Working Too Hard and Still Broke
I live in an area where cabinetmakers are in excess, and competition is sharp. If I try to raise my prices, I lose work. I have tried every way thinkable to cut costs and increase output, but with little success. I have a 40x60 shop equipped with a 10" table saw, 37" widebelt, radial arm, jointer, planer, 4 shapers, 23 spindle line bore, hinge machine, Castle pocket holer, Ritter door/FF assembly table, and all the hand tools. I am a 1 1/2 man shop. I build most of my own doors and do all finishing and laminate work in house.
Last year I did 28 projects and my gross sales were only 88K. My cost of goods was almost 40% of gross! Are these things unique to me? Is it possible to make decent money in this business? For those of you that are successful, it would be very much appreciated if you would chime in with some input. It might encourage me to keep going, but then again it might convince me to bail out. If things don't get any better, I will be forced to put away the trade that I love working at the most, cabinetmaking.
I should add, I've been doing this for over 25 years, doing very well with it, but still have cash flow issues occasionally. That's just the way it is having your own business.
From contributor D:
You may have the tools, skills and desire to do cabinetwork, but it sounds like you are a very poor businessman.
“Last year I did 28 projects and my gross sales were only 88K.” Should that not tell you that you are not charging enough?
“I live in an area where cabinetmakers are in excess, and competition is sharp. If I try to raise my prices, I lose work.” There is nothing wrong with losing work if you are not getting paid for it.
My advice would be to take some business classes. Figure your expenses and how much you would like to make. Bid jobs that you can make money on and leave the rest to people willing to work for free. If you do good work and are fair and honest with people, you will find many who are willing to pay your price. If not, you might want to work for someone else.
From contributor P:
It definitely sounds like you are taking too much work at too low of a price. The time you spend working on low-profit jobs is time you cannot be making money on something else. Raise your prices 25% until you start to drop off 25% of your work, then you are making a little more for the same amount of time. Keep raising your prices until you find the right balance. Sometimes the best strategy is to let your competition take the unprofitable jobs - maybe that is what's happening to you, and you see the result.
From contributor B:
Why don't you, if feasible, list here what you use for materials, how the cabinetry is joined, whether face framed or not. What is your competition doing that is like or different from yours? Then maybe someone here can comment on how you can do something better, quicker, or cheaper so you can compete - of course all with the best quality that you can do.
For example, what about inset doors? Can you do them? Are others in your area doing them? I know it takes longer, but you can get a higher price for your work. Especially if no one else is willing to do them.
From contributor H:
I too live in an area where cabinetmakers of all kinds are in excess. But I don't do just cabinets. In fact, years ago when I diversified into stairs and millwork, I did so to separate myself from the crowd. I did not expect it to become the core part (over 75%) of my business, but it did. You might look for other things to do besides kitchens.
A gross of 88K for a year is low in my opinion. 50 hours a week is low too. 4 1/2 years is too soon to think about quitting. Kind of like bailing out of a marathon at mile 20. You've come this far, so why not give that little extra?
I have been through burn out. Believe it or not, the way to beat it is... time off. Work like crazy 5-6 days a week, but take that one day off. Don't even go in the shop that day.
If you are fearful of raising your prices, then lowering your costs is the equivalent. Buy in bulk. It's not spending, it's investing in yourself. Better to lay out two grand for a skid of ply than to buy that same skid over a couple of months and spend three or more. Same goes for drawer slides and hinges. Larger orders less often equals better price, less shipping, more money left over.
Lowering your costs by 3-400 per job could put an extra 10k in your pocket for the same time worked. I've been at this (had my own shop) for over 25 years. 30+ in the business and I still have a hard time now and then. It's part of the lifestyle.
From contributor L:
Read contributor D's post as many times as it takes to sink in. The statement of losing work you are not getting paid for is very true. Don't be offended by his and other's posts - they are great insights as to where you need to go. Make a plan and turn around and look in six months. Has anything changed?
Find out what you are losing the most money on - probably the doors. Next job, get a bid on the doors and see what an eye opener it can be. Are you running software?
I feel for you; been there, done that. I've got three kids at home and have to save for all their college educations.
Looking at your cost of goods to sales is harsh, but you need to look at this to see where you are and where you want to go. This is great insight into what adjustments you need to make.
I would assume the biggest obstacle you are facing is fear of not working. I know I've been there. It takes a lot of courage to step up and say I can't do it for that. It's going to take X. And X has a profit margin, something that can grow.
I hate to add this, but are you standardized in your shop methods?
From contributor U:
Read Bob Buckley's book "True 32 Flow Manufacturing." It will help you ask yourself the right questions.
From contributor E:
One part of your problem might be location. I live just north of the San Francisco bay area. I have had my business for only two years and am doing pretty good. I try to find the larger jobs. There is a ton of remodeling up here. I found one great person who has referred a ton of work to me. Try to find a designer or architect in a rich area and see if they have any work.
From contributor J:
I hit it very hard five, and occasionally six, days, but always take that one day off, because I know I have earned it. As for losing jobs, you can be broke, or broke and tired. I prefer just broke. Gives me time to catch up on my stuff, retool for my profitable jobs, get my stuff in order. Evaluate what makes you money, what doesn't. Lose the stuff that doesn't. Standardize your processes. Get yourself some pallet racks. Precut your standard parts (ends, partitions, decks, tops bottoms, etc.). This will help turn your downtime into productive time and speed your turn time when you are working on a profitable project. The doors even out my downtime also.
The stuff that doesn't make money I am no longer offering as part of my services. Need some 15.00 lf laminate tops? Mine are 40.00, but here's the 15.00 guy's phone number. They'll remember that he was pain a lot longer than the fact that he was the cheapest guy around, but at 15.00 he can't afford to be anything else.
Good advice on taking larger projects - smaller projects take as much time, overhead, and management as larger projects - even less per dollar. In the end, the good customers will stay, and the others will leave, freeing your time up for more of the good ones, maintenance, and refining your processes. Take a step back and a deep breath - tomorrow's a new day.
From contributor L:
I too have been there. One day I sat down and went through all I had done that year. I'd been keeping track of my total time for each job. It was apparent that the little jobs were generally losers. There were too many kitchen shops at too cheap prices trying to do new house work. I stopped doing any small job that wouldn't pay very well. I started doing specialty replacement trim that couldn't be had at the lumberyards, matching antique doors for folks with the money doing old house fix-ups or additions. I became known for high prices and was busier than ever. I worked hard at doing PR work that would get me in front of the people needing that kind of work. Never did another builder kitchen!
As a one or two man shop, you should be doing over $120K/man/year. If you feel you must do kitchens, buy your doors from a big specialty manufacturer (I know this is going to bring boos). You can turn more jobs through in a shorter time and make better money, and offer more styles than you could make yourself. I am really no longer a woodworker, now a businessman of sorts with many years of running a shop. I still do strictly custom work, but within a system. I have all the tools (3 CNC machines, molder, lots of software), and cater to a niche market using 24 mostly very good employees. And I still am known as too damn expensive, but currently have a backlog of good jobs in my preferred niche all the way into next year. (It took me way too long to figure out how to get here, but life is good now.) Be sure to take time to smell the roses along the way.
From contributor N:
I feel for you. I'm having a rough year myself. Since last December I've been worked over by one builder that orders cabinets (these are good jobs, cherry, maple, custom, and good pricing on my part). But he orders them, then stops work on each job site, jumps to the next one, and does the same thing. It's a long story, but once I got in, it's been near to impossible to get out.
Here's a few ideas. Talk to some other shops in or near your area, find out what they're really getting per job. If one won't talk to you, try another one. Most cabinetmakers will help, some won't. Don't do any jobs that aren't profitable. If there's a market for flush inset cabinets, there will be a lot less competition, as the production shops (that often claim they're custom) won't do them because they lose money on them, where a good cabinetmaker can adjust, get a new system in place. There's one local shop that does them all the time. He's really busy in an area where there's at least one cabinet shop in every other garage (some have pricey CNC's in them, no kidding). Yeah, go ahead and read Bob's book. It has some really great ideas in it. Maybe someone will loan you a copy. Join the CMA - the networking should be fantastic. I never did, but it's a successful way to go. Try outsourcing your doors. Maybe building doors isn't a money maker. Most shops don't build them anymore.
From contributor W:
Stop making doors. And if you are not losing jobs, you are not charging enough. And along with what everyone else says, when you make more money on jobs, it changes you: you become more relaxed, can provide more of the intangibles to your customers in the way of time, presentation, delivery, etc. that customers associate with quality - things they are willing to pay for that are not immediately apparent.
From contributor Z:
One way to take a look at what you're doing is to work out a business plan with an organization that helps small businesses, like a Community Development Corporation.
The amount of value you add to the raw materials, minus expenses, is your pay. I am paying $3.50 a board foot for wood, and sell it at $90 a board foot in the finished product, for example.
Marketing is key. You can offer a service that Home Depot can't, and you can charge for that service, and people will pay for it. You just have to identify those people, and talk to them. You can get your truck fixed for cheap at a super store, but would you?
From the original questioner:
First, I want to say thanks for all the great responses I've gotten. It's nice to know that there are others out there that have been in my shoes. I build traditional face frame cabinetry, mostly stain and lacquer finish, with laminate tops. A lot of my work is through builders. There is a huge cabinet shop not 5 miles away from my shop that produces pretty nice work to the tune of three complete sets a day! Although the quality of their work isn't the best, a lot of builders love them for their prices and lead time. It's discouraging to drive around all day looking for potential clients and have almost everyone say they're not interested because they are happy with the other shop.
I went to look at a job a week ago. It was a 5000 sq. ft. custom home, huge kitchen, 7 bathrooms, powder room, downstairs wet bar. This job is to be raised panel doors, fluted columns, expensive mouldings, etc. The upstairs was to be finished an off white, and the downstairs was to be cherry cabinets with a dark stain. When I got through going over the job with the homeowner, the GC pulled me aside and told me he only had 18k budgeted for the job, and asked me to please keep it within his budget! I appreciate the input about not working on jobs that aren't profitable.
I use mostly FAS lumber for doors and face frames, and imported plywood (junk, but cheap). I use 3/4" plywood for the boxes, and pocket-screw the face frames to the case. Drawers are butt-jointed, face frames are assembled with pocket screws.
Several have suggested that I outsource doors. I have done that on a lot of projects, but I always come back to making them myself. I think sometimes it's because I need the extra work to keep my shop busy. I am ashamed to admit that in times past, I've built the doors because I could buy lumber on 30 day terms, complete the job, and collect my final payment in time to pay off the lumber supplier, whereas my door supplier requires a c.o.d. payment plan. This is not good business sense!
As for software, I do have a nice program for drawing and cutlisting jobs. I also do have standardized production methods.
From contributor R:
Let us know what market you are in. There are lots of ways to address your situation, but it helps to know where you are from.
From contributor B:
That's what I meant about inset doors. You're trying to compete against a group that is doing the same as you are. Do something that they aren't. You can't do the same as they do and give your customer the same. The GC is not going to change. What you need to focus on is the individual homeowner who controls the budget. If they want insets or pull-outs or corbels or whatever, then it is they who will get the GC to change his mind. Make samples or displays, hit the pavement to show your product... shows or some kind of improvement weekend programs. Some way of advertising your work. Get some work in. Build up your cash flow some so if you have to outsource doors, then you have monies to pay them. Of course, best is to have some sort of credit with them so you can get doors and pay a couple of weeks later after you get full payment. Also, that means you will need a down payment and so much percent along. I know of a few who get 50% down, 40% when delivered, and remainder 10% when installed and completed. Maybe you are doing that now. But you do need a positive cash flow situation. Focus on a different market. Try remodels instead of new construction.
From contributor B:
A little more about the 18k budget for that job you mentioned. In my area, that's a joke. All that for 18k? Either he is misrepresenting what really is budgeted, or new home costs are really low in your area. My opinion, anyway. Another item to consider... Can you offer a different looking finish than what is being offered there? After all, a Rolls-Royce with an Earl Schieb paint job is not going to look like a Rolls-Royce!
From contributor C:
Hang in there a while longer and heed the advice of all who post here. After 25+ years
of this, it took at least 10 to realize I was in the wrong market (store fix/new builders). Also, getting married, having kids, a house, etc. makes you aware that it's not just yourself anymore.
Now it's contractors, architects, interior designers, and direct to the homeowner. As for the GC that showed you the McMansion - my immediate response would have been, that's just for materials, right?
You know how to build it - you must know how to sell it!
From contributor P:
You won't find the answers by looking in; you have to look out. I would suggest that you join an organization geared towards woodwork. Talk to the members, find out who is doing well and why. Look in the Yellow Pages and see who has been running an ad for a lot of years. Find out who they are and what they do. Look at your own invoices and find out what kind of jobs made you money.
More often than not, I find that the businesses that have done well are or were in a growth market. For example: Shops in the states surrounding California, because the baby boomers are retiring to those states - Arizona, Nevada, Utah, Oregon. Shops that grew with the dot com boom. Shops that are central to 60% of the population that is on the east coast. Shops who were in business before the population grew in their areas. Conversely, shops in the flyover part of the country where the population is shrinking have a hard time.
Do you want to be a marketing driven company or a manufacturing driven company? Marketing driven companies concentrate on marketing and simplify their manufacturing. Manufacturing driven companies simplify their marketing by dealing with contractors and designers and offer more customization.
In any case, you have to be good at sales and marketing. This can be learned. The only legitimate reason for quitting is you don’t want to do it anymore, otherwise dust yourself off and go out and play the game for blood.
From contributor I:
The fact that the door supplier expects c.o.d. and you can't cough it up is indicative of very little profit in your jobs; you're using deposits to live on. That's okay in the beginning, but you've got to get past it. There has to be enough profit to live on and use the deposits for what they're for. Don't struggle to wait for the payments to pay your materials, or it will eventually get you, trust me.
The builder pulling you aside for the 18k budget - look at the prints with him and see if it was all drawn. If not, you have an opening. Second, get a quote on pre-finished doors on all of it from Walzcraft or Conestoga. I bet 3500 to 5k. Can you make, spray, labor, hardware and install for 8k? If yes, then you've got 5k or so left for profit. You will be shocked how fast you can turn cases and columns out without doors over your head. Plow the profit into credit lines and save a little.
There's enough info in this thread to get you upright. Also look into high end remodels and high end remodelers - they are almost recession proof.
From contributor X:
From what I gather, the questioner has the tools, the knowledge, and the ability to do the job, whatever it may be. But he's still burnt/tired from the rat race. Pressure of having to compete can be hell.
Draw the line of working in the cabinet shop versus working on the cabinet shop. Set aside time to join and participate in various clubs, thereby promoting oneself, have a social life. Take time off. The more friends you have, the more money you will make. Regain the original picture of enjoying one's work. All work and no play makes for a dull boy who's burnt out.
From contributor O:
Welcome to the business world! This is a great opportunity to make some significant changes in how you do business! Nothing will get better without change.
We find that many small business owners highly underestimate their cost of goods. When you add a small profit onto this loss, you may not even be hitting break even! It would seem logical, then, to map out your real costs (including building, heat, trash removal, everything!).
It seems like you need a good plan. You should start with evaluating if it makes sense to chase all the bottom feeder work. This is low profit work and most of it is going overseas. You won't survive chasing this business. You need to find a reasonably priced market niche that will allow you to have some fun and to make some money at the same time. You may also need to raise the bar on the level of quality that you are providing in order to gain some new business.
From contributor W:
Your average revenue per job is too low. Stop taking the smallest jobs unless it is for your largest-job customers. This helped me mentally in raising prices: if your profit is 2%, raising prices 2% will double your profit. As it is now, you have no profit, so somehow you have to move into a niche where you can charge more.
Everyone in your area is using this one cabinet company down the road? This is a very tough situation. Moving to a larger market would be a good move, but you can't afford that. Would you consider doing installs for the other cabinetmaker until you got back on your feet? Sorry if that sounds like heresy. Then consider selling another company's line of cabinets? But then you are a businessman, and it sounds like you really just want to work with wood.
From contributor Y:
My guess is that you are caught in the cycle that many new businesses find themselves in. Opened a shop without the tools, used the deposit for tools, put the materials on account, waited for the balance, and then paid the materials with the profit and remaining balance.
Like most of us, you didn't have a clue how to bid, nor did you realize the costs of running a business. You guessed your bids as close as you could with no information. When you bid, it sounded like a lot of money, at least it was more money than you were making at your old job (or so you thought).
If you own your equipment, you have been making better money than you realize. Remember, when we buy equipment, as much as this feels like an expense, it is really "owner's equity" and comes out of profit. If you have leased your equipment, then you really do have a problem.
Here is what I would do if I were you...
1) Raise your prices!
2) Start subbing out install and counter tops. I know this feels like giving money away, but you will be amazed at how much more work you can do.
3) Raise your prices! If you can't make money at this, then stop doing it.
4) Do something that nobody does. Beaded inset face frame cabinets are a good idea. Specialize in rustic distressed cabinets. Dress your cabinets up by using a lot of fancy fillers and mouldings and turned legs.
5) Raise your prices!
6) Bid more work! You will lose some. It is good to lose bids. You need to develop a system for bidding that gives you confidence in what you bid. So many times I would go to give the customer the bid and I would think, "man, they are going to freak out at my price - I better lower it so they like it." I never do that anymore. The price is the price. I would be willing to give you a copy of my spreadsheet that I use for bidding if you don't already have a good method.
7) Change to European style cabinets. They are faster and easier to build and you can charge the same money for them.
From contributor Q:
You and I are both at the 4.5 year mark. I was like you until someone here put it very simple, in a way I can understand. Do not buy work. When you do your estimates, add 25% to it. I can tell you, if materials are at 40%, you are way underestimating you work. Material in my shop is 20-30% of job cost. I try to aim for 20%. I will also preach to anyone that will listen - do not borrow money. Get out of the net 30 crap. Take your deposit and buy materials. The shop should run on the final payments of the last job. And find another product to make. You can not compete against the big three-kitchen-a-day company. Do not try. Maybe you can go to other shops and supply parts for them. But keep at it. It will all work out in the end.
From contributor F:
I agree with much of what's already been said. Your prices are too low and you are competing against the wrong people. I've been at this on my own for about 6 years now. For 18k I'll build an average sized Euro kitchen with not much in fancy extras. Inset beaded face frames with all the fixings - you're talking about 50k. And I've been told I'm still too cheap.
Now I'm probably in a different market than you, so dollar value will be different. But I'll emphasize points already made which I think are worthwhile. Raise your prices to reflect your work. If you're capable of doing high quality work, then you need to charge for it. If you're bidding too low, people will think your work is low quality.
Look at your materials costs. These should be more like 20-30% of your project cost. Are you buying wholesale or from lumberyards? You need to find the lowest prices available to you.
Have all your materials delivered. Whatever the delivery costs are, they're usually still cheaper than taking time out of your day to drive around for materials. Also as stated before, check around to see if other shops have extra work. I've got a shop down the road who is always busy. I haven't done any work for him yet, as I've been busy myself, but there is always that option.
The final thing I'll add is to look at how you bid jobs. A search in the archives should load you up with info on how to figure your overhead and come up with a better bid structure. And remember to add profit. No, your paycheck is not profit. Profit is what's used to invest in new machinery and squirrel away for the slow times.
If you cannot raise your prices to make a profit and stay in business, then you will fail eventually - just a matter of time. There is no easy solution on how to make your business successful. If there was, there would be a lot more shops to compete with. We are all lucky to have these forums for info, but it's up to you to know how to make your business profitable. Take the info from this thread and have at it!
From contributor S:
Woodworking to me is the best trade there is, but making a living at it was hard because of all the competition. Finding new customers was easy, finding customers that paid for high end work was hard. I went back to school and got a MBA in sales and marketing and turned things around and later teamed up with another woodworker and 9 years ago we opened up a marketing company to help woodworkers gain in sales and give them high end marketing that they can afford. What I'm saying is do not give up.
The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).
Comment from contributor O:
As for the GC, keep in mind that can be an intimidation tactic, just bid it the way you normally do. I can't tell you how often a client or contractor said something similar and I came in double and still got the job. Hang in there and be confident in yourself. My motto is that they are not custom cabinets if they came from a catalog.
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