Learning from an Under-Pricing Mistake

When inexperience leads a good cabinetmaker to under-price a nice kitchen, he tries to make up for it on a time-and-materials island — but the ensuing sticker shock strains his relationship with the customer. Older hands point out the lessons he should draw from his mishap. December 2, 2006

I've gotten myself into a bind. I took a big kitchen project this past winter. When pricing it, I didn't have much in my pipeline. I lowered my estimate from 35k to 30k. The project ended up costing 35k - 40k. Halfway through, I knew it wasn't looking pretty, but this is going to be a show kitchen in the future, so I didn't hold back on any of the details. (The customer's house is 5 minutes from the shop and the customer is more than willing to show it.)

I finished that aspect of the project and we are all pleased with the outcome. About a month ago, they finally decided on an island design. Pretty complicated, so I did this aspect T&M. The final cost of the island with a countertop is going to be around 15k. The customer was a little surprised when he got my invoice. We had a little heart to heart conversation and I explained how I had underbid the kitchen and that the island was a better example of the true cost. I would guess if one of the bigger shops in town did it, they would have wanted 55k. I'm feeling a little guilty. I can't figure out if I mislead them or not.

Forum Responses
(Business Forum)
From contributor C:
The problem with selling your work at lower than market value (for whatever reasons) is that it devalues your future work (price) in particular, and the field in general. My opinion is that there are so many garage shops out there outsourcing everything but business sense ($50,000 kitchen? I'm gittin' me a new truck!!) all undercutting the legitimate shops, that this is why the profession as a whole is undervalued and undercapitalized. In short, this practice is why so many work 65 hour weeks and make little to no profit, with no hope of financial stability or growth. Love of the work only goes so far.

But you didn't ask my opinion on that. You asked if you mislead your customer. You did mislead them, even though it was not your original intention. More importantly, you mislead yourself by your unrealistic pricing/not knowing your real costs. If the bigger shops would charge 55K, then what are you doing at even 45K? Is their productivity so magical that their labor and material costs are that much different? You are too low and full o' woe. Show yourself some respect and learn your true costs, get damn good at pricing, exploit your positive difference from the bigger shops, and make a decent living. Don't you deserve it?

From contributor H:
You did not mislead the customer, but you did try to fool yourself. But you have learned. You may not have made what you could have, but you did make money and not go in your pocket to finish it. I presume the client has paid you and the work is finished and quality is fine. You should not feel bad about money you might have made. You only guess the larger shop charged more. And the client, while being so agreeable to show the kitchen in the beginning, will now be reluctant after saving money and getting a surprise at the end.

From contributor G:

15K for a island is cheap. I just signed a kitchen with an island of 23LF with a lot of details... $23,650.

From the original questioner:
When you are young and take on a fancy kitchen:
1. beaded face frame
2. inset doors (applied moulding)
3. 9 foot ceiling with 8" crown
4. glass uppers
5. piles of applied moulding end panels
6. 9 foot tall slide out pantry
7. dovetailed drawers/Blumotion slides
8. pretty fancy island with quatersawn oak bar counter.

I try my best to do accurate estimating, but for everyone, that is based on experience. When you are young and don't have many big kitchens under your belt, things can look easier than they play out.

Everything in this kitchen was done in house by me with the exception of the dovetailed drawers. The only way you learn how much an applied moulding door costs is by making a kitchen's worth. Likewise, this is painted semi-gloss white. Lots of beads and details... a real pain to paint. This was my second paint job. I now have a better feel for those costs as well.

I have made a very good living the last three years. For a guy working by himself, a 40k job can hurt real bad if you miss-price it.

As for all of you who are complaining about the small shop versus big shop... I price my projects at what I believe the market will bare. I was not trying to undercut any other shop on this project. If I didn't do this project, they would have ended up with some overpriced frameless kitchen.

Thanks for the advice. I'm thinking contributor H is right on with his observation. I just ordered 10k worth of trim (crown/casing/base) and I was planning on installing it in two weeks. I hope all of this plays out alright or I'm going to be writing back in a couple of weeks.

From the original questioner:
By the way, I forgot to reiterate that I priced this job in November when I was looking real slow on work. Also, I suffer from a serious case of Seasonal Affective Disorder. I get pretty bummed out and tend to underestimate due to my mood. It's been a real pain in my butt for years. I wish I could bid all of my work in July when I'm feeling great. I hate New England's seasons. The rain in Connecticut this summer is killing me.

From contributor M:
I think you have it right, and contributor H gave you some sound advice - only thing I would add to your last post is to take the emotion out of your bidding process. You shouldn't ballpark the bid, but take the time to look at the design and come up with an estimating process that your dog could do in your absence - pricing is not a place for emotion; it will just lead to problems.

From contributor L:
I would have to say that you did mislead the customer. I would say it was, however, unintentional. I would recommend that you never do a job without giving a customer the price first. If you want to do it time and materials, that's fine, but then you have to, at the least, give the customer a budgetary range. In my experience, just giving the customer a bill at the end with no prior warning as to the amount always ends badly. You will usually get the money, but nobody will be happy. This I feel is where you were misleading. The earlier job was a deal and I'm sure the customer knew it, and I'm sure they were expecting the pricing on the island to be relative to the pricing on the kitchen. Come up with your pricing schedule and stick to it. I know if you're younger, that is harder to do, but you'll gain experience and it will get easier.

From contributor S:
Somewhere I read about the importance of a signed contract... oh yeah, it was at WOODWEB! Speaking strictly, as if I was the customer in this transaction, I would feel as if you gouged me a tad on the island, and your explanation of how you underbid the balance of the kitchen confirms it. I don't like surprises at the end of a project (that's why you had to bid it before you started). But, here's your end of the job surprise; I may only live 5 minutes away, and have the showroom kitchen in town, but you aren't going to be showing it to anyone!

It may sound petty, but unless your customer is very different from most, you blew all the good will you thought you were building. Unfortunately, even when you botch a bid, any additional work has to be at a rate comparable with the original if you wish to maintain good relations with the customer, unless you explain the error prior to accepting any more work. If you had told the customer in November that you were slow, and that you were offering a price incentive to generate work, and then given a bid in advance on the island, you wouldn't be feeling guilty now. Customers love a good deal and there is nothing wrong with offering one to fill in an empty time slot, but you also have to know your true costs when you bid. Did you bill them for the eventual costs on the kitchen job or did you eat $5k plus the time? As a customer, I would never go with a T&M situation for anything more than a few hundred dollars.

From contributor J:
Just goes to show how varied the pricing is in this industry. My last kitchen was 15k including a 7'L island, and I made a decent profit on it. Of course that was euro construction with paint grade shaker doors. I still haven't found those clients willing to pay the big bucks for inset doors and all the bells and whistles. But I'm just taking one job at a time and trying to earn those bigger kitchen projects.

To the questioner: sounds like you have found those clients. Your description sounds magazine worthy.

From the original questioner:
I'm used to working on multimillion dollar houses where doing 50k worth of T&M is commonplace. You did hit on a couple of the nerves that are bothering me. In rebuttal, why on earth would someone continue to work at a lower rate because he mistakenly did so in the past?

Of course, I fulfilled the original contract and then some. This kitchen was full of details and I could have skipped a few along the way, however I added a few because this kitchen was looking pretty slick. In no way am I trying to make up for my losses on the first part of the kitchen. Fortunately I haven't been in this situation before and hopefully won't in the future.

Here's a pricing question for you.
1. quatersawn white oak
2. L shaped with a miter (2' x 8' , 2' x 5')
3. 3/4 bullnose with an applied 3/8" scotia below.
4. Finished:
A. stained grain fill
B. stained
C. 4 topcoats

This is the countertop for the island - it's coming out pretty sweet… Lots of rays and flecks.

From contributor W:
Continue learning from every mistake you make and never repeat any of them. Did you include full workman's comp for every man hour involved? Did you mark up every sheet, board, slide, and delivery, or did you unload all those trucks for free and handle those payments and all for free? When you look at costs, don't forget any of them, or you're just averaging out your labor hours to fool yourself. A kitchen like you have described would be roughly 15 to 18 hundred per foot plus accessories, fancy drawers, decorative hardware, and carving.

From contributor S:
I wasn't accusing you of any wrongdoing or shortchanging the job at all. I was just trying to show the customer's perspective, especially since you mentioned right off that you had hopes of using this kitchen as a show piece, which also requires the continued satisfaction of the customer. We have all made mistakes on bids and contracts that we have had to live up to morally or legally along the way. No one would suggest continuing to work at a loss or reduced profit, but you should be upfront about it with the customer before accepting more work.

Suppose you charged $500 a foot for the kitchen, and the following week they asked for the exact same construction in the family room. With no bid or contract, the customer would be relying on the past transaction (and rightfully so) that the additional work should run about $500 a foot. Offering an invoice for $1000 for the additional work on a T&M basis will always be met with suspicion. Telling them up front gives them the choice of whether or not to proceed, and avoids the ill will at the end of the project. Customers hate surprises, especially at the end/payment side of a project, and I can tell you that by the time you are installing the finish woodwork on a home project, the budget is usually getting strained.

I have learned to never work on a project unless the customer has either a firm contract price, or a pretty firm idea even on a T&M job as to the final cost. It saves a lot of wear and tear on nerves and customer goodwill in the long run. I live in a multi-million dollar home I built, and would never have given, or as a contractor accepted, $50K worth of work without an advance estimate price/contract. Don't be impressed - I live in southern California, and a multimillion dollar home usually consists of 3 old refrigerator boxes and a washer/dryer box as a garage.