The Food Chain

Do cabinetmakers have trouble staying profitable because they get paid late in the project? Maybe ó but smarter pricing can still help you make money. September 15, 2011

Are we (residential cabinet makers) just too far down the food chain? It seems like we are in a free-for-all business. Everyone just does what they please, contractors, designers, homeowners, other subs, and it adversely affects our outcome and profit. I cannot predict the behavior of others. Customers hold up things by indecision, contractors are disorganized, subs put plumbing and electrical in the wrong places, on and on. I admire the architect, he is right in front of the project and gets his money while there is plenty.

Forum Responses
(Business and Management Forum)
From contributor L:
Yes, that sounds about right, unfortunately. We try to go direct to the home owner as much as possible. The home owner will pay sooner than the contractor who may be having difficulty with another trade whose invoice was submitted to the owner along with yours. By going direct we tend to financially separate ourselves from all the others and their problems. We tell the contractor to tell us how much mark-up he would put on the cabinets and tell him to bill us when it's done. Most contractors who you have a long standing relationship with will allow this.

From contributor U:
We currently do our best to get to and work for homeowners. I do have two designers, licensed with store fronts, I will work for. I have two building contractors that I will work for, thatís it. These four people are all that I have found, that I trust and can keep working for, that send me good work and will pay me when I need it. Our business plan is to work more towards being a customer direct business. We no longer seek out third parties to get our business. It does limit our growth, but we work for better people and we have zero uncollected dollars over the last five years. Best of all, I enjoy my work a heck of a lot more.

From contributor L:
We have also found that the honest designers and contractors tend to send us the most profitable work.

From contributor G:
Most of the problem occurs because we are one of the last contractors into the home. By that time everything that can be screwed up is, and we still need to make it look beautiful and by that portion of the job most of the money has been spent and funds can be lacking.

From contributor C:
I recently did a restaurant, and the money left over for the cabs was minimal at best by the third meeting the design had already changed five times. In the end the designer didnít allow for the builders mistakes, or allowances of space were wrong, and therefore the plans change on an almost daily basis. In the end I finished, got paid and I must go back to take photos but at least the owner was an upright guy with me.

More than I can say for the designer who literally mocked me at one of the meetings. Still if it wasnít for costs and time constraints I donít think they would have hired me. I had a low bid and could fit the job into my schedule. There are of course two sides to every story and more to it than I can write here. At least everything worked out in the end.

I have several contractors who throw work my way, but their clients have expensive tastes without the money to go along with it so work can at times be scarce. The residential side hasnít been so great lately either, lots of tire kicking and price quotes but not enough steady work except for small stuff thatís not really a full time venture.

From contributor U:
I think some of the problem may be in the fact that we sell "jobs", whereas the electricians and plumbers are more commonly seen as hourly workers. I am talking about a general perception by many consumers and builders. We both know the reality is that there is a crossover of the way people charge. I am sure many plumbers and electricians bid work by a package bid, just like we do and vice versa. I often get the feeling that when we bid a project to a customer or contractor, especially when we offer warranties of a year or more, that it is believed by many that any and all work in the future up to the warranty ending, is pretty much covered by the original bid. That is not realistic in most cases.

From contributor K:
I came to the conclusion years ago that we were either going to get paid what we needed to run the business and make a living or get out altogether (didn't want to do that). This was when we were trying to "buy" business and "lowest price" was in our tag-line. When we looked at it and dissected the pricing, it was a real shock. Now we knew why we were always busy but had no money and were stuck in cycles of robbing Peter to pay Paul. We raised our prices double-digits, and then a year or so later did it again. No appreciable change in close ratio either time.

Then we added a company profit. Up until that point, we thought that's what we were paid out of, and why we always took a beating in the wallet. I look back now on how much money we left on the table and all the stress that went along with it, which is why I am always encouraging people to charge more, because their pricing is more ad-hoc than anything else. On your next ten bids charge 5-10% more - you'll be surprised at how much you still close. Then take that money and put it into a separate account and build a reserve fund.

Change orders - if it happens before a project begins, 50% down, 50% on completion, whether the whole project is done or not, as it is considered a separate transaction. If the project is already underway, 100% is required. Contractors buying cabinetry for homeowner - 50% down/ 50% on delivery. If we install, it is a separate agreement, and the install portion of the project does not begin until cabinets are paid for.

For homeowners who are buying cabinets only - 75% down/ 25% on delivery. If you ordered cabinets from a Big Box company, you pay 100% upfront for stock/semi-custom. We do this because we don't want to get involved in mechanics liens, collections, courts, etc. For residential, if the job is complete, there should be no reason as to why you get paid, and the final payment should be no more than 5-10% of the total. That's what works for us.