Bidding Wars on a Nice Built-In
Another lost-bid case study: Custom cabinetmakers discuss pricing and negotiating strategies for a custom Cherry entertainment center job. August 11, 2009
I bid about $10,250 for this wall of cabinets, as follows:
Length about 20', so what you are seeing is 3 six foot sections.
Material: cherry with beveled glass doors.
Countertop not included.
Special design: the columns are hollow and will house speakers, so the columns will be more complex than indicated in the drawing.
Special design: TV is pulled forward and ventilation goes up behind the paneling.
The other bids are coming in about $8,000... So clearly I'm too high, though I think they like my design. Two questions: what would you bid? This is for a total of about 22 lf cherry cabinets, paneling, beveled glass, fluted columns, crown, arched valance, base, custom stain, finishing and installation. And how can I lower my price gracefully and win the bid without seeming too desperate?
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(Business and Management Forum)
From contributor O:
Lower your price? $8000? Let the low bidder have it. Do you actually have $2250.00 of padding in this bid above and beyond your material costs, overhead, and profit? Between the cherry, columns, beveled glass, arch work, and install, you are probably in the hole already.
From contributor L:
I agree, let them have it. When the homeowner gets hosed, they'll realize why you were higher. Be firm with your price, make sure you are bidding apples to apples. And let them know about your service after the fact (if you have any). Ask to see the others' bids - you might get a no answer, but it will show you how they are constructing their bids.
From contributor D:
Only you can decide if you are too high or not. Personally, if I figured a job and came up with a 10,250 price tag, I would rather not get the job than lose 2,250 off the top.
From contributor B:
I don't see how you can ever lower the price without taking something out or lowering the quality and making the client aware of it. To counter-bid yourself makes it appear you were overcharging in the first place.
Try to sleep on your bid before submitting it. If it still looks right in the morning, then it's what you stand behind. There will always be rats fighting for the scraps.
From contributor T:
You should approach the customer and ask them what is most important to them. If they respond that they want to stay within an $8000 budget, offer to engineer a project that accomplishes that.
A media center, for example, might be just as nice with single drawers at top rather than a stack of drawers like you would see in a kitchen. Maybe the center section would look just as good with all doors at the base cabinet. Slab drawer faces are less expensive than framed ones and there are probably simpler ways to do those big columns.
I think it is kind of dogmatic to just say stick to your prices. If the material on this job is $3000, there is still $5000 left to be earned. If you have to turn down a job to take this one on, you might be a bit more conservative, but if this is your only job, suck it up and do it.
This is going to be a recurring theme over time. Figure out what is important to your customer and figure out how to get good at delivering it. You might just find that the customer wants to work with you and the beveled glass was just a starting point.
From contributor I:
Contributor T offers a good solution for your question. If it's not too late, offer another bid (in addition to your first). One that would list a savings if you replaced the cherry wood with alder (alder is a good substitute for cherry - grain and all - if alder is cheaper than cherry in your area), or melamine interiors or some cheaper wood substitute. Anything to cut your costs on first bid. This way, the homeowner can see that there could be a cheaper substitute for the cherry and your first bid. Maybe he would realize that the others may be offering the cheaper solution in lieu of your first bid. I would tell him that he has options from you for a lower price if he is so inclined.
From contributor E:
$8000 is still $400 a foot. I wouldn't turn my nose up at that in these times. I just did a 32 ft kitchen in which 21 feet of the cabinets had face frame and panels on both sides for $9500. Cost me $3500. I'd rather make $5500 than stand on my principals and be unemployed.
From contributor C:
I didn't take the time to figure the price, but you can be certain, you would have underbid me in an apples-to-apples situation. You're at $465 per foot for cherry, all the bells and whistles, and fairly aggravating cabinets to build. In my area (MS) that's a good price!
I'd go back to the customer and see if the other bidders were bidding the job spec'd the same way you did originally. If not, offer to do like contributor T said and see if you can make the changes to get into the price range these folks are looking for.
Try to make the deal work and make money. If you lower your price just to make cash flow and aren't turning a profit on the job, only you know how long you can sustain that.
From contributor N:
So it sounds like they have multiple bids with multiple designs; is that the deal? Or did they have specific criteria spec'd out and you were supposed to come up with your own rendition of? I suppose this could be the area of such a big difference in the bids. How did you handle the drawing; did they get to keep it? Did you charge for it? This exact same scenario happened to me a couple of weeks ago. I was undercut by $1600 on a $5200 bid! Who are these people?
From contributor J:
If they didn't want you to do it in the first place you would have never heard about the other bids. When I encounter these thrifty minded types, I put my money where my mouth is. If they have another estimate from another shop that they need me to match price with, I tell them no problem - I furnish the same thing for the same money. Just bring it by, in writing, with the specs clearly detailed - that includes interior case materials, outside material and grade, mouldings, install and finish, and I'll match it. More often than not, I find enough missing (footage, materials, finish) from others bids to make more net at their price than I did at my original quote. Most times they're offering lacquer finish as opposed to a CV at my place. Same with hardware - full extension vs epoxy bottom mount, euro hinges vs exposed Amerock knockoffs or dovetailed vs butt joint drawers...
I certainly won't do the same project as my original quote for less, but will do the project to the other specs. You want apples or oranges - I know how to do both. For what it's worth, I'll do that deal at 8k all day long.
From contributor W:
I'd bid a lot more than $10,250, but my market may be different than your market. Only you know if you are too high. Maybe the other guys are too low. Once you have given your price to the potential customer, never lower your price without changing the scope of work to reflect the lower price.
From contributor S:
Now I know this isn't apples to apples, but please take a look at this unit built 4 years ago. To try and gauge cost vs selling price... Cherry with wiping stain inside and out. Columns were hinged with shelving behind. Include glass for doors and mirror. 4 roll outs behind doors on right. Middle base no shelves, because electronics roll out by other. 16' +/- wide
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Another with details. Lighting supplied and installed by others. We just made chase ways for wires. What is this "worth"?
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From contributor Z:
My market is in the Midwest. Based on past projects I've been doing, I'd bid 16-20k off the top of my head. And I thought I was cheap...
From contributor V:
Contributor J, you are so right, and there is more...
Scenario part one:
1- No problem, get written specs of the $8000 proposal, and more than likely it will be sorry quality and sorry material.
2- Match it, build it and tell the homeowner you will have it unfinished uninstalled for $5500.
3- Tell the homeowner to call the other guy to install and finish the project, letting the homeowner know that you did the hard part and left the easy part to the other guy.
4- Set back and laugh.
Now you're making over $2500 in one week, since you are using their material specs in your own sweet shop with no travel, no finish, no problems.
Scenario part two:
1- Homeowner will try to squeeze the other guy, because $2500 is too much to do the easy part for spray and install of a couple of cabinets. (Per your say to the homeowner.)
2- If the other guy accepted lower price because he is desperate for money, that means you have made $2500, as I explained before.
3- If the other guy refuses to complete the project for $2500 and he offered to do the job from A to Z in this case, he has to compromise even more because the homeowner knows that you are already making money at the $5500 and he is making money at the $2500.
In our trade we became our own enemy, pushing each other over the cliff - looks like it is not enough we are in war with the Chinese market under the Free Trade act, now we are at war with each other. By the way, your original price of $10,250 is very reasonable.
From contributor O:
The homeowner has already found someone willing to do the job for less than your bid. In my experience the chances of the homeowner monkeying around for the next 2 weeks between the 2 or 3 bidders to verify that every spec is apples to apples is about nil. What he will do is tell the low bidder how he wants it done based off of your specs, and possibly drawings, and hope the guy will crumble and do it.
From contributor F:
This also illustrates a problem I think is going to start plaguing many of us, with less and less work - even the good shops are now underbidding just to keep their guys busy. Shops aren't worried about making a profit right now - they're worried about paying their rent and keeping their doors open. Eventually I believe this will weed out the weaker shops, but it's going to get pretty cutthroat in the meantime.
I also think your pricing is very reasonable and I know I couldn't make any profit building it for that price. But I agree with the general principle of not lowering your bid. Re-bidding the project with some design changes to cut costs is fine, but lowering the price as is, I agree, is a bad idea. Listen to the advice given here, talk to your client, find out what's important to them, and see if you can make it happen.
From contributor X:
You said you thought he liked your design. I don't know how many times I have taken the time and effort to price exactly what they told me they liked only to find out that when they priced with my competitor, something wasn't as important as they told me it was. So make sure you're apples to apples. But more importantly is to not give him anything but a look at your design. He can touch it, but no leaving with anything. At least if he takes his business elsewhere, he didn't take your dignity. Buyers are liars. Sorry, but they are.
From contributor U:
You have 15 boxes in this design. At $500.00 per sheet of plywood it will be $7,500. (I also design in KCDW - 1 sheet for each cabinet.) Interior box, go with maple pre-finish and edgeband with PVC that matches the color. The columns are just boxes. Here in Miami, FL we will do it for $8,000 and make a profit.
From contributor K:
The original question was, "can this deal be saved?" My question is, do you want to save it? If yes, there are several great ideas in the previous posts. I've seen homeowners who try to match competitors' prices become like sharks. They smell blood in the water and start seeing how far they can go. If you drop to 8 Gs, do they go to the other guys and say look, he dropped two grand, what will you do?
I agree with telling them you're willing to rework the design to fit their budget. I've only had this happen once. The homeowner swore it was apples to apples, but didn't want to let me see any of the other shops' info. I wished him luck and let him know that if I could be of any further service, to let me know. I know the contactor who built the house, and he said they heard the couple arguing several times because the husband went with the low bid and they weren't what she wanted.
From contributor P:
I'm in California and I just took the time to run a bid. I figured raised panel doors, maple ply interiors, cherry interior in the glass door cabinet, soft close drawers, about 3 hours each column, 2 hours TV section double back and venting, 2 hours for arched valance, 30 hours stain and finish and 35 hours deliver and install. $19,183.40 including tax. $1,065.72 per foot wall measure for 18 feet of cabinets. I don't do linear foot prices but entertainment centers do seem to fall in the $1,000/ft to $1,500/ft range depending on the complexity. Will you need to do a two stage install because of the tops?
From contributor H:
You could offer to trade features for dollars, but anyone, including your competitors, can simply lower the price to get the job. Think they won't knock another $1K off if they are desperate enough to bid $8K?
From contributor Q:
Sounds like they're cheap, and since they watch the news and are hearing about 10 to 15% unemployment, they're digging for gold - your gold. Change the design a little and lower your price by $1000. Since they want your product, and they feel they deserve a discount because the economy is in a freefall, give them a little (but not much). They will feel good that they're paying more than the $8000 to the low bidders, and that they're helping you out, and getting what they want, which is a quality product. The hard part will be pretending to like them when you're working with them, as they're taking advantage of people in these times. More of this to follow - get used to it.
I had to be the low bidder on a large job I'm on now. If I didn't sharpen my pencil (as my customer put it), I would be out of work. My income for the month will be basically right in there where I want to be anyway. I just have to build a few more units than I would like for the same income. Once things turn around or I get an honest customer, my pricing will go right back up there.
From contributor O:
The biggest problem I see with lowering your prices, especially on repeat GC work, is that once we get through the tough times and they see your numbers rise to where they originally were, the majority of them are going to go shopping again. The thinking will be, hey, if you could do it for this 6 months ago, I expect the same now. How will you/we address that?
From the original questioner:
Thanks for all the replies.
Contributor S, what did you sell your cabinet for? It looks great! I expect it was more in the 15 to 20K range. My prospect doesn't expect anything that elaborate. But if you did it for 10K or under and still made money, I couldn't compete with that.
My inclination is to go to the prospective customer and say something like this: If you like my design and my approach the best, then let's figure a price that we both can be happy with. But if you really like the design of the other bidders better and would prefer to work with them, so be it.
This way I don't waste my time if I'm not really being considered, and I have a shot at reworking the proposal if they really want to work with me... and I'm needing work just as much as the next guy.
From contributor G:
I would make two slight modifications to what you intend to say. First, determine if price really is an issue. Let them know that your price is firm for that exact design. If they want to get a lower price, then ask them what they would like to eliminate from the design. This may open up the design conversation again so you and the homeowner can determine what really is important.
For instance, they may realize that the beveled glass look is not worth the extra cost to them. Or, they may realize that the other bids ($8K) don't even include any glass at all. (Some shops may have a line in their contract that says glass is extra. This way, they don't have to take the time to price the glass correctly for every prospect. I buy glass infrequently, but it always seems that the price fluctuates up and down.)
Second, I would leave out your last sentence. Depending on the personality type of the homeowner, that sentence may back them into a corner. Then, their defenses go up and no matter what you say after that, they may never deal with you again.
I wouldn't try to compare "my design" with "the other designs." Talk to your prospect and see if your design meets all of their requirements. Your prospect will know if they like your design better. Or at least they may realize that they don't really know what is included in the other designs and prices.
In my opinion, picking apart the competition and their design is less than professional. Keep your talk and actions professional at all times. Be confident in your work and your pricing. Sometimes that is half of the battle in itself. People want to deal with successful people who know what they are doing. As soon as you start to cave in and begin to give things away, you have lost the battle, and most likely will lose the war.
From contributor M:
It sounds like the customer is playing poker. Only problem is you are not playing a game. Ask them to show you their cards. If they can produce drawings and a quoted price on paper of another fabricator who will build that picture for $8000, then you have no choice, but to walk away.
We all believe the other guy took a look at your drawing and said, I can do it out of the sappiest fence material the local sawmill is selling. Along with the cheapest knockoff hardware fresh off the boat from China. Along with a couple coats of brushed Minwax poly.
If you can change all specs to the above and essentially build them kitchen cabinets, then by all means do it for $8000.
From contributor S:
36k without the tops. 40k with the tops (bought for 2k, sold for 4k installed). This was 4 years ago "retail" direct to homeowner.
Is your rent less? Is your insurance less? Is your labor less? How about electric and dumpster? Materials? How can you cut prices when expenses are the same? Who was making 40% net profits and can now cut their pricing by 30%?
It is absolute cutthroat out there. But it is not our throats they are cutting. It is their own. I have a new name for these companies. One and done! They do one project for stupid cheap and are gone. While that shop is toiling away making dust and paying for the job, you go out to every BNI, ASID, AIA, NAHB, NARI, Toastmasters, Chamber of Commerce, Lions Club meeting there is in the area and sell yourself!
Stick to your guns. As already stated, ask for the written quote from the other guy. Get your butt out there and get new leads! We have expanded our bidding pool literally 10x what it was same time last year to get half the work. We are working on expanding the pool to 20x what it was.
What is more productive? Building a job for free or creating new leads? I didn't do my pricing program for your post, but know my pricing well enough to say we would not do that project posted for less than 22k installed.