I am a small one person trim and custom cabinetry business that does residential work. My material prices had been fairly stable or at least predictable where I could price jobs for customers and not hurt myself with market increases. Generally from pricing a job to building it is 3-4 months which can see large price changes. Now my material prices are more volatile and I am trying to find out how small shops like mine handle material fluctuations? I don't have the ability to buy large quantities of materials in advance where they would be closer to my bidding prices.
How are you protecting yourself? Are you just artificially using higher material unit prices and hoping it doesn't exceed those? Are you adding a percentage on your overall material costs back into your estimates to be a buffer? Other techniques?

Thanks for your feedback.

Your only option is to put a clause in your bids and contracts that pricing is only fixed for XX days, hours, whatever. Im getting pricing regularly that is only guaranteed for 24 hours. Doesnt mean it will change but the option is theirs. You have to do the same to your customers and make it clear that if they lag prior to locking the job down its potentially a re-quote.

After that you have to work with vendors to place orders with needed ship dates. Most that I deal with have no issue with that. I can order, and pay, for material today and set a ship date 3 weeks from now. Either that or factor material storage into your bids and take delivery of critical materials and store them.

Usually in a one man shop, the material is the smallest part of the bid. Are you running big kitchens with large plywood orders? A lot of times when I ran a one man, 10 sheets and 100 bd ft of lumber was a regular sized order. How much do you think your bids are off because of material fluctuations? You do mark up materials on a bid anyway don't you? What kind of backlog are you working on that materials are rising so much? Give the customer a price on today's material price and then just show them how much it goes up when you order the material. The customer is paying more for everything they buy, they should easily understand. I refused to make a bid on time and material. People's eyes bulged out and gasped when I started out and told them how much I was charging for labor.

I find it's best to let a customer know verbally and in writing that their quote/proposal is only good for X amount of days (and will require a requote if this amount of time is exceeded). This can vary by your specific service, so give yourself a timeframe that minimizes price fluctuation exposure on your end.

Not sure what your logic with this one is Rich? Are you saying that you should build fat in your bid to cover all options (likely lose jobs) or conversely use that markup/fat to, as the maker, eat the price fluctuations?

If the economic climate is as volatile as it is right now, or really any time for that matter, its one thing to deal with predictable quarterly price increases that your vendors notify you of weeks or a month in advance, but this market is not that world.

If a customer lags and that 10 sheet/100BF hardwood order bumps by $20 a sheet and $0.75/BF your talking $275 bucks on just that material. A 10 sheet order is a pretty small job where 275 bucks may be 3-4% of your profit margin? Why should your markup eat that unless its because you drug your heels and didnt order material on-time?

We have no idea of when his quotes were made and how much the material prices have gone up. If a sheet of plywood just went up $5 and I'm using 10 sheets, my markup on the wholesale plywood price would cover that $50 and I wouldn't have to hassle with the customer about it. Now if he has a 1 year backlog and he's putting 25 sheets of plywood in the job and the price went up $30 from the day he bid it, yeah then he needs a contract clause. My point is that each situation has options and an automatic contract change may not be required. Do you put in the contract that when the price goes down you will give a refund? That's real transparency.

When a quote or estimate is given add the words : final price to be determined at time of job start based on current material costs.

I understand what your saying and I should have qualified that post deposit its on the shop. Pre deposit its on the customer.

I do give a discount if the price goes down at the time the customer places deposit.

The real issue here is when does the shop take deposit and when do they order materials.

If the job goes on contract 1/1 and is not going to start until 4/1 and the customer is unwilling to give deposit until the start of work then its a requote at the time of deposit. This option is nutty because it leaves the shop in total flux... material prices go up, customers funds go poof, customer finds another shop to do it quicker cheaper, etc... all youve got is a signed contract that is pretty much meaningless for a small shop. But yes, in that scenario if the prices go down my number would go down.

Thats the point of the clause in the estimate and contract. If the customer says (whether they are in this case or not) Im not giving deposit until work starts, all price fluctuations are on them. Additionally if they dilly dally and poke around with a million changes and options after estimate/bid (which happens all the time) the estimate gets re-bid at the time they finalize all their decisions.

Of course if the shop takes deposit (or trusts the contract without deposit) and rolls the dice to order materials 3 months later, the shop eats it. My point was the clause is motivation for both the shop and the customer to initiate material deposit immediately at signing the contract and procure your materials immediately in whatever way you must. Rent storage space, work with vendors, or yes, as you state, your margin is in jeopardy. Markups in my world are not there to cover wild pricing variations. They are a decent cushion for a little bump here or there.

I run a one-man shop. I’ve standardized as much as possible. Best approach so far has been a storage unit where I can store batch-cut parts. I have a smaller unit stacked with base cabinet sides, upper cabinet sides, all bored and ready to band, then 8’ rips dadoed and ready to cut for bottoms and tops. Stacks of dadoed 1x3 in maple, panels ripped to 30” base door height. I know what my materials cost when I put them in there, and add my overhead.

For custom product, I take a 5% retainer with a “letter of intent” holding their place in line. When it’s going into production, a deposit is collected and material is purchased. That way if cherry jumps 20%, they can choose to pay more of switch to Alder or something like that. It’s been a good system so far. When sheet goods got volatile, I started just stocking MDF panels and veneering what I needed. There are storage units with pallet racking and forklifts even if you’re in an urban area.

I typically say this is price if I could build it today, but I can't because I'm 6 months out. At time of start I will adjust based on what material costs are 6 months from now. And now I'm up front about hardware and soft close drawer slide shortages that payment is due when the boxes go on the walls and I'll be back to put drawers and other hardware in as I get it, and I have no guaranteed date when that will happen because nobody seems to know.