Making Money on Custom Installs

How can a 2-man operation stay profitable on cabinetry installations? A discussion of costs, pricing, planning, and time management for installing custom work. July 27, 2008

How do other cabinet/millwork companies handle installations and any liability insurance associated with this?

Our main customers are interior designers and homeowners. We focus mainly on custom furniture and cabinetry and mostly do built-in work such as entertainment centers, libraries and the like. Since we donít typically work with builders who may have subs to perform the installations, we are generally stuck doing this ourselves. Also, since the work is entirely custom, the installations are usually non-standard and the workload is irregular. We have had trouble finding a sub that can work from an installation diagram and is willing to do the occupational job for us.

This has lead to many issues for us. First and foremost, we are a small shop with two fulltime owner operators. So when we are out installing a job, we are losing money and falling behind because no work is being done in the shop. Second, we only carry minimal liability coverage, $500k, to keep costs down. Finally, since both interior designers and homeowners expect you as the cabinet company to also perform the installation, we are concerned that if we stop providing installation, we will lose these customers.
How are other small shops handling this? Do you only provide millwork services? Also, what sort of coverage do other small shops carry (500k, 1m, greater)?

Forum Responses
(Business and Management Forum)
From contributor J:
I also am a small shop - 1 owner operator with a few part-timers here and there. I don't understand how you are losing money by installing. This should be part of your price. If you are subbing it out, you pay the sub; if you are doing it yourselves, then pay yourselves. I base all my pricing on a shop rate that includes my hourly rate (take-home), overhead, and profit - this doesn't change if I am in the shop working for them or out of the shop working for them.

As far as liability goes, I carry 1 million. It wasn't that much more expensive that 1/2 mil for me. Also, be aware that if you do sub out your installations and your subs do not carry insurance, you will get hit for it at the end of the year when they do your audit.

From contributor D:
We are similarly a very small custom shop. With rare exceptions (larger commercial jobs with union requirements), we always install our own work. I figure time to install as part of the price. On the two bigger commercial jobs where we didn't install, we ended up going back and having to fix and tweak and touch up and all sorts of stuff. On one of those jobs one of us was always there supervising... On the other, we stopped by occasionally and answered questions. We still had issues that needed to be resolved (both from the client's viewpoint and from the fact that our name was associated and we wanted it to look top notch). I've found that during installation is when a lot of clients need the most hand-holding and reassuring, and it's essential to our name that the final install is up to our standards.

As far as liability, we used to have a half mil. When we moved, our landlords required a million dollars in liability... Didn't change the premiums that much.

From the original questioner:
Thanks for the replies. When I said we lose money, itís not that we are taking a loss, but a dayís worth of work in the shop is much more profitable and much less aggravating than a day doing an installation.

We all know how it goes. You expect an install to take 3 hours. After spending a week shifting days and times around to meet your client's needs, you show up ready to do your install. After 2 hours of driving, you find out that the client does not want you to do any cutting inside. You explain to the client what type of work you are doing and that you have tarps and a shop-vac and will clean up whatever mess you make. Your client still insists that you cut outside. You kindly remind your client that the contract they accepted clearly states that all cutting will be done where the install is taking place. You kindly inform your client that for you to have to walk up and down the stairs for each and every cut would take all day. Your client refuses to allow you to cut inside and calls the designer that contracted you. Now you are getting a call from the designer asking what they can do to resolve this issue. Since this designer has given you a lot of business and can give you a lot more, you want to keep them happy, so you agree to cutting outside and your 3 hour day now takes you 8. Oh, and you're not getting paid for this. At this point you are hoping that this client never calls you again. But sure enough, they are calling you two days later wanting you to come back out and adjust a door that is 1/32 off. Welcome to the life of the small shop owner.

The whole installation just seems to be a can of worms. Especially when the client knows youíre the owner. Then they want to chitchat about all the other projects they want to do. And what do you think about this and what about that. Another hour of wasted time.

The other issue we have doing installations is most installs that we do require two guys, and when you figure in commute times, you basically lose an entire day doing an install. Since we are a two man shop, when we are out installing something for the day, our shop is completely shut down so no work is getting done. This backs up all the other jobs that we are working on.

You add all this up plus the cost of liability insurance and it just seems that performing the installations yourself is a losing proposition. Are there any of you that just do the millwork and tell your clients to find someone else to do the install? How does that work out? How to you tell your clients that you donít do installations?

From contributor K:
Stopping installs will cost you business. We have all had good and bad installs. Price your installs separate from the project. Visit every site before pricing an install. Ask where the closest place is to set up your trim saw, etc. I double install prices for upstairs, as I don't cut inside on a home that is lived in. If you hire a sub to install and they screw it up, you will still have to fix it.

1 mil in coverage only cost me 1 grand a year.

I understand if I am at a job site, I am not building cabinets in the shop, but I charge for both. I don't care where I make money. Actually, aside from hauling my tools around, I like doing installs as much if not more than building my projects. At least you have work.

From contributor L:
We carry 1 million plus a 1 million umbrella. Adding the second M as an umbrella is less costly than having it included in the basic policy (I have no idea why). We try to avoid installs for all of the reasons you pointed out. When we find a good installer we try to get them for all the jobs in a given area. Where the jobs are union, you will always have problems - best to avoid those areas.

From contributor A:
Our contractors mandate that we carry 1 mil/2 mil. It's not much more per year.

At the end of the day you have three obvious choices.
1. Install
2. Do not install
3. Sub installation

If you are not making money doing #1, then you can try #3. But by the time you are making money on #3, it will have become apparent that you should have done #2 after all.

We all hear your aggravation. We are in the shop because we like the shop more than the job site. We infrequently go to the job site, so it takes awhile to get acclimated to a different flow. It can be worthwhile to hook up with a really good group of installers who do as good a job as yourselves. Do not plan on making money directly off of them. Essentially, pass it on to them along with the headaches. In turn they will refer almost exclusively to your shop.

From contributor U:
So, how much are you guys paying for the $1M liability insurance for installations, and who is the provider? One agent gave me a quote with a 91341 code and the price is around $1900. The price seemed a bit high, especially since we also do furniture and there was another big fee for that.

From the original questioner:
I would be curious to know what the cost of 1m coverage is also. We just priced this and the insurance broker came back to us with a price of $1770 for 1 year of coverage. This seems really high. Considering the 500k we have now is just about $700. We have good credit and never had any claims against us. Also, this coverage only covers me and my partner. It would not cover anyone else. Assuming we sent an installer out, they would need to have their own coverage, otherwise they would be treated as an employee of ours and then we would have to cover them with workman's comp also. Needless to say, we are shopping around.

From contributor E:
I agree with much of what has been said already. I do all my own installs, many by myself, and I include the install in the price of the work. If you think your install is going to take 3 hours, you're still charging for a full day's work, right? If you think it will take 9 hours, you charge two days. Installs almost always take longer for one reason or other, but you can account for much of it when you're pricing the job. As for insurance, I carry a 2 mil policy, 1 mil per incident, and it costs me about $1200 per year.

From contributor Y:
You're treating the symptom, and not the cause. If you track your installations, and learn to price your installations so they are as profitable (or more - for the PIA factor) than your shop work, *and* you learn how to schedule your yearly workload properly, the problem goes away. I wholeheartedly agree with the others about not subbing the installs out if you can avoid it. You will lose control of the finished product, and for small shops, this is critical.

From contributor V:
Our contractors require we carry 1 mil and that we provide them with a certificate that lists them as also insured. Pretty standard. We require any sub to do the same for us if they are working on one of our jobs. We also have to provide proof of workman's comp when we have an employee.

Personally, I hate to go on installs. We do our best to price accordingly. We are still looking out for that good to better installer.

A cabinetmaker friend doesn't do any installs. He builds boxes with doors (nice ones). His installer is a subcontractor, licensed and insured. The installer asks female customer where the bathroom is, or should he just pick a tree. Needless to say, the cabinetmaker is looking for a new installer. It was just unprofessional and rude.

From contributor T:
I don't do installs anymore and make more money now. I fabricate and sometimes deliver, but delivery is expensive if not local. A delivery company does this for me. Designers don't get deliveries, homeowners do. Designers have the resources to use delivery guys and installers. My prices for fabrication only are very good, so this helps them. I am getting away from custom built-ins and most of my business is for furniture retailers. This means lots of multiples which start going out the door very fast as time goes on. Shortcuts are found everyday, jigs and setups become permanent, some parts are cheaper outsourced, money is pouring in. Small scale manufacturing is where it's at for me.

The custom stuff was burning me out. The little I still do is mostly outsourced. I assemble and finish only. I pay my contractor buddies 10% for any new work and add it to the final price. They sometimes get the install too.

My business insurance covers everything, 1 mil liability and fire for the shop, $125/mo., Toronto.

Find some mid-sized med-high end furniture retailers that are interested in your woodworking shop and work with them as far as pricing goes. Custom cabinet prices do not work for them, but manufacturer's prices do.

Then you will be able to stay in the shop and use the van once a week maybe. You will save $200 a month just on gas. Same old truck will now last forever! And since you're in the shop working all day, the billable hours will pile up.

From contributor W:
For a 2 man shop, not to sub installs is just plain foolish. Get a good installer with the proper insurance. He will make you money. What you lose when you install yourself is an opportunity cost. That is a basic accounting principle that seems to be very misunderstood. If you are installing cabinets, you are not building cabinets. If you make $50 installing cabinets and $100 per hour building them, it is costing you $50 per hour to install. You don't see the cost, but it is there.

From contributor D:
While I understand from a bottom-line accounting standpoint how subbing out installs makes sense, from a broader business standpoint, I see big potential for problems. Our projects, with the exception of some commercial stuff, are all very customized, including all the problems that show up during install (the huge bow in the wall that somehow missed our squares and levels in the final measure, etc).

Besides hand-holding the little install problems, that is the last point at which we have any major contact with the client, unless there is follow-up. That is the final impression the client has of my company. All through the project the client has had close contact with us (usually me).

If I did sub out the install, myself or my business partner (who is the shop and project manager) would have to go out there anyway to do the final look-see and punch list.
If we were slightly larger, we could have two guys on an install and two guys still in the shop working (and we did have that a year ago when we had a bunch of commercial stuff all at the same time).

I might consider having an independent contractor as an installer, as long as one of us was there with him to oversee and hand-hold the client if necessary.

From contributor E:
Contributor W, I'm a little confused by your response. If you charge $100 an hour while you're in the shop, why wouldn't you charge $100 an hour to install? I don't see any logic in charging half your rate for one type of work vs another. Whether I'm building boxes, installing them, drawing up plans, sweeping the shop floor, cleaning the toilet, etc., I'm still charging the same daily rate. As a one man shop, it works well for me. Maybe it's different for bigger shops?

From contributor J:

As a small shop, I sell myself as a craftsman who is very concerned with every aspect of my customer's project. This necessitates installing and I believe also helps with future sales and word of mouth advertising. At least here in Dallas, showing up on time in clean clothes can mean more than the bottom line. As far as opportunity cost goes, I understand that. I don't understand why someone would charge less to install than they would to work in the shop.

Also, it always takes longer than you think it will because even if the install only takes three hours, it works like this...
1 hr - waiting for helper to show up (late)
1.5 hr - wreck on the interstate
.5 hr - chase the dog down the alley that got out of the open gate
.5 hr - answer a bunch of questions about something another trade did and you don't know anything about
.5 hr - call the GC and try to figure out why the plumber roughed it out wrong
.5 hr - talk to client about the entertainment center that they probably won't build
1 hr - what do you mean you took the battery charger out of the trailer yesterday?
.5 hr - lunch
3 hr - install cabinets
1 hr - traffic

Of course they don't all go like that... Some are worse. You just have to plan and charge for it.

From the original questioner:
Thanks for everyoneís for the input. This sort of candor is hard to come by and itís nice to hear how others handle these same sorts of issues.

I agree with contributor W about the cost issue differing between the shop and the install. This is kind of what I was talking about when I said you lose money doing installs. Itís more apparent when doing custom work because your profit margin varies greatly. You really donít have a set hourly rate. Yes, you have an hourly rate that you base your pricing on, but on top of this you always have to consider what the market will pay for certain work. Just because you have an hourly rate of, say, $100 per hour to cover your overhead, this does not mean that you are going to bill every job at this rate. This is the minimum that must be covered for your business to stay solvent.

For example, we did two mahogany end tables and an oval coffee table for a client. The material cost was about $600 including finishing supplies, etc. It took us 3 full days to complete this job and we sold the lot for $5500 plus a delivery cost of $150. The client had found very similar pieces at a retail store for about $6500 or so and had asked us to bid this work also. Knowing the retail cost, we are not going to simply bill at our minimum hourly rate which would have only given us about $2400. We are going to bid what the market is willing to pay. So in this case, our hourly rate was about $210.

Using the above example, had we been out doing an install at an hourly rate of $100, we would be losing $110 per hour for these 3 days. Even though you bill installs at your hourly rate, you are really losing money because of the higher profit margin on the shop work.

From the original questioner:
In response the discussion of being on site during an install as an opportunity to promote your business and to really ensure that the client has a good image of you and your company... This can be a double edged sword and only applies when you are hired directly by the end-user client.

In most cases, we are hired by a designer. So we donít have any interaction with the client until it's time to do the install. In fact, when working with designers, you even schedule your deliveries and installs through them. You as the cabinetmaker have very little if any direct contact with the actual client.

So when you show up on a job site to do an install, you are technically representing the designer and everything you do to show how professional you and your company is gets reflected back to the designer. You are making the designer look good. You really have to be careful here because if you try and promote you and your company to the client, the designer that hired you may feel you are creating a conflict of interest, even more so if you also do design work as well.

The rule of thumb we follow is when we have been contacted by a client directly, we do everything to promote our business and our professionalism. When we are hired by a designer, we treat the designer as our customer and keep them happy.

The biggest problem with working behind a designer is when it comes time for the client to give a referral to a friend, itís the designer that gets the referral, not the lonely cabinetmaker who showed up one day to do an install.

From contributor P:
I'm a one man shop. I just got a quote for around $1600 for $1M/$3M in liability from my broker. Got two installs coming up that scared me into it - a high-rise retirement complex, and a 6-story condo building. By coincidence, my client in the 5-story building had his place flooded by a leak from the unit upstairs. Ceiling sheetrock down all over the place, water damage to floors, and it affected units all the way down to the 1st floor. I hate installs for the same reasons as others, but they allow me to ensure that the work is installed right, and I get some face time with the client.

From the original questioner:
Before you pick up that high priced policy, try calling a few other companies first. We just upgraded our insurance to a 1m/2m policy and got it for just under $800. We were kind of in the same spot you are in. We had a job coming up that required 1m minimum coverage. So we called a broker to see what the cost to get a policy at this coverage would be and they came back with a price of $1770. When I asked the broker why so much, he said, well, you said you needed a policy in a hurry, so I just picked one. Needless to say, we called a few other companies and ended up getting a policy through Country Companies for just under $800.

From contributor P:
Thanks. The first quote came in at $2300, so at least I'm heading in the right direction.

From contributor D:
Just wondering on some of these quotes being thrown out - do these liability policies also cover general business activities (tools, machinery, computers, client property in your possession, valuable papers, etc.)? Or do they just cover liabilities?

From contributor P:
The quotes at the low end are just liability.

From contributor E:
To be honest, I don't know nearly as much as I should about my policy. What I do know is it covers liability for installation work. Loss, if for instance the cabinets were damaged in shipping and had to be remade. Shop equipment, in case of fire. Not sure about client property in my possession or valuable papers. I'll have to bring that up next time I talk to my insurance guy.

From the original questioner:
From what I know of our policy, we are covered for general liability as well as loss of tools and material in the event of theft or fire at the shop, but only at about half their total cost. There is also coverage for damage if we had an accident on the way to a delivery and a few other items like this. But I must admit I really donít know what all is covered and what all is not.

From contributor L:
Just a note about shop equipment, WIP, inventory, and the like that you have coverage for. If you have 100K in the above but only insure for 50K and have a loss of 50K, you will likely only get 25K. Most insurance requires at least 80% coverage. I've read all of our policies and have to admit, until you've read more than you want to, you can't understand a lot of what's there. I just circle the things I don't understand and make the agent explain them to me in detail.