Pricing question

[Rick Alexander]

370052

I'm putting a bid in on this kitchen. This will be the 4th full kitchen I've ever done but the first that isn't for family or a friends so it's actually for a fee. The problem is figuring out what that fee should be. the short leg is 143 inches and the long leg is 174 inches with a 6 foot bar in the middle (4 drawers and 3 doors are in the bar). There's 22 doors, 11 drawers overall and 6 pullout drawers in the pantry. They did not want a lazy susan in the corner. I actually listed every single part to be cut out based on the Sketchup drawing (yep that took a while) and there is 360 pieces of wood to produce total (less than I thought there would be actually). Material cost without the corbels and the legs (customer is providing) comes out to be right at 2K dollars including drawer and door hardware but not including pulls or knobs. I'm of the opinion that it will take about 200 hours with the tools I have to produce this kitchen and I'm proposing $21 an hour shop time for the bid which comes to $4,200 labor. Remember I'm not in an area of rich folks by any stretch but also don't want to give up my shop time for peanuts - does this sound like a reasonable number to the folks that actually do this for a living for real? I know there are some truly gifted folks on here that could produce some much more elaborate work for a lot more money but the market for this job is modest to say the least. Oak faces, UV ply insides.

[Trevor Howard]

Rick, I cannot help with pricing, but you might want to the name of the area you live.
There is going to be a wide variation in pricing on location alone.

[Mark Bolton]

I too operate in a rural area and (just my personal opinion) but I think your numbers are pretty low. I wouldnt say horribly low, but pretty low.

$21/Hr can in no way shape or form cover the cost of your shop and yourself (a salary), consumables, sand paper, glue, fasteners, etc. Beyond that if your just one man I think 200 hours is a major undershot. You dont say whether your feeding this unfinshed or finished. If you are doing the finishing I will hire you tomorrow if you can single handedly blow this kitchen out in 200 hours. If you can, in a well equipped shop, cnc, you'd be knocking out one of these every two to three weeks.. alone.

Dont underbid yourself. 6400.00 is a very small kitchen. And of course these number are all with no installation right?

Id personally easily double your $21 number and you'll probably still beat the home center.

[Rick Alexander]

Well - yes I guess that does matter doesn't it. I live in the outskirts of the Atlanta Area. The houses in this neighborhood where the kitchen is I would guess are in the 240's range - older neighborhood but pretty nice area with no really large houses in the neighborhood. Oak is still king for cabinet faces here.

[Rick Alexander]

I do this part time so I've never actually calculated the total hours on a kitchen like this - but I know it's north of 200 hours. Heck I've spent north of 200 hours on a bedroom suite for my grandkids which I consider a smaller job. I won't do the tear-out or wall prep but I will install the boxes. How many hours do you estimate on this one - without taking too much of your time for accuracy - just a rough number?

The biggest one I ever did was for a contractor friend that we traded out work for (he remodeled my house / I built his kitchen) and I felt I got a good deal out of that but it did take some 5 months total to complete at my time schedule. That one was every bit of 2 x's the size of this one however. I don't have to make a living out of this but it is a tremendous amount of work and my time is valuable to me. I'm figuring with my shop time available I'll finish in about 12 weeks total and the customer knows this. I'm nearing retirement from my regular job (Chemist for CDC) and want to do some cabinet work on the side after retirement - then I'll be much faster for sure. I've got to get this pricing stuff figured out if I'm going to do that then however but I'll never have to make a living at this - thank god - just play money.

[Don Jarvie]

If you have some time go by HD and price out cabinets based on your drawing. It may help you price out your job.

[Mark Bolton]

If you have some time go by HD and price out cabinets based on your drawing. It may help you price out your job.

I dont mean any offense by this but if you in any way, shape, or form, try to derive your pricing for locally built, hand crafted, cabinets (even if your going to build to big box low quality standards) you are doomed. There is simply no way you will compete with those numbers in a modest shop at even 1/3 of the 21/hr number.

Even considering looking at the home center for a reference its a walk away.

[Mark Bolton]

I won't do the tear-out or wall prep but I will install the boxes

Yikes. I thought your number was cabinet fab only and install by others and hoped the price was for "finished on site".

Go with your gut I guess. We are 3 guys, no install, CNC, and I would be calling your 200 hours close with finishing. I know the drawing isnt complete but there are finished paneled ends on all cabs, assuming sink gap as well, and so on.

On the quick read it would seem your delivering a kitchen at a far higher level than your billing for.

[Sam Murdoch]

Yikes. I thought your number was cabinet fab only and install by others and hoped the price was for "finished on site".

Go with your gut I guess. We are 3 guys, no install, CNC, and I would be calling your 200 hours close with finishing. I know the drawing isnt complete but there are finished paneled ends on all cabs, assuming sink gap as well, and so on.

On the quick read it would seem your delivering a kitchen at a far higher level than your billing for.


This is my take too. Delivery and installing by yourself will be more work that your labor budget allows. Without "install tools" for a one man show, e.g. a cabinet lift, a laser, you could be looking at 5 days possibly 6 days with no helper. If you design this to be built in group components that can be installed in runs rather than 1 or 2 cabinets at a time you might ease up on the install labor but that work still needs to be done in the shop. It could take the better part of a day just to put on the knobs and pulls and adjust the doors after install. Speaking of knobs and pulls, are you specifying that those are to be provided by the HO?

Attaching corbels and legs that you aren't providing means that you will likely be winging the install of those in the field. Appliance panels? Could be 30 minutes, could be 4 hours (each) depending on the brand & models. Some companies have this figured all out - others - not so much.

Counter tops? Vented range hood? Are those potentially on your to do lists - "while you are here"?

Finishing too could be a bust depending on your level of prep work.

If you just want the work go with your numbers but shake off the idea that your time is valuable. You are working for the joy of the project. Sadly your client's won't appreciate your sacrifice. Next time you will be more savvy on all counts - process and value. Having said all that - adding another $ 2,000.00 to the project still seems like a bargain to me.

I'm not trying to discourage you, rather boost your confidence that once you start, this will all be worth while.

[Jay Nossen]

If you have some time go by HD and price out cabinets based on your drawing. It may help you price out your job.

I agree with this. It won't give you a real answer, but it will give you some guidance as to a price floor for the area (since you are building custom, you should be well above that floor). Last time I priced out a full height pantry style cabinet (i.e. the one cabinet next to the fridge), it was over $1,000 at Home Depot (this had 4 or 5 pull out shelves). At a mid range cabinet grade, I'd guess the design you have there would run $3,500-$5,000 at Home Depot WITHOUT INSTALLATION.

Raise your price.

[Edwin Santos]

There is a rule of thumb I have used which is hard material costs x3= total bid, plus installation. This would be for a basic job, not highly elaborate. Your estimate is in that ballpark. Of course I would not formulate a hard bid using this rough rule of thumb, instead I always used it as a secondary check.

Also, make sure hard cost includes little stuff like consumable shop materials you will use specific to this job, glue, fasteners, shelf pins, finishing supplies.

I'd have to dig around to lay my hands on it, but I recall a lineal foot unit price for kitchen cabinetry that you could use as a gut check also.

[Mark Bolton]

There is a rule of thumb I have used which is hard material costs x3= total bid, plus installation. This would be for a basic job, not highly elaborate.


Ive heard this for 30 years in the trade. It use to be double your material cost and your doing good. This is an extremely flawed business philosophy. Your material costs have absolutely NOTHING to do with your final price. This is a misguided philosophy that barely applies to deck building in todays world. Your final price should be made up from your actual material costs, your labor costs, your overhead costs, and your profit margin.

Whether you are talking about basic or elaborate has zero relevance. In even a basic kitchen, hinge and drawer slide selection, carcass material, face and back species, can vary wildly while having absolutely nothing to do with your construction costs. Say you price the same kitchen with Blum undermounts and Blum soft close hinges. The same kitchen uses import undermounts and hinges. Slides and hinges in an average kitchen with a lot of pullouts can be $1500 easy. Your customer is willing to roll the dice on imports? Way less. But your labor costs remain the same. So your material cost drop, but your labor stays the same, but you were foolish enough you use a material cost multiplier for your price so not only did you reduce your material cost to the cheaper import slides and hinges... but you ALSO cut your labor to install the slides and hinges that take the SAME amount of labor as the higher cost hardware? Makes no sense. Lower grades of carcass material? Your construction costs remain the same (may go up for headache).

The real issue is that the cheaper options may cause you more headache with call backs and customer complaints yet you used a cost of material multiplier to reduce your cost and shoot yourself in the foot.

Your labor costs are the same for clear coat oak, maple, maybe even cherry, but your material costs vary wildly. Why would material costs factor into your labor costs? Your clear coat costs for all of them are the same? So you price a clear maple kitchen with a cost of material factor and the other guy prices it at the actual cost of the clear coat and you lose the job? Not good business.

Price your work based on the actual costs. Do the math. Dont rely on some materials X-X factor.

[Edwin Santos]

Mark,
Thank you for the impassioned lecture. Perhaps you missed the sentence in my post right after the one you quoted - "Of course I would not formulate a hard bid using this rough rule of thumb, instead I always used it as a secondary check." I think I also refer to this guideline as a "gut check".

Believe me, I have some experience with cost accounting. What you're promoting is absolutely appropriate in a business situation where comprehensive cost accounting principles can be utilized i.e where overhead costs are known, profit margins goals are established, preferably in the context of a detailed operating and cash flow budget, capitalized equipment costs have been scheduled and amortized into overhead, a factor for consumable shop supplies has been established, working capital and cost of receivable carry has been budgeted, some bidding experience has created a sense of the local market pricing conditions, etc, etc.

However, the OP makes it clear that he is doing this on the side and does not have any of that data (yet). This would be his first arm's length job so you have to recognize that he has limited data, In fact, the only real data he has that he can use is the hard direct cost of the materials required for this job. What I hear him seeking is a way to put a stake in the ground where he won't get hurt. Luckily he doesn't have the risk of employee costs, rent or fixed overhead specific to his shop, so for these reasons I still say using a crude multiple of his material costs as a "secondary" gut check at this stage in his endeavor is appropriate. If he evolves into a going concern business, that's a different story.

[Martin Wasner]

Ballpark guess looking at the drawing. Around $13-15k with no finishing or install. About 120 hours to build.

[Jim Becker]

I also think you are short-changing for how you may be looking at pricing this. Your time is worth a lot more than the rate you propose for sure and this is custom cabinetry work where you are designing, building, finishing and installing to spec. I think that Martin's dollar range is more in tune with the market for that, even if you require more time because you're a single, part-time operator.

[Sam Murdoch]

From the OP - "but I'll never have to make a living at this - thank god - just play money." If I read that correctly and in the right context, he is not operating a business - just reaching out to an opportunity. The prices upwards of $12,000 reflect more accurately what such a project should cost but I'm guessing, based on my reading of his posts, that he will not venture much past the $$s he has already discussed. Someone will get a great deal and he will make some play money and be challenged and having fun (I hope) in the doing.

[Wayne Lomman]

Rick, since this is not your first kitchen, you have an idea as to what times you need to allow. From my perspective as a professional, 200 hours is enough time. That's 25 x 8 hour days or 5 standard working weeks. What I am a bit more concerned about is your charge out rate. The final decision is yours but do not sell yourself too cheap. If you are too cheap, you and your work will not be respected. A fair price is better than a cheap price unless you are doing charity work. Do some local research on what other cabinetmakers are charging for their hourly rate. That will put you into the market. Cheers

[John TenEyck]

If there is one thing I learned from the Marketing guys it's that price has nothing to do with cost. Of course you need to understand your material and labor costs, and your profit expectations/requirements, but pricing is not based on those numbers, they are there only to protect you from taking jobs you shouldn't. Pricing is based on what the customer is willing to pay for something. Figuring out what that is isn't easy but key to getting work where both you and the customer are happy with the transaction.

As an example, you could build the same item, let's take your kitchen, for two different clients, one in a modest neighborhood the other in an upscale one. Even a novice business person would bid higher to the client in the affluent neighborhood. Why? It's the same kitchen with the same costs. The obvious answer is because he knows they can afford and are willing to pay more. Your job is to figure out what your clients are willing to pay. If that's more than all your costs and profit expectations, great, you will both be happy. They got what they wanted and were willing to pay for and you made more than your minimum profit expectation. And that works all the way down to when you determine your clients would be unwilling to pay enough to even cover your minimum profit expectation. You won't make as much on some as on others, but you have maximized your profit (or at least gross margin) from each customer. And when you determine your bid can't even cover your minimum profit expectations then you either no bid, or bid it and hope for the best but shouldn't be surprised if it's rejected.

John

[Harold Balzonia]

$2k on materials + $4.2k labor for that job is way under bid in my neck of the woods. I was on a 4 man crew building exactly this kind of stuff and that job would have been over $12k time and materials back in 2001-03.

range exhausting, upper deck microwave installs, long face frames, and things like matching existing trim (crown moulding?) are time eaters especially for a one man crew.

if you really love the work and are just looking for a challenge and not a profit, there is something to be said for that. But I think you're way under if you're comparing yourself to professionals. (or maybe you're just extra generous!)

by the way, for the amount you quote, make sure you don't make any mistakes! Extra material adds up quick, too!

[Joe Jensen]

I'm not a pro but that labor (shop rate) is too low. The shop rate needs to also consider blades, bits, etc that wear. Keep in mind you will be paying almost 16% in payroll taxes too. Bet that really looks like $15 an hour before income taxes.

[Michael Larson]

Rick,

I think you could triple your rate and that a reasonable shop rate outside of a guy that is doing it as a hobby. Shop rates where I live are all between $60 and $80 per hour. That puts you between $14,000 and $15,000 which is around 5 percent of the home value, others may disagree but that's where I would start without install.

Good luck,

Michael

[Martin Wasner]

I'm not a pro but that labor (shop rate) is too low. The shop rate needs to also consider blades, bits, etc that wear. Keep in mind you will be paying almost 16% in payroll taxes too. Bet that really looks like $15 an hour before income taxes.

If I'm not grossing over $100/hr per man, I'm losing money.

[Yonak Hawkins]

Here's my take on pricing for the semi-professional : If you charge what the professional shops would charge, your work, installation and follow-up better be professional level. If, however, you make it known you are giving a "buddy price" then they should expect "buddy service". That is, more according to your timetable and they shouldn't expect you to come back for every little thing if they can just as well take care of it themselves or, if it's just too picayune to bother with or, you may wish to let the little things slide until you have a list of things to do and it makes sense to make the trip, at which time they may wish to take you to lunch or give you a six-pack.

Regarding pricing, I like to price by the week or month rather than by the hour. Figure how much money you need to make in a week or a month, adjusting for whether you will work on it full time or some portion of full time. Then decide how much work you can do in that period of time. I find trying to figure hours is way too taxing unless you're a professional.

Either way, I recommend having everyone sign a rudimentary contract just so it's clear what everyone's responsibility is and pricing, even for buddy pricing.

P.S. I think $21 / hour is low but not real low in my area (exurbs of Atlanta).

[Rick Alexander]

Thanks a lot for the advice guys - lots to think about. I did up my labor by 3 (9K total) thousand based on what was said. Frankly - I really am not that concerned I won't get the job but I am concerned I will put myself in a box that I end up not enjoying. I never want this hobby of mine to seem like a job so if the guy wants to use my services he's going to have to make it appealing to me to give up my shop time for the next few months.

Again - thanks - and I'll let you guys know how it goes.

[Tim Bueler]

I didn't see where you said what style of cabinet. Face frame, Euro w/overlay doors/drawers or inset drawer/drawer. Labor cost is different for each style.

Another phenomenon I've seen/heard in my 30+ in the construction industry is one tends to attract a clientele commensurate with their rate. Anecdotally, if you do $5/hr work you will attract $5/hr clients. If you do $20/hr work (assuming you're capable) your quality of client will increase accordingly. Can't tell you how many guys I've seen complain about the crappy jobs they were getting who couldn't believe I could stay in business charging so much:confused:. I semi-retired by age 53, all those low-ballers have either moved on to other careers or will be still be trudging along until the day they die.

Material costs are easy. So are fixed costs if you take the time to figure them out - i.e. consumables and operating costs - at your stage of development this # will be a projection. What I build into my shop rate is what I want to live on, how much extra spending money I want and that's also the money I'll pay income tax out of. I'm in a decidedly rural area of N Idaho, some might even call it backwards. My shop rate starts at $60/hr and goes up depending on how much a PITA the client is:rolleyes:. Yes, I charge more for problem clients. Haven't had to dip into my retirement savings yet. As others have said, don't undersell yourself.

[Phillip Mitchell]

Your labor rate is way too low, even for a rural area. I wouldn't call the burbs of Atlanta rural, either. I'd be more in the $50-60/hr range (minimum) for shop time billing, assuming you have the proper space and tooling to work efficiently building cabinets.

Installation is potentially a different rate and something to be figured in addition to your shop time billing.

You may not be a professional, but it appears you've done this before (3 times) and you're not working for friends and family...no need to discount your time and labor. Charge what you're worth. It helps you and all of us in the trades to make a proper living wage. It also helps clients understand what this level or work is really worth and costs.

[Eric Van Cronk]

I’m a general contractor in the Los Angeles area, the rule of thumb for custom inset cabinetry is $250 per linear foot for lowers and $200 per linear foot for uppers. That’s for standard Blum soft closing hardware, painted and installed. Knock $50 off per linear foot for Baltic birch instead of maple prefinished ply and overlay doors. Glass doors for uppers is an upgrade as well as thicker stock for face frames and doors. Appliance panels are also an up-charge. We used to run a full cabinet shop but we were losing money at the prices stated above and found it’s cheaper to pay a sub by the job vs our shop by the hour. Anyway, I admire anyone who wants to tackle a full kitchen as a side job. I’m just now setting up a shop in my garage so that I can build out my own kitchen. Because of my personal lack of skill, I will order the doors and drawer boxes.

Examples of the work below (I couldn’t figure out how to link pics)

https://www.pintaram.com/u/mvcbuilders

[Julie Moriarty]

I'm an electrician and I've done a lot of side jobs. I learned early on that after I had estimated my labor hours for a bid job I needed to double them for the bid. And when I was done with the job I found that doubled number was almost always spot on.

After about 20 years in the trade I got an offer to be a project manager/estimator. I spent 8 years doing that and learned a lot. When I first started, I was shocked to see the actual numbers contractors used to bid jobs. They were substantially higher than I expected them to be. There are so many factors I had not seen before when doing side jobs - vehicle expense, tool depreciation, estimating, design, sales and so many other things. I quickly learned those contractor numbers were necessary for survival.

Materials are easy to figure, it's the labor that will make or break you. Don't cheat yourself just to get the job. I agree with those who say $21/hr is low. Considering you are just outside of Atlanta I'd say that number is very low. The best way to know what the competition is charging is to get bids from them. Obviously you don't share that with the customer but it will give you an idea where you stand with local competition. Take those numbers and subtract your materials estimation and you can derive approximate numbers on labor rates, overhead and profit. Then insert those numbers into your formulas and see where you stand compared to your original estimation. And if they seem high, don't be afraid to use them, unless you are doing charity work.

[Edwin Santos]

Lots of interesting discussion on pricing and bidding on the front end of a job.

I'm interested to know how many of the pros make a habit of evaluating the profitability of a project after the fact. In other words, tracking and allocating hours, overhead, materials, unforeseen costs and then comparing them against the revenue collected on the job. Basically this would be creating a mini P&L on the job itself.

Does anyone do this or work for someone who does this?

[Mark Bolton]

We track everything through quickbooks pro for each job. I wouldnt say we have it dead accurate down to the last screw, quarter sheet of sand paper, and drop of wood glue but the bulk of it is in there. A lot of items are purchased in bulk (fasteners are bought in several thousand count boxes, wood glue bought in pails, and so on). Those items get rolled into the shop rate as do consumable tooling items like saw blades, sharpening, replacement knives, hand and power tool depreciation and wear, and so on. It can be tricky too when you have multiple jobs running to be dead accurate on hours into each job down to the minute. Hard core LEAN shops probably come close to 100% on numbers like that (single piece throughput and so on). We are small and trying but not there yet.

[Jim Becker]

I never want this hobby of mine to seem like a job so if the guy wants to use my services he's going to have to make it appealing to me to give up my shop time for the next few months.
This is very important and is exactly my own feeling about doing work for others, especially now that I'm retired from full-time work and actually have time available to "do work for others" if the right opportunity comes along. If I'm going to do "pro work", I expect to get paid "pro rates" to make it worth my while to get up earlier in the morning and eschew other things I might enjoy doing instead. That also I will not be hurting the local trade, either, through extreme undercutting...I know too many folks in the area that do this for their full time jobs and I respect the trades accordingly.

[Julie Moriarty]

Lots of interesting discussion on pricing and bidding on the front end of a job.

I'm interested to know how many of the pros make a habit of evaluating the profitability of a project after the fact. In other words, tracking and allocating hours, overhead, materials, unforeseen costs and then comparing them against the revenue collected on the job. Basically this would be creating a mini P&L on the job itself.

Does anyone do this or work for someone who does this?
You have to or you're just throwing darts at a board.

A contractor has labor hours figured for each job performed on site and attached codes to each of those jobs. These labor hour estimates are arrived at over time. How it works is on the job, the foreman is given job codes for pulling wire, installing conduit, demolition, installing panels and switchgear, etc. There are dozens of job codes and it's the foreman's responsibility to attach those codes to the man hours worked every day.

All that goes back to the shop where the estimating department actual compares labor hours to estimated labor hours. From there they estimating department can make adjustments to their bidding or look into why the numbers are off. That's the theory anyway.

I've worked for contractors where they give you access to their bidding program and all the labor hours are already plugged in. There are even adders for working on higher floors in a building. All the estimator has to do is perform a take off from the drawings submitted for bid - How many fixtures, how many feet of each size and kind of conduit, how many feet of wire, etc. Plug them into the program and the program spits out the number.

If the contractor has good numbers from the field and a good feel for the market at a given time, they will usually be successful. Most contractors that have been in business a while know there's a feel one has to have about bidding jobs. The hard numbers for labor hours attached to a given task may have to be fudged in order to get a job. The whole thing is part science, part crystal ball.

[Jim Becker]

Adding to Julie's excellent response, contractors/pros also learn to "read the customer" so they can also factor in "project angst", "propensity to interrupt" and "mind changing" that can affect profitability.

[Martin Wasner]

I'm interested to know how many of the pros make a habit of evaluating the profitability of a project after the fact.


If you don't, you aren't going to be in business very long. You can't track just a year, a month, or a job. You need to be on top of every process and every person, every single day. What is their weakness, what needs to take place to make that person better at their job. What are the bottlenecks in the process, is it because of timing, inadequacies in equipment or tooling. Every single day I try and figure out how to make things better, faster, and more efficiently.
I know basically to the minute what every basic item in the shop takes to build. A drawer on average is 45 minutes start to finish on virtually every job. You should be able to have a flat panel door machined and assembled ready for the widebelt in 5 minutes if it's a batch (a single door take a bit longer). Gluing up panels for drawer parts shouldn't take more than two minutes per set of clamps in the rack, and filling the entire set of 30 clamps can be done if you hustle in 23 minutes. I time myself at things regularly. When I hear a machine that should be end to end machining lumber, I'm usually yelling across the shop "EMPTY MACHINE". We get paid to cut wood up, and put it back together, standing there looking at a machine spinning is doing neither. For instance, dovetailing drawers. The dovetailer has a 2hp spindle, and a 2hp feed motor. It also requires compressed air, which is another 15hp (plus the dryer). Then the dust collection is another 20hp. If you do it right, there is almost no empty time between cycles. I don't know what 39+hp costs per minute to run, but it's enough. If she ain't a cuttin', we're just spending, not making.

Training people is tough. I didn't really start examining every movement I made as a cabinetmaker until I started working with a coach when I was racing catamarans. Because in racing, seconds count, and mistakes add up quickly. You examine every single movement you make and hone it to perfection because the last thing you want to have happen is a blown race because of a mistake in handling you boat. I took that attitude that I took to racing to my job. Why take two steps when all you need is one. "What am I doing, and why am I doing it?" is my mantra. Never do one thing when you can do two.

At night when my wife is watching tv, I'm usually sitting there researching something. Tooling, methods, equipment, software. Take your pick. If you handed me half a million dollars tomorrow morning at 10am, it'd be spent by lunch and I'd be wondering if the electrician could squeeze me in before everything showed up.

There's always bottlenecks to be eliminated or negated, there's always processes that can be refined with what you have. Sometimes its a matter of moving a cart a foot so you don't have to move your feet as much. What are you doing, and why are you doing it?

I'm pretty sure every small manufacturing business owner goes through the same thinking. Where can I invest, and where can I save. I don't know how you couldn't.




Adding to Julie's excellent response, contractors/pros also learn to "read the customer" so they can also factor in "project angst", "propensity to interrupt" and "mind changing" that can affect profitability.

I try really hard not to deal with homeowners. When I do, 25% is tacked on instantly. I can spend 12 hours going over layout and design on $75k worth of cabinets on the front end with a contractor's designer, or spend 12 hours going over $15k worth of kitchen cabinets with a homeowner. I tell all of my contractors, dead minimum they need to be marking my product up 25%, so I justify it by calling it wholesale pricing. A lot of it has to do with the relationship too. I know how to talk to the people I work with on the regular, they know how to talk to me. I can flat out say, that is a horrible idea and no one is butthurt. We find a solution, and move on. The new relationship with the homeowner, there's tiptoeing that needs to be done. I don't have time for that.

[Mike Tagge]

I've been in "business" for about 3 years now. I've done about 1 project a month, although I don't do kitchens. I find this line is not my niche as my work is based less on production and more on custom. Being said, I have often been pricing out the market. I have encountered and searched for any idea of what market rates are. Big Box stores are a good way to find out something concrete. Their prices might seem high even. Compare that to more customized offerings from other cabinet companies and you will see they are on the low side of things. To get a fully custom job done takes a lot of work even before your first cut. It's not just a material markup - you get to charge for your expertise. Any basic production shop can cut 24 x 34.5 x 24" cabinets day in and day out and they will beat your pricing every time. You should be ok with that. If you are just getting started, you might need to build yourself out a bit and have something to show but when you do, make sure your prices are higher than the junk out there.

My shop rate is targeted at about 125/hr in the Chicago area. I get this on most of my jobs because I stick with it and never negotiate pricing, only features. I don't include my design time in this figure but I limit freebies by requiring a design retainer prior to any designing on my part. I do have a free initial consultation but that's all I lose on jobs I don't get. My worst jobs have been the low priced jobs. It seems that the lower pricing you go with, the greater the expectations are - and usually uncommunicated.

If you are just starting, and have no clue of your setup, I would recommend hedging yourself even or slightly more than a big box offering. You sell that on the custom aspect and higher quality materials. Then measure everything you put into the project as close as possible - especially hours spent designing, fabricating, and installing. Subtract out your materials and figure out your hourly earnings. Make sure you build in your own employment overhead like benefits - figure 30% more than your pay. Then figure in a 25-30% markup for company profit/overhead/improvements/maintenance. Soon that 125/hr rate doesn't seem too high. You have to work fast enough to justify it, however.

The biggest takeaway is find your niche and sell your product. There are people who pay 15,000 for a new car and those that spend 200,000 for one. Home improvement work is often the same.

[Rick Malakoff]

Mike,
Your line rang true for the 40 years I spent in the business " My worst jobs have been the low priced jobs. It seems that the lower pricing you go with, the greater the expectations are - and usually uncommunicated".

Rick (OP),
Listen to what everyone has said as there is merit to all this knowledge!

Rick

[J.R. Rutter]

Adding to Julie's excellent response, contractors/pros also learn to "read the customer" so they can also factor in "project angst", "propensity to interrupt" and "mind changing" that can affect profitability.

I've named this the PITA factor and agree that you need to apply this as a multiple to discourage problem clients from working with you, or if they don't blink, then you can still come out OK in the end.

[Edwin Santos]

If you don't, you aren't going to be in business very long. You can't track just a year, a month, or a job. You need to be on top of every process and every person, every single day......

Very impressive Martin. I realize the thread is about pricing, but pricing and cost are connected and to me the contractor who is going to win the marathon is able to run an efficient operation and can price competitively without sacrificing margin. Let's face it, all customers are cost conscious at some level, and the shop who is driving down their costs through efficiency and innovation without compromising quality is at a big advantage and capable of scaling. Do you practice LEAN techniques? I think someone else mentioned it also. The more sophisticated shops are into Lean and Kaizen and it's amazing how a multitude of little efficiency steps can add up to huge dollars. The Fastcap owner is a Lean evangelist and dedicates a lot of their product line to it.

I totally get the theme of many responses advising not to undersell oneself. At the same time, it's easy to stand there with arms folded waiting for only that business that meets your criteria while your ship sinks. It's a complicated balancing act. Most of the time, the flow of incoming work can be unpredictable while the need to feed the machine is constant. Some contractors with capacity are willing to take limited amounts of work at low(er) or even zero margin when the pipeline slows, the theory being that diluting the fixed overhead essentially makes the other jobs more profitable. Others would consider doing so unthinkable. On a unit basis, the fixed component of your overhead is radically different depending upon the % of capacity you are running, that's just math.

I'd say the success triangle is built on a sound marketing strategy, efficient and reliable operations, and a solid cost accounting system including collections/billing. I'm not sure any of those three functions is more important than the other, but interestingly only one has anything to do with the underlying trade.

Of course many of these comments are less applicable for the one man, or very small operation. Interesting discussion,

[John TenEyck]

Edwin, the price a customer is willing to pay for something and your cost to make it have absolutely nothing to do with each other. If you base your pricing on your costs plus some multiplier you will often leave money on the table, at least an efficient shop will. An inefficient shop might get rejected on a frequent basis because their quotes end up higher than the customer is willing to pay. But at least they know from those rejections that their pricing exceeded what the customer was willing to pay and they can do something internally to lower their costs. The efficient shop has no clue the customer would have been willing to pay more. I'm not saying you can always quote what you perceive to be the maximum price a customer is willing to pay. You have to consider what your competition will bid, if in fact there is any. If you are making stock cabinets, well, you likely have lots of competition and not much of what I'm talking about applies because price is king - better get efficient. But if you are shop that solves a customer's problems with custom design, color matching, etc., things that separate you from the rest then you will have little competition, and none if the same customer comes back to you for another project. If that's you you will likely leave money on the table if you base your pricing on your costs. Said another way, if that's you and those are your customers, you know I'm right if you never get a quote rejected - you are always underbidding.

John

[Edwin Santos]

Edwin, the price a customer is willing to pay for something and your cost to make it have absolutely nothing to do with each other.

John

I agree completely. However, I believe there is a market for almost everything, including cabinetry. There might be differentiation in services here and there that may insulate one from some of the market competitive forces, but by and large, customers are savvy and rarely willing to grant carte blanche. What I was trying to say is that a good contractor develops a good sense of the market price for his work, and if his operation is more efficient than others, he can confidently operate at the market level or maybe even a little lower and not compromise his margins. I was not intending to suggest his price should be based on his cost in the literal senses, what I was trying to express was that more efficient costs allow that contractor to either command a higher margin, or keep the same margins but with some competitive flexibility in price.

I also agree with you that some % of rejected quotes is healthy. I was also taught that some % of bad debt is healthy also, even though it never feels like it at the time.

[Martin Wasner]

Very impressive Martin. I realize the thread is about pricing, but pricing and cost are connected and to me the contractor who is going to win the marathon is able to run an efficient operation and can price competitively without sacrificing margin. Let's face it, all customers are cost conscious at some level, and the shop who is driving down their costs through efficiency and innovation without compromising quality is at a big advantage and capable of scaling. Do you practice LEAN techniques? I think someone else mentioned it also. The more sophisticated shops are into Lean and Kaizen and it's amazing how a multitude of little efficiency steps can add up to huge dollars. The Fastcap owner is a Lean evangelist and dedicates a lot of their product line to it.

I'm not sure my operation would fit the lean discipline as I know it. I haven't read the books and I don't have a thorough understanding of it. Small bits and pieces. I keep meaning to buy the books.
Mine is a custom shop, but I've tried to build it as a production shop even though there is just two of us at the moment. As I understand it, my approach to equipment doesn't fit the lean ideas. I believe in LOTS of equipment to minimize setup time to zero. I'm also in an 8k sq/ft building, pretty wasteful at the moment, but I'm in serious need of another body and if I had the time to sell I could easily add the work to add a few more.

[John TenEyck]

I agree completely. However, I believe there is a market for almost everything, including cabinetry. There might be differentiation in services here and there that may insulate one from some of the market competitive forces, but by and large, customers are savvy and rarely willing to grant carte blanche. What I was trying to say is that a good contractor develops a good sense of the market price for his work, and if his operation is more efficient than others, he can confidently operate at the market level or maybe even a little lower and not compromise his margins. I was not intending to suggest his price should be based on his cost in the literal senses, what I was trying to express was that more efficient costs allow that contractor to either command a higher margin, or keep the same margins but with some competitive flexibility in price.

I also agree with you that some % of rejected quotes is healthy. I was also taught that some % of bad debt is healthy also, even though it never feels like it at the time.

Thanks for the follow up Edwin. I am in complete agreement, except maybe for the bad dept being healthy part.

John

[Edwin Santos]

Thanks for the follow up Edwin. I am in complete agreement, except maybe for the bad dept being healthy part.

John

John, your reaction to the bad debt comment is like mine when the doctor pitched the prostate exam as a good thing.

[Rick Alexander]

Well guys - the contractor I'm working with advised me to up it by another 1K at least. That got me a little nervous but I did it anyway - I won't ever regret a job I didn't get for sure. They took the offer instantly - which makes me think it might be a little low but hey - this is a learning process for me. I don't have much overhead as I'm pretty much a tool collector for fun, I have very good tools to work with and I don't owe money on a thing out there and I know I'm capable of doing a very acceptable job. Call this one an experiment I guess in pricing. I'm going to keep very careful notes to see just how many hours this takes and my "real" costs for the next time. Meanwhile - plenty of shop time for Rick for the next few weeks. I will update this post with the results.

Thanks again everyone for their input - very interesting reading for me at least.

[Sam Murdoch]

Rick - does that mean you are now at Ten Grand for labor? Excellent!

[Julie Moriarty]

Well guys - the contractor I'm working with advised me to up it by another 1K at least. That got me a little nervous but I did it anyway - I won't ever regret a job I didn't get for sure. They took the offer instantly - which makes me think it might be a little low but hey - this is a learning process for me.
That reminds me of the time my boss said we need to get into cellphone tower building. I had been doing very well with the electrical end of cell sites and was anxious about getting into something I had no idea how to bid. My boss threw some numbers at me and said "Go with it!" So I did.

The PM for the GC I had been working with for years called me and said, "I have good news and bad news, and they are both the same. You got all three jobs." I paused for about ten seconds and said, "It's that bad?"

No need to say how we did.

Some advise, Rick: Watch everything and don't be shy about asking for change orders for anything that wasn't in the contract.

[Rick Alexander]

Yep - my contractor guy I owe a big ole lunch to for upping it another 1K. I'm now a lot more comfortable that I'm not short changing myself too much. We'll see.

[Rick Alexander]

That reminds me of the time my boss said we need to get into cellphone tower building. I had been doing very well with the electrical end of cell sites and was anxious about getting into something I had no idea how to bid. My boss threw some numbers at me and said "Go with it!" So I did.

The PM for the GC I had been working with for years called me and said, "I have good news and bad news, and they are both the same. You got all three jobs." I paused for about ten seconds and said, "It's that bad?"

No need to say how we did.

Some advise, Rick: Watch everything and don't be shy about asking for change orders for anything that wasn't in the contract.

One thing being a chemist by trade will do for you is teach you to keep meticulous records. I'm planning my shop time better than I've ever done and have the most complete parts list and plan ever so I think this will go off without a hitch. Plus my contractor wants to apprentice with me when he can to learn how to do this and will work for free in the process. Hardest working man I ever met and that is a hard thing for me to say because I grew up thinking my dad was until him. If my dad was still here he would agree.