Question
In this cutthroat economy of bidding wars and competitive pricing, I have recently raised my prices - and reaped the benefits. Many will respond that to raise prices is simply impossible, and I was just as doubtful. Here's my thinking.
Business this year is down about 35% from last year's figures. Because of this, I laid off 2 of my 6 employees. The only factor that has not changed is my fixed overhead. So in a nutshell... Less business + fewer employees + same fixed overhead = Less billable hours per fixed overhead.
This is the same scenario used when things are busy, in order to slow down - raise prices. The only difference is that we didn't choose to slow down - so we should *all* change our pricing accordingly. Let's face it - this is a hard working, highly skilled industry and we should be compensated as such. We should all act as a united front to bring the pay scale and respect back to this industry rather than cut each other down with lowball bids. The shops that are using these tactics should be cut out of the mix by the rest of us professional businesses.
This tactic has worked for me, and has defined my target clients. I urge us all to raise the bar and take our industry back from the unprofessional, under qualified, illegal throat-cutters that further plague this already horrible market.
Forum Responses
(Business and Management Forum)
From contributor E:
That's always worked for me. First thing I always do in a competitive economy is raise my prices. Kind of like bringing a knife to a gun fight, don't ya think?
"This tactic has... defined my target clients."
Now that's an idea worth kicking around. Many of the people we're accustomed to working for can no longer afford us, and may never be able to afford us again. Supply has to shrink to be in balance with demand. Some woodworkers have to lose their jobs or go out of business, period. You are fortunate to have access to a market that can support your resized enterprise. Please, count your blessings. Don't imagine that your strategy would work everywhere.
But in business, everything is intertwined. Being extreme in one area can have the opposite effect than was intended. Eventually, your market will dictate what (and how much) you have to do. If you raise your prices too much, you may lose too many sales to make up the difference. If you lower your price too much, no matter how many additional sales are created, there will be no (or insufficient) profit.
There continues to be a place for a Walmart-type business as well as high-end retailers. Each level has its own battles. Part of the trick of success is knowing where your business is on the low-end high-end curve.
Rather than discounting, a better approach may be to offer an add-on at reduced or no cost. The ideal add-on is something that has a high perceived value to the customer, but is low-cost to you. "Mr. Customer, I can't lower my price, but I can (add-on) absolutely free to you."
All of this has to be approached at the time of the sales effort. As a furniture restoration business, I have developed various add-ons and other strategies that I have used in order to not discount (or in some cases, not have to "raise" my prices).
"Kind of like bringing a knife to a gun fight, don't ya think?"
No - I have removed myself from the fight. Good luck in there - keep on shooting each other.
"Sure. You, too, in some alternate world can repeal the law of supply and demand, unilaterally. Just do it."
Yes, just do it. Fear is what holds many back from success. Try something different if your business is stagnating. From your post, it seems that your business is being controlled by millions of strangers.
My "extremely naive notions" point out the garage shops who pose a great deal of frustration to other shops that have proper licenses, insurance, etc. I know lowballing a bid is not illegal, and sadly shops are using this method because they feel like every job might be their last. We should act as a united front to reset the perceived value of our services to our clients to promote healthy competition within our trade - unlike what is happening today.
I started this thread to bring a new perspective to pricing jobs in the current state. This past year, business for me has been horrible. However, I'm on the road to recovery and this has helped get me there. It is seeing your equation, and adjusting the variables to end up with a positive number as a result. While sometimes we cannot have full control of our volume, the one thing we can control is the profit margin on the jobs we bid on.
Can you see your equation?
This recession is the clue to those shops to move on. There will be far fewer shops when this recession is over. (Over in the sense that the turmoil is settled and the market stable.) The survival of those that merely took advantage of a low entry threshold is limited. Some will survive, the bulk will not.
There will always be shoppers looking for the next cheapest shop, taking their wrinkled little drawings from rental unit to garage, combing the phone book, looking for the next guy to reel in. This is not ever really going to change. Let 'em shop.
The successful business (notice I did not say shop) will have already defined their target market and will have resources directed to accomplishing that goal. Their eye will be on the goal that they define, and they can leave all the mud and blood for the others.
Guess what? This month I raised my prices by 25% and the number of orders has gone up. My gross shop output per hour is now north of $100/hour. One man shop.
I too have raised prices in the past and seen an increase in business, along with a significant increase in profit. It just doesn't work if the next customer you are depending on acquiring is hammering you on price.
I have since raised my prices (while also refusing to use any products below a high quality threshold) and seen an improvement in business. It's modest, but I see a positive result. Keep those prices up!
Very few businesses can deviate from this approach and succeed. The key is in convincing the customer that doing business with you provides the best value for him or her.
Early this year I was asking my friend and colleague, Bob Buckley, why he thought I did not have a better closing rate and he pointed to the fact that I did not have a showroom. The only objection has always been affordability, i.e., price.
I have since come to believe that the quality of one's showroom, or the lack thereof, will have a high degree of correlation between how many jobs one closes and getting the price we want for them.
I have seen the light and I am busily, between the paying gigs, building my version of a "blow their socks off" kind of showroom. I am just about done with my office and the response so far has been immediate. It takes time and effort but I am confident it will be a great success in getting me business at a profitable price point. I only wish we had done this long ago. It is not that we haven't had enough business, thank God, but I have had to succumb to the pressure of some builder clients to work at a minimum (barely) profit level.
I may not have an opinion on the matter, as I currently do not own a woodworking shop, or even a garage. However, quality must be the central focus of any woodworking business. If everyone was to raise their prices, obviously other businessmen would have to lower their bids in order to win a job. In addition, I would imagine more customers will be running off to the local big box store to pick up some cheap pieces of crap. I strongly believe that quality has a price but any price change should be done moderately.
The nature of the work and the business side is that so many things are unknown that the pricing reflects the naiveté of the shop owner. How many threads here have started with the idea of someone trying to figure out what something costs/sells for? This is totally backwards, of course, but the proof of this reality is in the questions these less than prepared startups propose.
In fact, most of these types of shops would read the questioner's statement with complete incredulity, then dismiss it 100%, since their strategy is to cut prices in a furtive effort to drag work in the door.
Of course, good work can be done in a garage. But by far, the long term successful professional will move from this model as soon as possible since it is so limiting, for any number of reasons. Working in a garage should not be a goal.
Markup has to be capacity based. If you're doing less work you have to charge more to pay the bills.
So the rich do indeed pay for what they want, in your area, but not in this town. I have plenty of stories that match up to this one. Then of course there are cabinetmakers who seem to know the right people and get what they ask for. So who knows. Write a book and tell us your secrets on how to get the rich to pay us for work done, and I will buy it.
Never, never take a client's comments or attitude personally. Instead, evaluate negative experiences, learn from them, then design and implement better business strategies to prevent such experiences in the future.
For Customer #1, simply double your prices (at least) and put everything in writing. Add a delivery charge, and include that in the price. And since this is such a small job, ask for a 100% deposit for this "special order, highly custom" project.
If a prospective client (they are not a client until they sign your contract and give you a monetary deposit) questions your terms, simply inform them that this is your company policy. Act professionally, and folks are more willing to treat you professionally. If the prospect doesn't want to agree to your terms, well, you said you really didn't want this guy's work anyway. Never alter your terms unless it is in your company's best interest.
Never, never lower your price to match the other guy. If the prospect wants a lower price, ask them what they want to remove from your proposal. And, you can also offer to help them with an apples-to-apples comparison with the lower prices from the other guy. Do they use the same quality materials? The same hardware? Do they offer the same warranty you do? Etc.
Then advise your finisher to consider doing the same.
Obviously it is too late for this project, but you might want to give it some consideration in the future. You do have a good, professional, written contract, don't you?
And, why wait for the recession to be over before you raise your prices? Are you independently wealthy enough that you don't need those extra bucks in your retirement account now to grow over the years?
Folks will judge you by your prices. If they are too low, they will assume that you produce low quality work. If your prices are high, but reasonable, they will assume that they will be getting good service and quality. If your prices are very high, and you have a backlog of work, they will assume that they will be getting great service and quality. Smart, affluent people know this. And many have the resources and are willing to pay for the great service and quality. You might need to work on your marketing strategy to better find these folks.
From what you have described, Customer #1 has issues in his life that you will not be able to resolve. And he appears to blame everyone else for these issues, including you, the French, and your finisher, to name three. For the future, either he abides by your company policies, or he can eliminate himself from your client pool. Then, you move on to better clients.
With some customers, for some shops, that is the only way to do it. You have to know your clients, do due diligence and research. Know how they work, talk to the other (real) professionals on the job, and while you still need to state your terms, be flexible.
I once had a customer that made enough money in 3 hours (based on his income that year) to pay his tab with us - 125k. But he didn't pay the balance until he got back from Africa. Then he ordered more, paid in advance, while apologizing for being so slow on the final bill. And he repeats.
As for the difficult "rich people" - have your plan in hand. Don't you think the waiter in Paris had a special menu for his American guests? Don't make the mistake of thinking all people that afford your work are jerks - it should be a fair and even agreement that benefits both equally. If not, pull out the special menu.
In the interest of fairness, another wealthy repeat customer always paid well (through GC or designers), but today is led off in handcuffs for a Ponzi scheme, with houses, planes and Bugatti all seized by the FBI. As I say, he paid well (too well?), but I always had an eye on him, and kept up with the newspaper articles on him, hoping to avoid a loss. I did.
I have been losing bids to customers (good ones who like my work) because they feel I'm priced too high. There are just way too many cabinetmakers around here that also do good work and will work for less, and buy the jobs they need. I do admit that there are a few good cabinetmakers that always seem to get their price (high) in each and every area. Could be that they're very, very good at sales and have the personality to pull off the better deal. I think all of us could use some improvement in being better salesman.
Contributor C has some very good ideas, but I would like to see him work this area. I know one of the best shops in town - they get top dollar, and won't take less than their asking price for work. They're 4 months behind in their bills from what I hear (from the horse's mouth) and standing around everyday with nothing to do, looking at the new trick CNC collecting dust and demanding monthly payments. Each and every area has its own economy. What works for some in their area won't work somewhere else. For many of us who are trying to hang in there, we have to play it smart. Once things start to pick up somewhat, there just could be a reversal of fortune. More customers than cabinet shops. At least at that point prices should and will go up.
I am getting very close to starting a new venture, one that has my prices for products posted online. I know what these products are selling for, and we will set a price and stick to it. If someone wants a deal or a lower price we are going to stick to our posted prices.
