Price comparisons and why not
A magazine article shows the great variances in pricing work across the country, and illustrates the necessity of pricing each job based on local markets and shop expenses. March 23, 2002
Every so often someone asks the question “What should I charge?” only to have everyone reply in virtual unison: “It depends”. Now, at last, there is some documentation on just why “It depends”. Check out the October 2001 issue of Cabinetmaker magazine. In it there is an article where they priced out several different projects by twenty shops around the country. The results are a real eye opener.
For example: A clear alder kitchen was bid at $16,500 from an outfit in Indiana. The identical job came in at over fifty grand from a company in Washington State. A mahogany library got a low bid of $9,600 and a high bid of $41,000. A church lecterns bid ranged from $470 to $4,500. An oak kitchen went from $5,300 to $22,000. In each case, all bids were pretty evenly spaced between the high and the low.
I think these comparison studies would be far more useful if they could somehow include an index of what it costs to live where you build these cabinets.
My shop is in Seattle. I ran an employment ad several times last year, offering $1000 a week to start. One applicant (I think from Oklahoma) concluded that life was better where he was, at $10 an hour. As I recall, he could buy the house he was living in for around $40,000. A similar house in my town would cost $400,000.
I read the Price Survey with surprise. I can not believe that some of the low bidders looked at the specs. How can people price things so low? The answer is that they can't - even the garage shop eventually has to pay for material and utilities. If someone believes that the price range is caused by some other reason, I would be interested in hearing the analysis.
The only thing that should matter about a bid is your price. Setting your prices from a competitor's bid is a sure path to the poor house, as this study proves. Which price would you choose to match?
You need to know your costs and know what you want to make on the job. Then you'll be profitable. It does take some effort. But could you ever imagine being a general contractor and bidding jobs the way you do now? If not, it's time for you to change the way you price your work.
I would think that there would also be a lot of variance in price quotes based on company size or capabilities.
For instance, if one cabinetmaker works alone with low end tools and high piece pricing for wood stock, while doing excellent detailed work, he may have to charge an extremely high price. Then there's the longer time to fabricate along with his possibly inflated hourly labor rate for being a "craftsman".
Another cabinetmaker may purchase stock P2S by the multiple MBF and reduce his cost of stock, have several presets and higher capability tooling. He can run the cabinetry more efficiently through the shop, saving much more money on individual jobs still working to the blueprints. Doing more jobs to make the same profit margin with more employees. An example may be commercial hot glue capability rather than white glue and clamps... a few minutes or all day?
In a lot of cases where work is subbed out to meet a certain timeframe, escalating costs are the result. I believe some of the cost differences can also be inflated geographically because of stock availability for your subcontractors and cost of living prices for them as well. I have a small shop (3 to 5 employees). We have had to double a bid from time to time in order to get a job together on time when we are overextended from design changes or whatever. Sometimes you need that outside help, and if you need that profit, you better cover all the angles. So the truth is, you never really know what to charge until you figure what you will be paying out.
To know what to charge, you must first establish how long each section of the project takes, which requires time tracking on every project. Every job has its own time sheet with an extensive break down as follows: (milling, assembly, scraping/sanding and finishing in each category) cases, face frames, doors/drawer faces, drawers and additional categories for edgebanding, machine setup, hardware installation, and delivery/installation. At the end of every day, it is the employees' duty to fill the sheet out in 15 minute increments (it only takes a few minutes).
From this I can do the math and figure the average time per door, drawer and case, etc and apply it to future bids. I have established a similar method for materials. Keeping track of time this way has more advantages than for bidding. It can determine equipment upgrades, outsourcing and keeping an eye on employees (it shouldn't take 5 hours to build one drawer). This has helped me a great deal - some estimates have come within 3 hours of actual time taken.
I agree with the above. When we first started, we would guesstimate and after seeing profit losses in the first year, I took the time out (about two weeks) to develop a spreadsheet type program that enables you to track each employee's time and apply it to each job, for eight different operations. After about one year with that system, we could generate most estimates within a couple thousand dollars on a fifty thousand dollar job. Even though practically every job has its differences, as time goes by, the system just gets more accurate by going off of previous jobs. The problem lies in the fact that many of our competitors are probably guesstimating just like we used to. Otherwise I can't figure out how those other shops were able to bid so low on some of those jobs. When I saw those prices it brought back some dreadful memories.