Do you find yourself asking, 'Are my jobs priced too high? Too low?'
Confidence about your pricing structure doesn't come naturally. And as a craftsman, it can be hard to price your work.
Good news: it's your choice how you set your prices.
Bad news, though: there's no formula or magic approach you can pull from someone else that will instantly work for you.
Why? Because there's a lot to consider when building your pricing structure and each job is different. Plus, we all have our own methods to our madness.
Like all things with cabinetmaking, there are many ways to get the job done.
So whether you're starting out or pricing just doesn't come naturally to you, we put together a guide with the 4 strategic steps to take when pricing your work. Let's get into it.
Every bid starts with materials
When putting together a bid or quote, we suggest drawing out your cabinetry and listing every piece of material that you'll need.
That includes hardwood, sheet goods, hinges, slides, etc. List out all the features, too. Divided drawers, lazy susans, pullouts, etc.
It's time consuming, but you'll need to do this to build the project anyway, so use it to estimate your materials, too.
4 useful tips when you're calculating material costs:
1. Include ALL the material. If you have to buy a full sheet of plywood, but only need half a sheet for the project, charge the full sheet.
2. Add 10-20% to cover any miscellaneous costs: extra boards or anything you might need more of.
3. You do not need to disclose to the customers your material costs. You are selling a finished product for a fixed price.
4. Don't base your price solely off material costs.
A lot of woodworkers will say to price your work by multiplying your material costs by 2x, 3x, or 4x. But wood prices vary, so this pricing structure can fall apart quickly.
Plus, it doesn't take in to consideration your time and skill. Some projects are small, but labor intensive. If you price solely based on material, you're not compensating for your time.
Which leads us into our next point.
Estimating your time and labor cost
You can't determine how much to charge until you know roughly how many hours the job will take and what you need to earn per hour to make it worth your while.
First thing you should do is break the project down into separate parts. This will tell you how many hours the job will take.
For example, a cabinet can be broken down into sections: cutting carcass and door parts, joinery for the box, assembly of the box, joinery for the door, assembly of the door, edge treatments, finishing, and hardware install.
Take those tasks and determine how much time it will take to do each one.
Be honest about it. Everyone underestimates how long it takes to do something, so we suggest multiplying that estimate by a factor of 1.25 to allow for overages. This gives you a buffer.
Use an excel spreadsheet to list these tasks and the time it takes to do each one. For example, we built out the following estimate for building a cabinet:
In the example above, we broke down each task and determined how many hours it would take and then multiplied by 1.25 to give us extra time just in case. We added those times together and got 12.5 hours.
Now our next step is to determine what we need to earn per hour.
First thing you need to do is decide how much you want to make in a year.
Let's say it's $70,000. The average person works 1,920 hours a year (40 hours a week with 4 weeks of vacation). Divide $70,000 by 1,920 and you get $36.00 an hour.
Using our example above, we would multiply 12.5 hours by $36.00 to determine how much to charge for those tasks: $450.
Here are some more tips for how to charge time correctly:
1. Look at past projects
Your past projects will help you out a lot when estimating time.
Look at the timelines of similar projects and pinpoint trends. If you're working on a quote for a kitchen remodel and it's a similar size to one you've previously done, and you know the previous kitchen took you 3 months to complete, you can assume the current project might also take you 3 months.
Overtime, it'll become more natural and you'll just know how much time assembling cabinet boxes or finishing takes.
2. Find out the project requirements
Each project is different and has unique demands.
Is the job located farther away? Does the customer have a good idea of what they're looking for or are they looking for you to meet with them frequently on design? Record all these tasks in a list.
It'll help get a rough impression of how to divide the work in terms of time and personnel.
3. Identify potential risks
Every project has risks. And knowing the risks is important in getting your business off the ground. Essentially your answering the question: Will the project take longer or cost more than you expect?
What if a client changes their mind halfway through the project on the finish they want on their cabinets? And you've already bought the paint color they originally wanted?
Just because there's risk doesn't mean you shouldn't take the job. It means you should charge more and build in contingencies. Document these changes in a contract with your customer. (i.e. if they change their mind, there will be a surcharge).
Don't forget overhead
If you look at your monthly profit and realize you're not making much at the end of the day, it might be because you forgot to include overhead in your pricing.
Overhead is any cost that is not directly related to a specific job. It includes rent, tools, trucks, shop supplies, equipment, office expenses, advertising, insurance, etc. Any of the costs it takes to be in business.
It also covers the time you spend purchasing supplies, bidding jobs, discussing orders with customers, drive time, etc.
It's not as simple to factor in these costs like it is for material costs, but it's extremely important. If you neglect to include it, your profit will be eaten by these hidden costs.
It's often shown as a percentage, referred to as an 'overhead rate'. And to calculate it, you need to add all of the indirect costs (i.e. non-production costs) and then divide by the direct costs. Then multiply by 100.
The industry average is about 15%.
Once you have your overhead rate, multiply that percentage to your total of materials and labor to get your pricing for each job.
Your pricing will also depend on what's going on in the market.
1. Know your target market
Ask yourself: who are my customers and potential customers?
Doing some sort of market research is crucial to understanding your customer.
If you do more high-end work, your target would include customers in high-income levels. Which means you may be able to support a higher price. Or you could target the budget-conscious sector with a lower price.
You need to know who you're targeting in order to best position yourself and successfully sell to them.
2. Know what others are charging
If someone ever says 'what a bargain!', that instantly should tell you to increase your prices. Why? Because it means they'd be willing to pay a lot more.
It's very easy to aim too high or worse, too low. Which is why you need to know what people in your industry are charging.
So how do you find out? Talk to others in your field. Especially if you're just starting out.
You'd be surprised how many cabinetmakers are eager to help. There's Facebook groups, forums, and associations you can use as resources to start this conversation.
3. Know how the market is where you live
Prices vary from area to area. The price for a kitchen remodel in Louisiana will be a lot cheaper than in NYC.
There's a ton of regional differences in material costs based on what's available where. Which is why you need to be aware of what's going on near you so your prices can reflect that.
It's also good to find out how many competitors you have in your area. If there aren't a lot, you might be able to get away with a higher price tag. But if there are, then you won't have a lot of wiggle room.
What other services do you offer? Are you designing? Are you delivering? Is there a warranty? Find out if you offer additional services than your competition.
That's added value and should be shown in your cost (and communicated to your customer that you're offering more - if you're offering dovetail drawer boxes and the other guy is doing plywood, make sure your customer knows the difference).
Always monitor and adjust pricing
Like we said above, there is no magic formula. Nothing is a one size fits all. Determining your pricing structure is a lot of trial and error.
Which is why it's important to monitor what's working and what's not.
1. Review the profitability of your last 10 jobs
The first thing you need to do is review your last 10 jobs.
Which ones were profitable? Which ones weren't?
If you're experimenting with different prices, then review which pricing worked best for each job. Play around and test plus or minus 10% to see if it makes any signficant difference to sales.
2. Get in the habit of reviewing your jobs at the end
The most important thing to do is cost out the job at the end to see where you did well and where you didn't.
Things to look for:
- Did you order too much or too little material for the job?
- How much waste did you have for the job?
- How long did the install take? Did you make any mistakes you had to redo and how much time did that take?
- How much time did you spend traveling back and forth to the job site?
Adjust your bidding as needed from there.
3. Monitor your profitability monthly
Yes, you should be doing this monthly.
If you're not making enough profit, look at your expenses and see where you can cut. Reevaluate your overhead costs - cutting things will bring your price down and your profit margin up.
4. Document your work in a central place
As you figure out your pricing, make sure to document your estimates in one place.
It serves three purposes: it allows you to refine pricing over time, gives you something to reference when you're putting quotes together, and it lets you outsource work as you grow your business.
Price is only part of the equation
One of the hardest things to do is price your work. You're providing a service - which makes things a little more complicated than if you were just providing a product. There's a lot more to consider.
Always remember: Price is only part of the equation.
Your customers may be getting quotes from other cabinet shops. But the best deal is not always the best price. People buy based on company, product, service, and price. In that order.
The reason you went into business was to make a profit. You have to charge what you need for your business to operate. So don't get overwhelmed. Just keep monitoring and refining until you get it down.
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