I was recently approached by an interior designer who wants to display/rep our work to their clients. They want to know if I could offer a deep discount (about 30%) for them to do this. The problem is we are a custom cabinet shop - not a high volume shop. 30% would absolutely kill my profits. My pricing structure has always been the same whether I'm dealing with a contractor, designer, or homeowner. So, if I took them up on this, I would feel obligated to raise my pricing to homeowners by 30% which could knock us out of some needed work. I can see the value in having "dealers" but just not sure if this would work with a small custom shop. How have you guys handled situations like this? Do you have any experience with dealers? Is 30% normal?Any advice is greatly appreciated!
When all is said and done, you are the only one who can determine if this would be a good thing for you. Having made that disclaimer, maybe I can offer some insight and/or observations.
1] You are essentially a retailer of your products. It is difficult to also be a wholesaler. It seems the designer wants wholesale pricing from you without any commitment on his/her part.
2] At a 30% discount/commission, would you still be generating a profit, albeit a much smaller one?
2A] Do you currently have unused capacity in your operations, or are you working at nearly full capacity? If you have unused capacity, then low-margin (but still profit-generating) add-on business may help in funding your fixed overhead costs. Alternately, you could be churning without benefitting.
3] How much of that supposed designer-generated business would you be likely to obtain if said designer was not even in the picture?
4] Many businesses try to increase their business volume by reducing prices. But that can become self-defeating if not done appropriately. A rule-of-thumb is that a 10% reduction in price (across the board, for the sake of this example) would require a 30% increase in gross revenue just to get back to the original profit level.
5] "..... I would feel obligated to raise my pricing to homeowners by 30% which....". I'm not grasping why you would feel obligated to do this. If it is to recover your profit-margin, then it seems that you would be "penalizing" your existing customer base to make up for discounting to someone else. Maybe not a good approach.
My first thought is have a lawyer available to review a contract if you consider going through with it. Are they in the same city as you? Do they want exclusivity? What happens if a customer sees the kitchen at the dealer when shopping for interior design help, but then come to you for a kitchen? If you consider it, watch out or you could be paying that 30% for every kitchen sold in that city. No matter who makes the sale.
I tend Agree with passion fruit , give them your price and what they charge beyond your price is up to them.
It costs you the same or more to deal with a designer for sure as far as your time goes.if you pay a finders fee for jobs , fine.
They pretty much charge for their time and mark up costs of products.
Why not try giving them a price and see what happens . Assuming these jobs would all be designed special and custom
one of a kind projects , how the heck would the designer know if it is high or low ?
One more small issue !!! what do they do for the money,, if I wanted someone to simply drop my name and then send them 30% the line would be way on up the highway, you simply bring me the customer 5-7% you do the drawings specs and immunize me from BS and then that is worth more ~~
First of all, thanks for all your input! I had been toying with the idea of finding some "dealers" as a further way to advertise but the more I dig into it the more it seems that a dealer relationship only works with semi-custom, high production shops where deep discounts are given in exchange for a certain volume of work - unless I am missing something here (feel free to weigh in). These designers do not want the semi-custom look. On the few projects I have worked with them on, they have been really custom and, up to this point, have only wanted a 5% finders fee. Like anyone else, they want a great group of resources around them but they are not general contractors and cannot provide that kind of service. I understand they want some level of exclusivity and James, like you said, I can offer them non-disclosure for the clients they send my way. To up-charge all of my homeowners would be penalizing them - thanks, Ken, for this perspective - and I can't do that either. I do not feel obligated to disclose to them how I cost out my projects (being custom, sometimes it takes me a bit to figure out how to cost certain things). I think, at this point, it might be time for a friendly face-to-face chat. I do not wish to lose this designer but like Passion Fruit indicated, how do you discount custom? While the economy has improved, I still have not had an overall cost increase for about 6 years...
My only contribution to this is to honestly sit down and quantify what your costs are with regards to dealing with a retail customer, a GC, and the Designer. What I'm saying is, handling all the questions and education you have to with a retail customer is an expense. Its a massive amount of time and commitment that is, obviously, covered in your margin.
The gain (or whats suppose to be a gain) with a wholesale transaction is the elimination of that expense. The customer buying wholesale now handles all those questions, handles the money, handles the sales tax and the filing that goes along with it. Those expenses are "real".
The fear is that with the economy what it is you selling to all of your customers at the same number in effect means youve had to reduce your margins to the point where everyone is wholesale. The simple fact of the matter is no GC is commanding huge discounts from a commercial cabinet manufacturer (through a lumberyard or retailer) anymore. They may be lucky to get 10% but likely less than that and closer to zero. Most retail customers can buy the GC's cabinets for the same price if not cheaper when the markup is factored it.
I personally enjoy wholesale but the big factor for you will be that the designer can actually be more work than the retail customer. Making that clear in the arrangement would be paramount to me. If they are going to be doing the typical designer BS and walking in with endless last minutes, expecting you to jump through hoops, giving you short time lines, then it will not work.
If they want to buy wholesale, then treat them like a wholesale customer. They are not getting any cushy treatment from the big guys they are dealing with.
No way. I deal exclusively wholesale to the design trade on custom furniture. I give them a quote and they mark up my product plus charge $100 an hour for any errand or other work they do. I did have one who had me quote a resort remodel then had the product made in China. They did it again this year and asked me to make prototype chairs for free. The last time they sent me emails with photos of dozens of chairs that literally fell apart from wood movement. Begged me to rebuild them. No way. I figure she was just going to send the actual chairs to China to do a better job. I am sure if the designer is good and want's to sell a quality, problem free product they will still buy from us.
30% for a ready to build order with them doing the design, measuring, ordering, coordinating just like a real dealer does might be worth looking at backing out your costs up until you engineer for the shop. On the other hand if you have to do all the work then you need to add 42% on to get them 30% and you 100% (100/.7).
I think part of the problem is people don't really understand what custom is, and what's involved and that you don't have it all in stock. If they sell furniture and other items they probably get a 30% or more discount from list so they sell at list and maybe bill for their design time.
Lots of conversations need to be had to see if it works for both of you, you need to be able to identify the costs you don't incur with them selling and then put a value on just manufacturing. Will they install?
The designers I work with bring in good paying jobs and are worth the pita of dealing with them. Give them your price and let them mark it up how they see fit. I add 5% over my normal price for dealing with most designers. Very few can draw projects that actually fit and work as is. If they want you to charge the customer and send them a kickback that is not legal in some places and I don't play that game. It's better to let the money go through them. They pay you and charge whatever they can get. If they can get more money for the job, they are earning their money. If they just want you to work for less, you don't need them.
We don't do a lot of work with designers. It takes more time to get the job to the shop floor when working with designers. I'm a lot better off working with architects. They rarely change their minds once the documents are out. Sometimes job site conditions require changes, those get covered by change orders along with their costs.
Thanks, Guys for all the input! That really helped to clarify what is reasonable and the path I need to stick to. Now I have my job cut out to re-educate them on the values of custom and hopefully find a common perspective that we can continue working together.
Forget it! We are a 2 man custom shop just in marin county. 10% is all anyone gets.....designer/contractor/builder. A further markup on our end could give us a name for the high priced guys. No way no way no way 30%. Our work is through designers 90% of the time. THEY can mark it up (5000% for all I care) but I would not put that price on MY proposal. A bit slimy if you ask me.
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