Should I charge more?

      Cabinetmakers share their systems for determining pricing. August 29, 2001

Question
I worked as a carpenter for close to 15 years, building decks, porches, boxing, siding, etc. Last year I opened a shop with the idea of doing nice work and making better money. I now have all the work I can handle and have just hired a helper.

I am wondering if the builder that I work for is using me because I am cheap. For example, a 90" base cabinet with 4 drawers and 4 doors, birch carcass, poplar face frame, true raised panel doors (MDF panel), poplar rails and stiles, Blum hinges and drawer slides, birch top, installed and unfinished, custom sized to fit between 2 walls--I charged $830.00. Does this price seem right?

Forum Responses
You are definitely giving this guy a bargain. Here in northern New Jersey that same cabinet out of my shop would cost about $2,000 to fabricate and install, unfinished. If he wanted it finished I would charge another $480.

You have to figure out how much it costs you to put the key in your shop door every day, including rent, insurance, payroll, etc., to come up with an hourly rate and then keep track of how long projects take to fabricate. Then add on a reasonable profit for the pain and suffering of running a business. If this builder doesn't like it, there are plenty of people who will pay a fair price for quality cabinetry.



I suspect there are several other issues at work here. Do you have a handle on what your overhead is? What does your rent cost you? If you own the building, are you paying yourself rent? If not, why not? What's your electric, gas, water, sewer, phone bill? How much of your time is devoted to non-production? If you are a one man show, I would venture to say nearly half of your time is non-production. Do you own all of the equipment? If not, what are your payments? You mention that you have just hired an employee. Do you know what FICA, unemployment insurance, benefits, etc are going to cost you? There are more things to figure in pricing than what your materials and labor are.

I would say if you were to take this layout to small custom shops across the country, you will find it to be priced in the 1500-2000 dollar range.



From the original questioner:
I will take a plan around to other shops and see what the local pricing structure is.


From contributor T:
None of the advice given was to ask your competitors what they would charge. This is not a good thing. Look at what it costs YOU to build that cabinet, figure out how much you want to make on it and bid that way.

If you find that you are losing every bid you make, you are trying to make too much. If you are getting every bid you make you are probably not making enough (or even losing money). It is hard to get used to losing bids--I was like you at first. I thought everyone liked me, but it turned out I was giving the stuff away. The first bid you lose will be a hard one. You will look at it over and over and even consider lowering your bid (don't). If your bid seems fair to you, the guy who underbid you may very well not be making money on the job and won't be around next time to underbid you.

It's too tempting to just ask others what they would charge. Take the hard path and figure out your expenses. This is the only way you will ever make any money.



From contributor R:
The above response is on track. I've been in the cabinetmaking business for over twenty years, in two different markets, with a finger on the pulse of my competition regularly. Here is a loose formula: your wages (something you must immediately establish) + payroll (see self-employment) taxes + heath/disability insurance, cost of materials and services (marked up at least 10%), overhead (to include labor, rent, insurance, utilities, etc.; i.e. the cost of doing business). To this add 20% to cover machinery repair/replacement, anticipated expansion, etc. This 20% (give or take--there is some flexibility here in order to remain competitive), which you must revisit after a couple of years on the battlefield, is more-or-less than reasonable in order to stay in business. Enjoy it and tuck something away for your retirement.


What part of the country are you located in? Here in Northeast Texas, I would charge about $700 to $850 for that same cabinet and would have to use poplar for the panel (nobody wants MDF around here). It would also depend on how far I would have to go to install it and if it was for one of my regular customers or the public. But you can buy a new 3 bedroom 2 bath 2 car garage house in a nice subdivision for about $120,000. Things are cheaper by far around these parts, but so are wages and overhead.


From contributor R:
Regardless of whether you are in NE Texas or SW Madagascar, the same principles apply.


In under-pricing his product, the questioner is also not having to sell it. I am willing to work for less if I get a call for cabinets without pricing them. I figure the sales cost can amount to 15% of the time it would take to construct the job. I know others with what I consider to be under-priced work. They have no finish, delivery or install--just make the next job, which is sold before it comes in the door. They have no want for more work. The sales and advertisements do cost money. If you don't have to handle these, you can price for less.


From contributor T:
I don't understand. I couldn't find a single ad for cabinet shops in my local paper. I don't know any small shops that do advertise.

He's under-bidding not because he doesn't have to advertise or take the time to sell his product, he's under-bidding because he has no idea what he's doing or if he's making any money doing it. As for being able to bid less because you don't have to sell your product, what does that mean? You don't have to sell your product because you are giving it away.

I think the only way to answer this question is to look at how much it costs you to make the product and price it accordingly to make money. Which is why we are all in business in the first place.



From contributor J:
I worked in a small shop outside of Cincinnati and we charged about $45 per face square foot, and that was an installed but unfinished price for builders in the area.


From the original questioner:
Using the numbers from contributor J, it comes to $1012.00, which is better.

Working as a carpenter, I was happy to make $200 a day. As a cabinetmaker I can make more than that, but anything over that figure seemed like gouging. But I am now ready to start making some money…maybe even have health insurance for me and the family.



If it costs $2.50 or $3.00 per hour to buy health insurance, include it in your prices. I doubt you will lose many jobs because of it--say 10 hours for a cabinet adds $25 or $30 to the price. Not a lot for the customer, but it is quite a big difference for you and your family. Other shops will charge for it and get it. So should you.


From contributor T:
Not to be a pain, but after all that you are using someone else's price? With no basis on how that person came up with it? Okay, so now at $1012, how much money will you make on it? How much does health insurance cost per square foot?


What contributor T is saying is that in order to stay in business, you need to know your costs and how you got them, not someone else's. You have to figure in all of your expenses and overhead and profit and convert it to a cost per hour or cost per linear foot or cost per square foot. What if it takes you 40% longer to make the same cabinet as contributor J? You must use your own figures for pricing or at least know your minimums.

I also do remodeling. I just came back from a seminar where a business owner, who had a remodeling company that was doing $850,000 a year, was basing his pricing on what other contractors were charging. When they reviewed his costs, he found out that he was only making $31k, but his lead carpenter was making $48k. Every day he stayed in business he was losing money.

Basically, if you can't make your numbers (hard costs, overhead, profit) work for you, why stay in business? For instance, when I build cabinets for a customer, I buy the doors from another company because my costs are 30% more than if I were to build the doors. For someone else the numbers may be reversed, but you need to know those numbers for your company.



I think I'm in the same boat you are. I'm trying to start my own shop now. I've done the math and come up with a pricing structure that works for me. It was a lot of work, but definitely worthwhile. I think my price would be in about the same area as yours (the cabinet wouldn't be exactly the same, but close enough).

However, I do believe that it's a good idea to know what your competition is charging, too. If you've done your math and at $830 you're covering all your bases and have enough left over for a good profit, yet the bulk of your competition is charging another $1000, then you should still be able to raise your price $500 and get most of your bids. Does this make sense? We all do things in different ways, with different equipment and different overhead costs. I raised my pricing structure a bit because I knew the market would handle it.



From contributor J:
On the face square foot pricing, we did the same thing as you. MDF panels, poplar face frames, ply boxes, ranging from simple no moldings at $45 per to $65 per for applied flutes with plinths, rosettes archer head on uppers, etc. The company I worked with has the best reputation in the city and never runs out of work.

You must take everything into consideration, but hopefully these prices will help you out.



This is a siginificant discussion because it is at the core of the whole cabinet and furniture industry's great profit shortfall--no one is making money commensurate with other industry segments.

Take the cost of 1 pound of good coffee, a loaf of bread, a family car, a well-made suit of clothes, anything at all. Compare today's price to the same thing in 1970. Now compare the cost of a cabinet, then and now. The disparity is incredible.

Every other segment is a function of improved quality--or the perception of improved quality--while our industry languishes behind the price/profit curve because we don't know our costs and we fear losing a job, even if the job is not worthy of our efforts.

Jon Elvrum, forum technical advisor



From the original questioner:
If you charge by the square foot for a rather standard cabinet, you could actually charge the same for a 90" base cabinet with 4 doors as a 90" base cabinet with 2 doors and 6 drawers, which as you all know, is considerably more work.

Up until I posted the original question, I priced as follows:
For a base cabinet up to 48" the carcass is $250 and $60 per door and drawer. 48 to 96", it's $350 for the carcass and $60 per door and drawer.



From contributor J:
This price was with doors only and 2 shelves. We charged $45 per drawer on top of that.
We charged the same for uppers and that included the top. Depending on the style we charged accordingly. We had a 98% closing rate with our clients and we serviced them well. We also had a computer program that produced an accurate cut list.


I think what needs to be addressed here is the fact that everyone figures their prices differently, but how many of you know how much money you are making? If you think you are making money because you think you're charging enough, that's not good enough. I almost went out of business thinking I was charging enough. If you don't know how much it costs you to operate your business every week, you are sunk.

Keep track of your costs on a couple of jobs. I'll bet a lot of you are not doing as well as you might think. Deposits rolling in on new jobs should not be paying the bills for old work. That money goes to the new job.



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