Question
Do any of you in relatively small shops break down your costs/profits for the various parts of your operation, such as cabinets (boxes), doors, finishing, installation, etc.? This seems to be a lot of work, but I was wondering if it might yield some useful information... Such as, do I want to keep this part of my operation in-house, or should I outsource it? If so, how do you go about determining profit for each part of your operation?
Forum Responses
(Business and Management Forum)
From contributor M:
I don't really break down costs. I know that I can't make a door for what I can buy one for, so I don't even try. Finishing is a big expense, but I find it too hard to trust anyone to do my finishing, so I do that myself. There are jobs in the shop that I really do not like doing, like dressing lumber (I am not set up for it, so I buy all my lumber dressed). Any glue-ups I buy from a local laminating company. They make sure every piece is flat and I have them widebelt sanded. Installations are hard to farm out unless you can find someone with the same standards as yourself. It is hard to determine profit for specific parts of a job. I try to do the ones I enjoy and sub out the rest.
I know our drawers cost me approximately $25 bucks for a basic drawer and I sell it for approximately $75 bucks. I've also found that the size of the drawers really don't effect my cost of the drawer. Same with the doors. A cabinet box is approximately $150, clear maple finished one side. Face frames are about the same. We don't do per foot pricing. I've found it is very inaccurate. However, the per part price comes very close because I can add variables easier.
It takes time but it does not have to cost you much. Just have employees track jobs for a while and trends will develop.
It also gives me an idea of what tooling I need when I go to IWF. The way cool saw thingamajig will not save me nearly as much time as I think it will because I can pull the numbers and know we don't really spend that much time doing whatever anyway.
The hardest thing is to get the employees to fill it out. Unless you make it their timesheet and pay off that. Most important tool I have in the shop.
The one item that misses the job estimate most often is engineering. We only track the CAD/programming time (3 CAD operators). Other office and supervisory functions are part of general overhead. Our software allows easy graphing of results and that is the easiest way to see if you are improving over the long run as opposed to job by job. Set your trend line assumptions correctly and it is a good tool. Our services are more wide ranging in store fixtures than kitchens, so we really need to closely track costs so we don’t make the same pricing error too many times! General overhead is calculated at the end of the year and divided by the standard shop labor hours (not including overtime). Our job tracking software uses the actual pay level for each employee plus the direct OH costs for labor. The same is true for our bidding software. Except in rare occasions, we do not add any additional labor costs in our bids for overtime. The assumption is that even though direct labor cost goes up by 50%, overhead costs do not. We’ve run the numbers several times and overtime is actually slightly more profitable than regular time. We try to limit it so no one gets burned out.
From talking to the smaller kitchen shops around here, I have the feeling that they don’t take all of their costs into consideration when pricing. If you want to grow a business so you have something to sell when you retire, you need to price to allow for that growth.
