If I can get a knob from a wholesaler for $1, and the same one is available at a lumberyard for $5, what should I charge a client when quoting a job?
From contributor K:
Manufacturers have retail values for their distributors. But you can sell it for whatever you want. To some, you should only be able to mark up materials 20%, which would only be $1.20, which is ludicrous in my opinion.
When we supply our customers with the catalogs of what we offer for knobs/pulls, we tell them that they can choose any knob/pull with a retail value of $5 or less (which covers the vast majority of them, with the exception of specialty items), but they can choose whatever they want. If they want one that has a retail value of $20, then they just pay the $15 difference for the knob/pull from the $5 we already offer as part of our pricing.
We also use boards containing the most popular knob/pulls for them to experience. If they want a sample... They pay retail price.
Since it is the last item to go on, they have some time before they make a final decision, but it is also handy to have a sample door/drawer front on hand. We provide one that will actually be used on the final product (we have enough samples).
The other problem is nowadays, most clients can buy hardware at wholesale prices online. Then you will be stuck trying to justify your markup. When most guys start trying to justify this markup, it turns out they are using the markup to offset what is actually overhead and production costs. This cost should be calculated independently, as it usually does not vary. For example, it costs me the same (overhead and production) to order and install any surface mounted drawer pull. Flush mounted and mortised hardware costs me more to install, so I have a different labor amount for those, but the ordering and receiving cost is the same. The same holds true for other material and hardware choices.
There are exceptions. Sometimes I have to import items from overseas and there is another layer of overhead, but I charge for that cost instead of using the retail markup used at the hardware store. Also, I buy some items wholesale (usually imported) that I will sell to other cabinet shops and carpenters. These items are marked up to a retail price based on what I feel makes it worth my while to offer them.
It is frustrating to me to go into HD, see them advertise kitchen cabinets at $100 a lineal foot, but when you turn the sign around and see the real cost, it works out to be 5 times that and they charge you extra for the hardware. Customers don't look at the other side of the coin and figure your cabinets should be $100. Less if they pay you cash. I have always struggled with pricing.
That said, your business is made up of profit centers. These are where you extract profit from the business. How much you extract from each profit center is up to you. There are many ways to get to profit, but you first have to decide what "profit" means. Profit is what is leftover after everyone (including you) has been paid. Profit is not what you pay yourself at the end of a project.
If you focus on price when selling, and add pricing gimmicks such as discounts, then add one more to your arsenal and use HD as a selling point of them charging their markup for their knobs/pulls, and tell your customers exactly what you said (i.e. - you charge 50% less than HD, and yet you still make more than a 20% markup).
Personally, I think this is a mistake, as it places emphasis on pricing. They are spending thousands with you on cabinetry, for example, so dickering about $2-$4 on hardware gets them in the mindset of "how can I get more money out of this guy?"
Putting that aside, it takes a little more than twice the amount of labor/time to install a pull that has two holes versus one (and that money has to come from somewhere). There are many ways to accurately account for your labor and increase your ROI.
Productivity gains are one of them. Let's take pulls, for example. If your shop rate is say $75/hr, and after studying how long it takes you to install a pull, you come up with 7 minutes. $75/hr divided by 60 minutes (hour) gives you $1.25/minute, or in this case $8.75 ($1.25 x 7 minutes) to install a pull. In our case, we always charge by a factor of 1.25 to allow for Murphy. Plug in whatever numbers make sense for your situation.
Now, you invest in a jig that allows you to install that same pull in 5 minutes versus 7 minutes (a 28.5% increase in productivity). That does not mean you now charge 28.5% less to install the pull, but rather increase your profit from that profit center by 28.5% because you increased productivity and are now providing a ROI on the jig.
If you have a shop rate, and you sit down and figure out what each step of the process actually costs you in labor alone for both fabrication and installation, never mind profit, you will most likely find that you are not charging enough. And this is usually the reason most end up robbing Peter to pay Paul, because they have not accurately accounted for labor and profit (which covers shortcomings on the labor side that we all experience).
If you are having a hard time with pricing, that is a place to invest your time to understand, the same way you would if you bought a new CNC and had to learn to program it. Is it hard? Yes. But nothing can have a greater impact on your family, the growth of your business, your employees (if any), and your sense of confidence in running your business.
You are taking the right steps in trying to understand pricing better. Now take the time to really start to understand pricing for the rest of your business, because what to charge for pulls is small potatoes compared with the business as a whole.
You can also have them pick and supply their own pulls, which you will install if they have them shipped to you prior to the delivery of the cabinets. Too many options and what-ifs can take too much time to realistically and safely price, so the cost of the pulls is $5 unless they cost more than $5. It recalls my favorite line from "True Grit" - “I do not entertain hypotheticals, as I find real life vexing enough.”