Pricing jobs has always been one of the things in my business that has given me a certain level of grief. It’s not all bad grief if there is such a thing, but I do spend a lot of time thinking about where my final price should be.
You know what I’m talking about. Price high enough to make some money, but low enough to get enough work to keep you busy.
I know all the basics about pricing. You need to know all the costs associated with the job you’re pricing, such as the cost of material, labour and any other expense directly related to the overall job.
What’s left over is your gross profit, which in our industry should be at least 35%. If you’re way below this figure you’re probably not making much money and you need to either cut some of your expenses or raise your prices. After this you factor in your fixed expenses and that leaves you with your net income. Most shop owners are happy if they end up with a 10% net profit. More is better and very possible in a good economy, but the last few years have been a little more challenging.
The area that takes a lot of my attention is when the economy is slow and sales are down. I never want to price at my cost just to get the job. I always feel that it devalues my work and it can be difficult to get that back. When the economy is good, many shops will price their jobs at what the market will bear. That only works if you’re dealing directly with the public. Shops that have a dealer network or do most of their work with builders, have to stick with their agreed prices for at least a season.
Whenever I’m struggling with my pricing, the words from Mario Furtado, one of our former presidents here at CKCA always come to mind. He said never apologize for making money. We are in this business to make money and lots of it.
All too often I find myself thinking about how low can I set my price to make the customer happy when I should be thinking about what values and benefits can I give them to make them happy about the price they are paying. I also recall a slogan from Sam Geist when he was our guest speaker at one of our national forums. He said: “Price is price. Value is what you get.”
One thing I never want to do is to give my prospective customer a price over the phone or through email without first giving them a tour of my showroom and explaining to them exactly what they are getting. If they push me on that issue I always tell them: “A price is meaningless unless you know what you’re getting for it.” That usually ends the argument.
Knowing who your customers are and what they are looking for is half the battle. There’s no point in spending a lot of time with a prospect if they are looking for the lowest price they can find and all you have is higher end products. You have to advertise and market your business to the people who want your products and services and are willing and able to pay for them. I used to try to sell our top of the line cabinets to people who only wanted an economy based kitchen. It usually ended up being frustrating for both of us. For me, because I didn’t get the sale. For them, because they didn’t get what they were looking for.
I’ve since learned to take some time at the start of the process to qualify the buyer. Just to make sure we have what they are looking for and at the price they are able and willing to pay. On many occasions I have referred prospects to other cabinet shops and big box stores simply because they were looking for a low price and quality didn’t seem to matter.
The bottom line for me is my price has to reflect the quality and value of my product and service. If I lower my price I will also lower the perceived value that my customer sees. After that it becomes a race to the bottom. That’s a race I don’t want to win.
Jake Wolters is President of the Canadian Kitchen Cabinet Association and the President of Nu-Way Kitchens Inc. near Guelph, Ontario. He can be reached at: jake@nuwaykitchens.ca
