Shifting to a Lower-Priced Cabinet Market Segment
I'd like some of your thoughts on my situation and my proposed business shift.
Market: I'm a one-man custom shop located in the outskirts of Vancouver BC. Our housing market here is very highly priced when compared to the average working wage. Within a 20 mile radius lives a population of almost 3 million. By far the majority of people are living in older houses which typically range in the $300,000-$600,000 range (1500-2500 square feet, 30-50 years old, on a 5,000 square foot lot). Most of these customers cannot afford $30,000 worth of cabinets in a kitchen remodel, or, at least that is what I keep hearing.
Shop/company background: I'm a full time 'one-man-band', with a goal to be 100% cabinetmaker but in reality I'm a general woodworker and have been self-employed in this trade for six years now. I have focused on upper-end residential work, typically on 1-3 million dollar homes. I'm not in the elite market, and don't wish to be (have had a taste of the many headaches involved). Much of my non-cabinet work comes through renovation contractors and builders. However, they are often not the ones buying my kitchens. Typically my kitchen customers are the homeowners themselves. I seem to be too highly priced for the standard market.
For each upper-end set of cabinets I get commissioned to build (what I would call executive grade cabinets), I miss probably 4-6 standard builder-level jobs. The renovation contractors don't even ask me for a quote as they know there is not enough mark-up room for them. If my shop were operating at full capacity this wouldn't bother me, but since my shop is consistently averaging 50% capacity in terms of actual cabinet jobs, I find I keep taking other related jobs, like architectural wood works, finish carpentry, furniture pieces, etc. I find that I don't make nearly as much money off of these other items, as mostly they are one-offs.
This bouncing around from fill-in-job to cabinetry and back again is costing me in terms of overall productivity and brings me way too many headaches whenever I end up in meetings with whacky designers and homeowners who have ideas for furniture much grander than their budget will allow. I don't want to be in this same working situation two years from now.
The thought: I'm seriously considering shifting from predominately upper end cabinetry to lower end cabinets, something slightly better than RTA cabinets, with a target market being the average working class homeowner. Instead of solid hardwood drawers and 3/4 pre-finished maple boxes, and Blum tandem undermount soft close drawer glides, I would shift to 3/8" baltic birch plywood drawers, 5/8 K3 melamine boxes, and standard Accuride style ball bearing drawer glides. The doors and drawer fronts would still be stained hardwood but not quite as high of quality as I am producing right now. My current material/labor production breakdown is 29.7% / 70.3% and I estimate that if I make this switch to a mid-quality product my material/labor production breakdown numbers will be 36.25% / 63.75%.
On paper I will be making less profit per job, but if it allows me to stay consistently booked making lower end cabinets, I have a hunch that I will actually come out quite a bit ahead with building the lower grade of cabinets if it means that I will stay busy doing one thing and not bouncing around from job to job. I've also considered offering two lines, but am hesitant to go this route as I have found in the past that I typically do better when I stick to one thing and master it rather than diversify. Also, it seems that the local market likes to brand people and their products. For example, I am not known as the affordable cabinet guy. Instead I'm the one that builds the fancy stuff. Everyone loves it when they see my work, but few actually buy. What do you guys think? Does this idea of shifting my business direction away from "upper-end" and into "mainstream" make sense?
There is not quite as much market for slightly higher end custom cabinetry. However, there are also not as many competitors in this market. The bigger shops seem to want to focus on really high end millwork projects or go totally commercial. A lot of the small start-up shops are trying to bid low to get a foothold and establish themselves, but conservative clients are going to be hesitant to take a risk for a $30k plus kitchen on them. So for shops that have established themselves and have a reputation for delivering, there is I believe still a lot of opportunity.
From contributor L:
I have to agree with Contributor F. The lower you go the greater the competition. A better marketing scheme might be in order. Figure out how to cut your costs so you can better compete in the above center market. See if you can figure out something that sets you apart. Since kitchens are sold to women but paid for by men, on average, get some help from what will sell a job to women. It may not add cost but there are things that provide bragging rights. Eliminate the things that the customer isn't willing to pay additional for. Reality is all about perception.
From Contributor O:
I would agree with the previous two. I do not build box cabinets, but I could never get down and compete with those guys. They could elect to forgo profit and undersell you by 25% until you are starved out, and never flinch. Fighting in the trenches with the mud, blood and beer is no way to make a living, my opinion. Small shop success is all about setting yourself apart from the crowd - offer something unique, something no one else offers. That simply is not possible in the world of low-ball cabinetry - especially for a one man shop. Even if you could sell the work, you would be run ragged in no time. I forget where it came from, but there are three components: Price, Quality or Service. You can offer only two, the third is excluded by the others. Don't fool yourself into thinking you can be an exception.
From contributor Y:
The other three make real good points. I might add you could take on a line of ready-made cabinets and offer your client that. It would tell you that they can't afford your custom cabinets.
From contributor R:
To the original questioner: I am located only several hours from you in the states and have taken what I believe is your strategy and made a successful business out of it for the last eleven years. I do have low overhead and that is something that you might not have, but my bread and butter is the $8k-$25k job, with the majority being around $12k-$15k. What it does is if you can make a better product than other folks in that price range is always be busy and set your own terms because folks will literally compete for your time. Even in March 2009 I had several months backlog. I won't get rich and I know that, but it's a good steady living.
Thanks guys for taking the time to weigh in with your thoughts, both for and against this idea of shifting to a mid-range cabinet. You have given me some good counterpoints to consider. I agree with the above thoughts of avoiding becoming caught up in a race to the bottom, but I also think there is a lot of middle ground in between the high-end and the garbage pile.
I also thought, to help clarify the generally vague idea of lower end, middle range, and upper end cabinetry, I have attached an image of a standard 10x10 kitchen layout. Something like that would come out of my shop right now at $11,400. I consider this higher end but not elite. The mid-range cabinets I've been considering would price that same standard 10x10 kitchen at $7,100. Both of these numbers include installation, but not countertops.
My other option is like you guys mentioned, to work on improving my marketing. By far my biggest problem seems to be getting the right audience interested. Many of my customers I am exposed to either can't afford the cabinetry (but call me for a quote anyways) or want something elite ($1500/lin foot and up), of which I don't feel I'm a good enough craftsman to compete on. I can do their furniture and finish carpentry, but looking at some of the flawless cabinetry in these houses makes me nervous if I had to deliver it.
Click here for higher quality, full size image
From contributor R:
I don't know what the exchange rate is currently, but that would cost $5,500 installed (but I don't do install, another topic for another day), so $4,500 uninstalled from my shop. Of which I would pocket $2k and have it out in a week.
From contributor F:
That is a very basic kitchen and your price is considerably higher than we would sell it for. As Contributor L mentioned, can you implement things to become more efficient with time and build quicker? How many hours would you have in that kitchen?
From contributor J:
Thatís pretty pricey for 12 boxes with doors and a minimum of drawers. Check your overhead and expenses.
Thanks guys. Don't be too concerned about the numbers themselves, they are a reflection of my market. Vancouver is the second most unaffordable city in the world in terms of housing costs, second only to Hong Kong, and everything related to housing here costs more, so I know that the actual numbers won't jive with most other's local markets on WOODWEB. I posted them simply as a comparison between the two lines I'm considering. What I'm really after is trying to root out some of the potential business and production related pitfalls in the mainstream cabinet market. In comparison with the local market, my price of $7,100 is already lower than the other larger shops in the area offering a similar level of quality (my doors and drawer fronts are better).
From Contributor E:
Here in the San Francisco area, our prices would be pretty close to yours. Let's not get hung up on the price question, though. If you just want to make money, pick up an RTA line. We have had good luck selling Conestoga with a healthy markup. We do custom as well, but the RTA is by far the most profitable thing we sell. My pride as a craftsman (and my machinery leases) is probably the only thing that keeps me from going all-in with the RTA. From our perspective, the RTA product is pretty disappointing, in terms of the 1/2" Chinese birch boxes, filler strips and imperfect door gaps, but all our customer sees is the solid wood five piece doors, dovetailed boxes, and soft-close full-extension Blum hardware. Look at that, I just sold myself! To heck with this custom work, I'm going to sell RTA from now on.
From Contributor E:
More directly to your original question, you can sell anything you want for any price you want if you build value in your customer's mind. Easier said than done, but can you market your product so your client feels like she's getting Lexus for a Toyota price?
From contributor F:
I agree about not being concerned with the numbers. I'm always baffled at some of the pricing guys post here. It seems like it's either super high or super low. I couldn't build a custom face framed kitchen for those prices and make any money unless I significantly dropped the quality. Average sized euro style kitchen installed for me is in the $16-$20k neighborhood and I think I'm still underpricing some of my jobs.
It sounds like you have a handle on your capacity and how to move work through the shop? If so what are you doing to try and market yourself? Maybe stepping back and being strategic about whom your marketing to and for what, would be more beneficial than trying to compete for lower end work? Again though, I don't know your market, just a general observation on the competition to provide cheap cabinetry. You don't want to be wasting a lot of time trying to sell to people who can't afford you. You want to try and target those who are willing to spend a little more on quality.
Thanks everyone for contributing your thoughts on the subject. The short-term route I have decided to take is to redo my sales and options lists. I am setting a base point (still within the realm of custom cabinetry) and then optioning items on top of that base point so that a person can go as fancy or basic as they wish. I will not be competing with the RTA market, still plan to be a fair bit higher priced than that. It has also really become apparent that I need to figure out who exactly it is I want to target as a market audience and actively pursue that instead of simply reacting to the jobs that keep coming through my door. Sometimes it feels like I am so flooded with jobs I didn't go looking for that I can't get above water long enough to figure out this target audience idea. Right now I have three separate and very different jobs in the shop and a finish carpentry site on the go, and none of them are what I would call for my target audience.
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