Markups for Hardware

      Should you charge for knobs, pulls, et cetera based on a markup formula, based on a fixed price, based on labor factors, or what?September 3, 2011

Question
If I can get a knob from a wholesaler for $1, and the same one is available at a lumberyard for $5, what should I charge a client when quoting a job?

Forum Responses
(Cabinetmaking Forum)
From contributor K:
Manufacturers have retail values for their distributors. But you can sell it for whatever you want. To some, you should only be able to mark up materials 20%, which would only be $1.20, which is ludicrous in my opinion.

When we supply our customers with the catalogs of what we offer for knobs/pulls, we tell them that they can choose any knob/pull with a retail value of $5 or less (which covers the vast majority of them, with the exception of specialty items), but they can choose whatever they want. If they want one that has a retail value of $20, then they just pay the $15 difference for the knob/pull from the $5 we already offer as part of our pricing.

We also use boards containing the most popular knob/pulls for them to experience. If they want a sample... They pay retail price.

Since it is the last item to go on, they have some time before they make a final decision, but it is also handy to have a sample door/drawer front on hand. We provide one that will actually be used on the final product (we have enough samples).



From the original questioner:
Thank you. Was that $5 knob you were offering costing you $1 or $4.20?


From contributor K:
It depends on the knob/pull... To make it easy, we build into the pricing a set fee for knobs/pulls. As a result, on some we make more than others, but we never lose money.
If an anomaly happens, that is what the "misc." line is for...


From contributor M:
I would likely mark them up by a dollar or so plus shipping costs, and then a 15% handling fee. If they are over a buck or two I would mark them up to somewhere in between my price and the hardware store. I try to make a little bit of money off stuff like this while still taking the opportunity to give the client a deal, as it is one of the few things I can cut them a break on.


From contributor S:
This is a fundamental debate in our business. I sell cabinets, not hardware, so I do not mark up things that go into the assembly. It is very arbitrary (from a business point of view) to mark up materials that go into a finished product. I have yet to see any other industry do it. The closest I have seen is when auto mechanics mark up parts to retail for a repair... but that is a very different thing from manufacturing a product - it is more like a plumber that installs a sink. You need to mark up your product (this means the cabinets, not the parts) based on your costs to manufacture and your overhead. Otherwise profit becomes very unpredictable. Why would you make more money on a job that uses gold plated hardware if it requires exactly the same amount of work? The flip side is you will make less profit on a job that uses melamine vs. pre-finished exotic ply. You would also make less profit on a job that uses plastic handles instead of brass. That does not make sense. In real terms it means you can lose money on some jobs and overbid others.

The other problem is nowadays, most clients can buy hardware at wholesale prices online. Then you will be stuck trying to justify your markup. When most guys start trying to justify this markup, it turns out they are using the markup to offset what is actually overhead and production costs. This cost should be calculated independently, as it usually does not vary. For example, it costs me the same (overhead and production) to order and install any surface mounted drawer pull. Flush mounted and mortised hardware costs me more to install, so I have a different labor amount for those, but the ordering and receiving cost is the same. The same holds true for other material and hardware choices.

There are exceptions. Sometimes I have to import items from overseas and there is another layer of overhead, but I charge for that cost instead of using the retail markup used at the hardware store. Also, I buy some items wholesale (usually imported) that I will sell to other cabinet shops and carpenters. These items are marked up to a retail price based on what I feel makes it worth my while to offer them.



From the original questioner:
Thank you. I usually just mark up my hardware by 20%, but when I see HD get 400% more, I start questioning my pricing and believe I could charge the 400% and give the customers a 50% discount.

It is frustrating to me to go into HD, see them advertise kitchen cabinets at $100 a lineal foot, but when you turn the sign around and see the real cost, it works out to be 5 times that and they charge you extra for the hardware. Customers don't look at the other side of the coin and figure your cabinets should be $100. Less if they pay you cash. I have always struggled with pricing.



From contributor K:
I don't place as much emphasis on markup for hardware, which is why we charge a set fee for hardware and the customer can choose any hardware with a retail value of $5. Manufacturers provide distributors like HD a retail value for a reason.

That said, your business is made up of profit centers. These are where you extract profit from the business. How much you extract from each profit center is up to you. There are many ways to get to profit, but you first have to decide what "profit" means. Profit is what is leftover after everyone (including you) has been paid. Profit is not what you pay yourself at the end of a project.

If you focus on price when selling, and add pricing gimmicks such as discounts, then add one more to your arsenal and use HD as a selling point of them charging their markup for their knobs/pulls, and tell your customers exactly what you said (i.e. - you charge 50% less than HD, and yet you still make more than a 20% markup).

Personally, I think this is a mistake, as it places emphasis on pricing. They are spending thousands with you on cabinetry, for example, so dickering about $2-$4 on hardware gets them in the mindset of "how can I get more money out of this guy?"

Putting that aside, it takes a little more than twice the amount of labor/time to install a pull that has two holes versus one (and that money has to come from somewhere). There are many ways to accurately account for your labor and increase your ROI.

Productivity gains are one of them. Let's take pulls, for example. If your shop rate is say $75/hr, and after studying how long it takes you to install a pull, you come up with 7 minutes. $75/hr divided by 60 minutes (hour) gives you $1.25/minute, or in this case $8.75 ($1.25 x 7 minutes) to install a pull. In our case, we always charge by a factor of 1.25 to allow for Murphy. Plug in whatever numbers make sense for your situation.

Now, you invest in a jig that allows you to install that same pull in 5 minutes versus 7 minutes (a 28.5% increase in productivity). That does not mean you now charge 28.5% less to install the pull, but rather increase your profit from that profit center by 28.5% because you increased productivity and are now providing a ROI on the jig.

If you have a shop rate, and you sit down and figure out what each step of the process actually costs you in labor alone for both fabrication and installation, never mind profit, you will most likely find that you are not charging enough. And this is usually the reason most end up robbing Peter to pay Paul, because they have not accurately accounted for labor and profit (which covers shortcomings on the labor side that we all experience).

If you are having a hard time with pricing, that is a place to invest your time to understand, the same way you would if you bought a new CNC and had to learn to program it. Is it hard? Yes. But nothing can have a greater impact on your family, the growth of your business, your employees (if any), and your sense of confidence in running your business.

You are taking the right steps in trying to understand pricing better. Now take the time to really start to understand pricing for the rest of your business, because what to charge for pulls is small potatoes compared with the business as a whole.



From the original questioner:
Thank you very much - your insight is helpful. My trouble in the beginning was that I was making $80K working in the steel mills, so if I broke even or lost a little there was no pain. Now that I am retired and divorced, my pension is not 80K, and it's time to seriously look into my business and make changes as you suggest.


From contributor T:
Contributor K has a very valid point. As a cost in an estimate, $5 will cover most pulls, and if you have the line in your proposal, “Cabinet pull allowance not to exceed $5 cost each on unspecified pulls,” then you do not need to justify anything until the cost of the pull exceeds $5. If they have picked a pull and it costs less than $5, it costs $5. You can over-administrate the true cost of pulls very easily, and spend more in recalculating the cost of the pulls than the cost of the pulls, but they are such a small percentage of the total cost of a project that any real savings is negligible. Refigure only if the number of pulls exceeds 100.

You can also have them pick and supply their own pulls, which you will install if they have them shipped to you prior to the delivery of the cabinets. Too many options and what-ifs can take too much time to realistically and safely price, so the cost of the pulls is $5 unless they cost more than $5. It recalls my favorite line from "True Grit" - “I do not entertain hypotheticals, as I find real life vexing enough.”



From contributor S:
I also use the same method with estimating the cost of pulls. $5 for the budget. Then it is noted in the proposal that if the client chooses a more expensive hardware, it will be prorated.

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