Bidding a Commercial Cabinet Job

Residential cabinetmaker gets advice on pricing a commercial unit. May 4, 2005

We are a two man cabinet shop in Northern Ca. We mainly build kitchen and other household cabinetry. We recently took a job to build a front counter/cash desk and four 48x24x14" glass display cases for a department store. How do you bid this? We have seen similar cases in catalogs for nearly $1,000 apiece.

Forum Responses
(Cabinet and Millwork Installation Forum)
From contributor Z:
If the cases you can buy for a grand meet all the requirements, I would buy them, add 50%, and deliver them. That is the best way to do it. Buy below published price, sell for way over.

From contributor S:
Everyone wants that magic formula to do pricing, but you know what? There isnít one. What it boils down to is knowing how much it costs you to make it and how much you want to make when you sell it. With that said, you first need to know what your true overhead cost is, plus your cost of labor and factor your cost of material, then what you want to make for profit. Keep in mind you might want to expand your business by adding equipment or new tools, and you can do this if you are making a profit. Or you can convince your wife to buy them for you. :) There is really no shortcut - you need to learn your costs and price accordingly.

From contributor J:
Knowing your costs is less than half the story. What you really need to know is how much the customer will pay. That is the correct starting point. Then, and only then, do you work out your costs and see if you can make a profit. Has the customer approached you because they are looking to buy for less than the catalogue you referred to, or because they are looking for something better (and therefore more expensive)? Or perhaps because they need custom sizing? Are they talking to your competition?

These are all questions that you need to know the answers to, or at least be thinking about. There is no point in calculating your costs and then adding your profit in order to arrive at a price, if that price is going to be above what the customer will pay. Even worse would be to do the same calculations and arrive at a price that is less than the customer will pay.

From contributor S:
It seems ludicrous to me that you would not start with knowing your bottom line before you even talk prices with the customer.

My opinion is that if you canít make money doing the job, then you should not take it, and the only way to know if you are making money is to know your cost. This is not a new concept - it is one that any successful business person will agree with. It is important to know what your customer is willing to pay for your work and you will find that out when you give them your price that will cover your cost and hopefully a profit. How would you feel if you went to someone for a price and he asked ďhow much are you willing to pay?Ē versus going to someone that gives you a fair, calculated price for what they can do it for. You will have better success pricing jobs to make money rather than by how much you think the customer wants to pay.

Is it really a bad thing to give the customer a price lower than they were expecting and turn a profit doing it? Knowing the prices in your area is very important and will influence your prices to a point. You would not want to be a lot lower than your competitors or always much higher, but keep in mind that if you donít make money doing the work, you wonít last long in business and the only way to know if you are making money is to know your cost.

From contributor J:
I'm happy to discuss this stuff, and a disagreement is a good way of making sure that all sides of an argument are fully explored. I do have a problem with this part of what contributor S said:

"This is not a new concept - it is one that any successful business person will agree with."

It is completely wrong for him to assume that every successful business person agrees with him. Does he really think that when Ford decides to produce a new car, they figure out their costs first? Well, I can tell him that they start with the price to the customer, and work backwards until they get to the cost. If their costs are too high, then they do their sums again until they find a formula that works, changing price, design, manufacturing methods until they come up with a car at a price that will sell and make a profit.

Knowing what the market will bear cost-wise is step one. Can you make money at those prices is step two.

From contributor S:
I donít believe for a second that Ford would take a car from conception to design without doing a cost analysis first to see if it would even be a feasible investment, but then I donít make cars. You are right - it was presumptuous of me to think that everyone would agree with me, however the majority of business people I have talked to and the forums I have read all seem to agree that knowing your bottom line is one of the most important things to learn before pricing. If someone comes to me for a price, I can give them a fair price knowing it will be profitable for me to make. And I donít need to know what they want to pay for it first. Maybe if I was selling a high production item (like cars), I would do a market analysis first to see what people would be willing to pay for that item. In the real world of custom woodworking, I just want to cover my cost and make a profit, or what is the point? Perhaps if I was really slow, I would ask the customer what he thought it was worth and then do the job rather than do nothing, but I have never been that slow.

From contributor E:
Break the cabinets down by materials, special order stuff, finishing, shop time, delivery, install, overhead, add your profit. Then track it through the shop, note your material prices, etc. and at the end of the project, add it all up and compare the two numbers. You'll be able to determine if you actually made any money. I know this sounds tedious, but this is the way to build a base on which to help you quote the next similar project. Over a period of time, you'll be able to give guess estimates on the fly. Always keep records of how the jobs went and what the problems were.

From contributor M:
Search the archives here in top right corner of this page by entering the following search terms: operating costs, bidding, pricing.

You have to figure out what it takes to run your business and how much on top of that you want to make, period! If they don't like the price, do not drop yours - walk away! Once you figure out how much you have to charge, don't ever go any lower! If anything, start at your price and go up based on how busy you are and how much of a pain the client is. It is absolutely irrelevant what other people charge. No matter how much you charge, there will always be lower and higher bids. Forget about other pricing and get a handle on your operational costs. If you figure out it costs you 5x as much, then put your bid in at 5x as much. No point in doing it for the same as others, or what the market will bear. That is a quick trip down bankrupt lane. I would rather sit home and make nothing than work and pay out of pocket.

Directly back to your question. Custom made glass display that size? I can tell you it is way more than $1,000 each. I like contributor G's idea. Buy them and mark up, just build the cashier station.

From contributor T:
What part of northern California?

From the original questioner:
We are in Oroville,Ca. We priced the glass alone for the cases and got a quote for 700. Thanks to all of you for taking the time to answer my questions.

From contributor B:
It is hard for me to believe that you guys are not crediting contributor S for his sound advice. I agree that you need to factor your cost and give your client an accurate figure as to what you could do it for and still make a profit. If he thinks it is too high, then walk away. Donít go lower than what you can make a profit doing. I do disagree with ďIt is absolutely irrelevant what other people charge.Ē It is relevant to know what your competitors are charging, but I would not take a loss on a job just to get the job. You will know where you stand in your local market and this, I feel, is very important.

From contributor K:
If someone else does a job that you submitted a quote for, at less than what you need to make to run your company, it is irrelevant in that you should walk away from it, as what they want and what you need to charge are not a match. Therefore, they are not your market.

There will always be someone willing to charge less than you, and if you continue to chase this kind of business, you are going backwards not forwards, and long term it has the potential of driving you out of business.

Your pricing should be a balance of what you need to charge and what the market will bear. If you find that what you charge is not sustainable in your market, revisit how you are doing business, and if it can be done more cost effectively and efficiently, then revamp your pricing structure.

Other than that, I encourage you not to let your business be run by other companies' pricing.

From contributor J:
I think some of the above responses were based on what people thought I said rather than what I actually did say. I did *not* say that jobs should be undertaken for less than cost. I stand by what I said - that the most important factor in bidding is to know what the market will bear, and I have seen the same thought (expressed differently) from many others here. Yes, of course you need to know what your costs are. That will stop you taking a job that will lose you money. But you also need to know what the customer will pay. That will stop you from making less on a job than you should, and stop you losing jobs by seeming too cheap (it does happen, maybe not often).

From contributor B:
Contributor K, I couldnít agree with you more. My main point was to not totally discount what the competition is charging. I try to be consistently higher than my competition because I do better work and I am worth it. But I also know what my costs are and I know how much I need to charge for a job to make money on it.

Contributor J, I know you are really getting hammered on this post, but when you say ďI stand by what I said - that the most important factor in bidding is to know what the market will bear,Ē I strongly disagree. It is of course an important part of being in business to know these things, but it is less than half the story. As you can see, the one thing everyone is in agreement on is knowing your cost, and that, my friend, is the most important factor in bidding.

From contributor S:
It is nice to see other people as passionate as I am about how important knowing your cost is. (Though I am really not surprised) I think what really got me going was how contributor J tried to downplay how important it really is. This is a mistake that I was guilty of in the beginning, but it did not take me long to realize that if I wanted to be successful I needed to know if I was making money on my jobs. There are a lot of other factors to consider when bidding a job but none as important as knowing that when you're done, you actually made a profit. If the market can bear a higher price, in time your prices can go up and you can make even more profit.

From contributor L:
Both of the ideas that are being suggested (knowing the bottom line and how much the customer will pay - better worded as what the market will bear) are both vital elements of successfully pricing and bidding work. Regardless of what the market will bear, it would be foolish to produce a product that costs more to produce than the selling price. Understanding the cost of supplies, labor, and overhead is essential before one would attempt to submit a bid proposal.

Having said that, after one has done this work and desires to produce a custom piece of furniture for $2000 that yields an $800 profit, it isn't going to matter much if he lives in an area where people are not willing to pay that much for that product - for the woodworking shop in the next town has been producing fine work for 20% less for years.

Perhaps the region has a median income of 25000K where people just are not going to buy high-end furniture, etc. In such a case, contributor J is right on to suggest that one has to examine his overhead and costs and see if he can work down to a price that the market will bear. If he cannot make just those adjustments, he had best discover another avenue.

I am not sure how one can state that one principle is more important than the other. Both are fundamental principles that must be considered by any business.