Pricing a kitchen, how to get the work AND make a profit?

[johnelliott]

Tim, your fingers must be tired from all that typing. Good stuff. Your worked example of a high street showroom is illuminating, and I'm definitely not going to do anything like that.
I have wondered about renting the empty unit next to me, will continue to weigh that one up.
As far as web site goes, yes, good idea, but only as back-up to local advertising. I don't want to attract enquiries from any further than 20 miles or so.

Here's a good question. When pricing my work, should I be thinking about the maximum I can get for any particular job, or should I be thinking about asking for the minimum that I need? I'm inclining toward the latter at the moment.

John

 

[tim]

BTW what delivery is that?

Some flowers for my wife :wink:

Chris, I was thinking about this whole workshop/ showroom thing more while I was out with the dogs - (the great thing about a forum like this is that by having to write stuff down it makes you (the author) think about it more).

I think to put all that spiel above a little more succinctly (not difficult ) would be to say that every customer meeting is the same as a job interview and as such I want to present myself and my business in the best way possible to get that job or contract. I want to be excited at the possibility of the commission and I want them to feel that my business is special and that they are special to it. There is no way that I can guarantee to be able to do all of that if someone just drops in. I don't want anyone to catch me 'teaching a tool a lesson' or being just a bit jaded. All I have to sell in my business is me, my expertise and services.

I know that for those who work in the corporate world how horrifying it would be if a prospective client with a potentially lucrative contract turned up unannounced and then made their assessment as to your suitability for that contract based on overhearing you and your colleagues discussing last night's telly round the water cooler.

John, I had one other thought - I'm not sure who your bread and butter clients are (I know you do a lot of revamping and refurbishing etc) but it may be that the kind of thing you do for them is not appropriate for your showroom given that you are trying to attract a different market segment.

There is a danger then that by excluding that they may feel less important to you or they may feel that you have become too upmarket for them and their wallets even though neither of things are true. Just like if the local pub puts in a fancy new restaurant, it can alienate everybody or it can make a mint!

I think to put all that spiel above a little more succinctly (not difficult )

Clearly, I lied :lol:
Cheers

Tim

 

[Chris Knight]

I don't know if you have read any of Jim Tolpin's books on making money at woodworking such as:-

http://images-eu.amazon.com/images/P/09 ... ZZZZZZ.jpg
http://www.amazon.co.uk/exec/obidos/ASI ... 78-4181414
http://www.amazon.co.uk/exec/obidos/ASI ... 78-4181414

I have read the second one (which I just note from the price has become a rarety!) and thought it had a lot of good stuff to say- I'll sell my copy for less than Amazon want!!

 

[tim]

Here's a good question. When pricing my work, should I be thinking about the maximum I can get for any particular job, or should I be thinking about asking for the minimum that I need? I'm inclining toward the latter at the moment.

Wasn't that my original question to you? :shock: :lol: :lol:

My theory is that you should know what the minimum is that you need to make on a job and charge as much as the client is prepared to pay. The difference between the two is the defining difference between a product and a brand and the way to deliver that is marketing (as you pointed out right at the beginning - benefits not features).

You know the answer to the 'minimum' question unfortunately the other one is the million dollar one! Don't get me wrong though you can make a lot of money with a product but you have to have high turnover (thats how cash and carries make their money for example).

In our line of work, I think its all about the fringe benefits because we can't compete with MFI in terms of efficiency and buying power. It is a given that the product will be great (and expected) where the value can be added as far as the customer is concerned very much depends on your target market. Once you have identified what that 'added value' is ( bespoke, project management etc etc) then you can add that on in cash terms and extract it into your bottom line. Tesco jeans £8; DKNY jeans £65 - you do the maths - they won't be paying much more for the basic product and even when you factor in advertising costs etc - they don't have to sell many jeans to make the same money that Tesco.

Cheers

Tim

 

[johnelliott]

After a bit of toing and froing we both (customers and I), hopefully, have a pretty good idea of what I will be providing. So then it's time for the big question. How much. Let's suppose I reckon we (me and my staff) can make the stuff in 8 days, and install it in 5 days. Add on a couple of days for the unexpected and that comes to 15 days. I already know that I can pay the bills, pay for the materials and have a reasonable amount of discretionary spending on £400 per day. So, 15 x 400 = £6,000. So, do I ask £6,000 or £8,000? (or more even).
It's a gamble, isn't it. It's reasonable to assume that the more I ask, the less likely I am to get the job. Not only do I have to compete with other kitchen providers, I also have to compete with Mr Letsleaveittilnextyear.
I know from experience that if I quote on a job, and they decide not to go ahead then they are NOT going to ring me up and tell me why. Even if they did, I can't be sure that they are telling me the real reason.
So, no feedback to guide my bidding, the only thing I know for sure is the amount I need (in this case £6,000). Does it not, therefore, make sense to bid £6,000? If I had a longer queue I might take a chance on the ocassional job and bid high, but I don't.
Tim's and others' responses welcome

John

 

[houtslager]

John, nice too read your ideas and modus operadi on this subject.
Whilst working in Amsterdam and other places less extravgent
I too have been hit hard by non payinbg customers.The biggest hit was £ 45K.Long story over that one.Another time maybe
But to go on, my present method is very simerler to yours, allowing the difference of clients wallet thickness and their attitude when they enter MY DOMIEN ie workshop.
I now ask 50% up FRONT, 1/2 way through project another 25 - 30 % with the balence on DELIVERY
NOTE I SAY DELIVERY, not completion, as fitting any furniture has TOO MANY PITFALLS DAMHIKT :?
The fitting is then charged on an hourly RATE !
If not for the time spent in FLorida I believe as does my bookeeper - I finally had a PROFITABLE formula and some good clients too .
But then family called and blew it all outta the water.
Now, I am in London and doing site joinery , at least it delivers cash and a little profit { of which most I'll blow at ALLY PALLY }

So, anyone GOING there ON SUNDAY ?

all the best from HS in wet and cold London

 

[tim]

John,

I don't know the answer - it is all a big poker game and while the theory is fine, in practice we know its not so easy. One of things I have done in my testing of the waters is actually ask the question of the customers who said no. I figured what had I to lose. The answers were interestingand also surprisingly honest (I know that because in some instances I was able to find out if they were actually telling the truth (because people know people etc).

The main thing that was interesting to me was that those that had said that they had changed their minds and had either not got anything instead or had bought something from a shop whose prices I couldn't compete with anyway ie IKEA. Net result is that the sort of minor price sensitivity that is the difference between my profit bring reasonable and non existent would not have altered their purchasing decision.

Therefore it wasn't so much my pricing strategy but the fact that customers didn't know how much things cost - eg Oh I thought you'd be cheaper than MFI. The others were things like 'actually we've decided to move so while all those changes would have made a huge difference to our house, it still not going to be enough for what we need'.

Its really I suppose a case of learning how much you can influence people's decisions and then working out whether thats the right thing for your business.


Cheers

Tim

"I don't know the answer, just the theory!"

 

[tim]

Here's a good question. When pricing my work, should I be thinking about the maximum I can get for any particular job, or should I be thinking about asking for the minimum that I need? I'm inclining toward the latter at the moment.

John,

I've had a further thought on this - prompted in part by your question above, some of my own business planning and another comment that you made somewhere about your price on a job being lower than MFI's.

Basically, your pricing should only be sensitive to market forces and not to the customer's pocket - particularly if as in this example you are talking about the lower end of a market segment. Thats not a reflection on your work just this example.

What I mean is that if a customer comes to you for a kitchen and you can make it for £6k and make the margin you want, even with all the bespoke elements that you offer and yet MFI or B&Q or whoever make a similar but less tailored kitchen for £8,000 then I don't recommend that you charge anything other than a minimum of £8k.

My reasoning - the customer has no bargaining power - he can't get your kitchen for less money elsewhere - plus by underpricing versus this datum you are in effect removing any possible financial value from your points of difference.

Of course you could say well he can't afford a kitchen from MFi and yet I can still make money for that price so why not go for it.

Obviously that would be up to you but the danger is you get known as the man who does cheaper kitchens than MFI and while demand may go up, your profitability per unit won't and you could lose your bargaining abilities with the customer. Therefore if MFI have a sale (which seems to be all the time) then there is a potential that your customer base is only made of the price sensitive ones and you lose them.

Not sure its helpful but I thought I'd put it down for you to see.

Cheers

Tim

 

[johnelliott]

What I mean is that if a customer comes to you for a kitchen and you can make it for £6k and make the margin you want, even with all the bespoke elements that you offer and yet MFI or B&Q or whoever make a similar but less tailored kitchen for £8,000 then I don't recommend that you charge anything other than a minimum of £8k.

My reasoning - the customer has no bargaining power - he can't get your kitchen for less money elsewhere - plus by underpricing versus this datum you are in effect removing any possible financial value from your points of difference.

Tim, I can guarantee that if a customer says to me (before I tell him or her my price) that the alternative from another source is £8,000 then I will ask £8,500 minimum. Unfortunately it doesn't work like that. We talk about what they want and then I give them my price.
It was only by chance that I found out that I was under the MFI price, well after I had bidded. I don't even know which range or what items were included.
My original question, -
"When pricing my work, should I be thinking about the maximum I can get for any particular job, or should I be thinking about asking for the minimum that I need? I'm inclining toward the latter at the moment"
applies where I am bidding completely blind, not only against unknown competitiors but against the (also unknown) constraints of the customers' wallets
John

 

[tim]

Sure, I understand that. All I was saying is that the only information that you can't get is the customer's financial capability.

I went out and got every price list under the sun and when I'm quoting, I work out what the nearest equivalent would be in a competitive set and make sure I'm competitive unless I particularly want to beat them to win the job.

Even if you are (or would like to be able to) quote on the spot, you could write a quick spreadsheet that has competitor info in it and turns out a couple of numbers - their figure and yours. The punter doesn't have to see that.

T

 

[johnelliott]

Sure, I understand that. All I was saying is that the only information that you can't get is the customer's financial capability.

I went out and got every price list under the sun and when I'm quoting, I work out what the nearest equivalent would be in a competitive set and make sure I'm competitive unless I particularly want to beat them to win the job.

Even if you are (or would like to be able to) quote on the spot, you could write a quick spreadsheet that has competitor info in it and turns out a couple of numbers - their figure and yours. The punter doesn't have to see that.

T

Yes, but even if I did know the competitor's price (and I would also need to know which range the customers had been looking at, and the number/type of units involved) I still wouldn't know how much money they had available (I realise that you acknowledged that). That one fact could easily over-rule everything I might or might not know about the competition's price.
I think asking for (to continue the example) an extra £2000 is best left til there's plenty of confirmed work on the books

John

 

[tim]

John

Of course you aren't a mind reader but you do have to make assumptions - or at least I do anyway.

If I know what I'm quoting for a customer, then the only comparatives that are of any use are ones that involve the same number of units and the same sort of materials. That way if the customer says to me that he can get that at MFI ie a similar thing to what I'm offering then I know he's talking rubbish. If he says that he can get a kitchen, then that may be true, but you can only quote on what they ask for.

If I ran a Ford garage and a punter sais they could get a Porsche for the price I was asking then I'd make damn sure that it wasn't anything other than a ten year old one with 80K miles on the clock. I never rely on the customer to tell the whole truth - why should they.

I believe its my responsibility to quote a price I am happy with for the appropriate work. If the customer is unhappy with that because they actually decide that something half as good is acceptable and go with that from someone else then I can still sleep at night.

If you want to cut loose from market comparisons and create your own pricing structures then thats your call, its just not what I'd rather do.

Cheers

T