the house, all aspects. As we progressed, we re-bid everything as prices were falling due to the construction slow down. Saved a ton of money, and still got excellent work. It's called a free market, and if you are going to survive, you have to adapt.
Unfortunately many will fall by the wayside. The survivors will be those shops who managed their money well in the boom times, those who have paid their building and equipment off instead of taking lavish vacations, buying overpriced tools (those green things come to mind with the foreign name), drive overpriced 4 wheel drive pickup trucks to city slicker jobs because they think it makes them look successful. Very few plan for bad times. Most guys think the gravy train will last forever, and many who can barely survive in the good time due to their bad business practices will never make it in the tight times.
Know your costs, know what you have to make to survive and price accordingly. I'd rather be eating hamburger than starving because some customer refused to buy me a steak. Many customers trying to lowball you are talking out their behind.
Last week a customer whose job I bid at $22,500 told me he had a bid that included installation at $16K. I don't install and also had to charge sales tax on top of my bid. I told the customer that obviously the other guy needed the job a lot worse than I did, in fact if he was willing to do the job that cheaply, I would feel guilty taking it away from him, as he probably needed it to put food on the table. When we walked the job, it turned out that the other guy had bid on a lot less than was involved in the job. As the conversation progressed it turned out that the real issue was the sales tax. Sure, it's 9%. Would I eat 9% to get the job in these times? Sure... besides, by the time this job is finished, there will be enough extras to make up that 9% and a lot more. Would I take a 30% cut to $16K? No way.
Don't put your pride before your wallet. Cut prices a little if that's what it takes to get the job and stay working. The important part is to always get the money, and in these times I have raised my deposit and payment requirements to insure I don't get stiffed. There is nothing worse than to take a cut in pay and then not get paid at all and be worse off than if you never saw the job.
From contributor C:
If you want the job, then price the doors pre-finished from Conestoga or the like, get a bid on the counters, bid out the installation, get a price on all rev-a-shelf accessories, outsourced dovetail boxes, etc., and add it together. Find out what your margin is and decide if you can afford to open your wallet to keep the job.
You need to get practical here - either you need to sharpen your pencil, or move on. We all do it. If you are putting back 5% for you the owner at the end of each job and 10% for the shop, then you will know what you can and cannot do, as this is a litmus test in building a future.
I once worked on a job that all the cabinets were had at 12k from a factory. I referred a friend to install. The owner paid 4200 to install - kitchen, laundry, three bathrooms - was pissed, and tried to get it out of the kitchen and bath place (they made them pay on delivery)! The idiot form the K&B place designed a week's worth of work in the top trim alone and week's worth in the install. I did the built-ins and mantle for 4300. The next closest bid was 21K - they got junk everywhere except the built-ins and saved 2K. Cabinets are all coming apart except built-ins.
Sometimes, we need to look at the shop floor to decide what our true costs are. I just laid off three guys - all mediocre to terrible. I'm excited again and a calm has come over me, even though I'm up to my neck in gators and work. What are your true costs to do business? Do you really need the truck(s) and van(s) that aren't paid for? How about other expenses you don't need? We all need to get real and sharpen, sharpen.
From contributor T:
No point in joining the race to the bottom, but the times bring to mind the first rule of life on this planet: evolve, or die.
From contributor F:
As a one man shop I do every stitch of work personally that goes into the cabinets and millwork. I would find it difficult to impossible to change the quality of my workmanship. How can that be done... sand half as long as normal? Hide the square and just eyeball everything? I think for myself the only way to cut costs is through design and cheaper materials and hardware.
But I mean, beaded inset is beaded inset and changing to a cheaper wood won't do much about all the labor involved. I may have to switch to frameless if I have to drop my price in order to stay in business. I suppose the public is expecting a drop in price due to the economy, but the problem I see is that the cost of my supplies and general overhead is going up, not down.
From contributor E:
Good point. I too work a one man shop and one needs to watch the suppliers as well as the customers. I buy all my materials as I need them and in small quantities. I have a good supplier who will bid a project's worth of material and keep the price steady through the project (usually about 2-4 months). Last week I stopped odd and bought 4 sheets of pre-finished maple. Just after it was loaded I got to thinking about the price and looked through a couple of invoices still on the dash of the truck, and sure enough, since the first week of February the price had gone from $51 to $59 a sheet. That's one heck of an inflation rate. I went back in and they "had made a mistake." $8 a sheet is one big markup.
I have no problem squeezing suppliers a bit in these times - they see their volume go down just as we see ours drop, but they are insulated from the buying public and often raise prices to retain the same profits on lower volume, which we can't get away with.
From contributor T:
Or take a cut in your hourly wage, trim your expectation of profit, renegotiate with your suppliers, and refine your operation to cut out as much waste and inefficiency as possible. Keep in mind that your yearly overhead, for the most part, is a fixed number, so any nonproductive time boosts the necessary percentage for the remaining time, i.e. making 8% overhead at 100% utilization beats making 15% on 50% utilization. Look at what parts of your work add value and which don't, then concentrate on the parts that do. Develop a better system for dealing with clients - don't have to become the total salesman, but a move towards professional, responsive, and client-centered can't hurt. Get control of the paperwork (lack of coherent paper management wastes hours in my shop as I search aimlessly for the file that's sitting under my nose).
Beaded inset is beaded inset, people can and should expect to pay more for it, but, as far as I know, nobody's died yet from having to make frameless cabinets to meet a price point. Personally, I'd rather make a reasonable living from building frameless than starving while waiting for beaded-inset work to roll in on my terms.
From the original questioner:
It's great to hear all the ideas and thoughts. Most are the same ones going through my head. Customers expect better prices, but after talking to my suppliers, alder classic core is still 76.80 at one and 80 bucks at another. Dovetail drawer boxes aren't cheaper either. Even going melamine, the prices are not any cheaper. So basically customers are saying that you have to reduce your own salary if you want my business.
We will see how it all works out. I may just continue taking only profitable jobs and passing on poor paying ones. But I'm not averse to making every part of my work more efficient, and guiding customers to more basic designs that dramatically reduce shop labor. If they want all the bells and whistles and still expect basic pricing, I will walk. There are a lot of fair minded people who don't mind paying for what they get. Thanks everyone for the feedback, and good luck to us all.
From contributor R:
Over the last few years I have attended every industry business seminar and workshop I could get to. Some dusty old shop owners might write off the advice from these sources. But I see over and over very, very successful shops who attribute their success to following the advice of these industry gurus.
Your post reminds me of a few points that I have heard too often to disregard. This is not advice coming from me, as I don't know your shop well enough.
1. Clients don't give a damn about your fancy blind dado carcass construction. Trying to sell them on that is like trying to convince an Eskimo to buy your filtered ice to make his next igloo. The truth is that you can butt joint and brad nail the cabinets together and they will last just as long. I am sure you have removed plenty of crappy cabinets by now to see that even the most poorly built cabinet box will survive once it is installed.
2. Melamine is not a bad word. Nor is it a sign of poor quality. It is much easier to work with and costs less. If you are really worried about water damage, use separate toe kicks made from plywood and make the sink base from plywood as well.
3. Lowering your standards for cabinet construction will not help your bottom line enough to compete with these other bids. The reality is, whether you use rabbit/dado construction or brads and glue, there is very little difference in the time in production for a job. You will not make more money doing that.
4. I think it is very interesting that your first solution to compete against these other shops is to lower your quality.
First you need to pressure your suppliers. Call on new suppliers and get to the point. Tell them your current costs and ask them what they can do for you.
Next, outsource! You cannot and will not ever be able to build a door as fast or as good as the big door shops. Accept that. It is a fact. I used to believe that I had to make my doors because no one else could possibly match my attention to detail. I matched grain, fine tuned tooling for perfect joinery, all the things that made my doors better than everyone else's. Then I ordered the doors for a kitchen from Conestoga. That cut 2 days' production time off the job and added around a thousand bucks to the profits for that job. You can outsource damn near every part of the job.
I also started using professional install crews. My shop was too small to have a dedicated install crew. Once I realized that the pros could install the same job faster than me I decided I should stay in the shop and make money doing what I do best.
If you are not using some kind of software, start doing it now. It will speed up everything and track your costs much better than the seat of your pants method.
Finally, quit assuming that all those other shops are making crappy cabinets that can't compare to your high standards. Doing that assumes that your clients are so stupid they don't know Wal-Mart from Neman Marcus. And if they are that stupid, don't waste your time trying to convince them you are worth it.
And know when to walk away. If I get a bad feeling about a client, I walk away. My shop is too small to have a job go bad over a jerk client. If I get screwed on a 40k job, I might not recover that money in 6 months or even a year. If you are a small shop I bet you are under the same pressures.
Go to Vegas. Attend every freaking seminar you possibly can, especially the boring ones about business management and production theory. Read Tiachi Ohno. And try to think like a business owner, not a cabinetmaker.
From contributor N:
Lower your standards to compete and/or go after business? Where have I heard this before? Oh yeah, that's right - Delta, DeWalt, Porter Cable, Powermatic, B&D (tools we all use every day) have gone that route to compete on price and maintain volumes. What do we do? Whine and moan how this or that is now crap and how they used to make good tools in America, but now it's just Asian produced junk with a pretty label on it.
I'd decide on what it is I want to be - a small boutique with quality or a growth machine. You may have to make some tough business choices to maintain your position. Even with those it may not be possible to do and you may have to change the direction of your company. Once you go from high to low, it's very difficult to move back into the high end.
From contributor W:
It is a sign of the times. I too am a one man shop and have been approached by several referrals for some custom kitchen and vanity work. Some gave me the typical "I can get it cheaper by shop X" and others took my bid and I did the work.
My best weapon has been my current clients. Thy have told me that my product is great, and I am sure you all have heard that as well, but more importantly I have been on time or ahead of schedule on 95% of their projects. If I fall behind I communicate with them and with very few exceptions this has never been an issue. Communication and trust go a long way in my business.
I have found other resources for my supplies and many companies offer deep discounts vs. the retail prices in the catalogs I use for the bells and whistles. I use EB Bradley for the majority of my Rev-a-shelf and Blum supplies. I know what my costs are and the customer feels great about the price break I give them versus the retail posted.
On big jobs I will outsource doors and drawers and focus on carcass construction. These parts arrive when I am ready and away we go.
Business is business and you know what you need to make, what you can do and when to make the decision to cut and run. The business, albeit slower, is there. Just like fishing… If worm aint working, switch to crank bait. Stay on time, budget and communicate and the work is there if you know how to go get it.
From contributor P:
Being a one man shop, how can you possibly be on time with your jobs? I am a one man shop - and I mean one man shop. I design, order parts, manufacture, do the finish work, answer the phone, go on bids, redraw projects due to changes by the clients, and install. Unless you give a ridiculous finish date, that statement is a little misleading.
From contributor I:
I am a one man show, for the most part. I stay on schedule by being at work when I should be, and by managing my customer. By that I mean I stay in contact with them on a regular basis. I mostly service the custom builder and remodeler. They have me quote their project and call me when they sign the deal, after that I roughly schedule them in, and refine it as the job gets closer to drywall. I run 6 days a week if the work is here, and it usually is. I also know what dollar volume I can run in X amount of days. I don't deviate from the schedule for the non-planner.
From contributor P:
Well, that's the fine line, sounds like you just do the cabinets - I do it all - the design, the framing, plumbing, electric, drywall, cabinets, deliver, and install. All I'm saying is that it's hard to stay on schedule - believe me, I am in constant communication with the client to make sure they get the job just they way they want it.
From contributor R:
Please don't be offended, but you really have to look at your operation if you are missing deliveries. I think you have it completely backwards. I ran a one (sometimes 2) man shop for years. I also usually do all the interior finish work and drywall. The jobs were always complicated. I took the jobs the other shops ran away from. Scheduling was easy back then. If you only have one job running at a time, you should be able to meet your deadlines easily. And a one man shop definitely should not try to work more than one job at a time - that is guaranteed disaster.
Now I usually have 3 or 4 jobs in production at a time. I am scheduling as many as 5 installs a week, and I have to approve all the designs and order materials. I have many employees and if one or two does not show up, I am screwed. Something as simple as a damaged saw blade on the panel saw can cause 3 or 4 jobs to fall behind schedule. The smallest problem that can back up production irreparable. A one man shop is much more resilient and adaptable.
If you are having scheduling problems (Lord knows most small shops do), you need to get some help. Contact your machine dealer and ask them for help. Stiles Machinery has been very helpful. The sales guys have given me lots of really good advice and once they have your number they will invite you to their free seminars. Of course there is always a sales pitch involved, but you have nothing to loose. There are also lots of books on the subject. And go to the IWF.
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