Question
I had an opportunity to bid on a spec house that is 6500 sqft. I would be doing the kitchen, 5 baths, a walk-in pantry, butler's pantry, laundry/craft room, and bar. That was the first part of my estimate and doesn't scratch the surface of what there really is, such as a wine cellar, theatre, huge library/office, game room, etc. For this portion, I bid a little over 100,000. The kitchen alone was 40,000. Everything was bid as stain grade, dovetail drawers, etc. All high quality stuff.
Someone else bid the job at 69,000. He bid the job based off of the size of house. He never saw drawings or anything. What is he bidding on? I did drawings for each room and based my pricing on that. (I did not print them out or let the developer take them.) The developer says he's worked with the guy before, so he has faith in his pricing. Can anyone put perspective on this? I don't know how he can bid that low and stay in business. It's going to be a 4 million dollar home and have less than 100,000 worth of cabinets?
Forum Responses
(Business Forum)
From contributor X:
It all depends on quality. The job site could be in California, and the products could be made totally in Nebraska and shipped there, for that kind of money. Having a contract and getting the work subbed out to others, then doing only the installation, can be very lucrative. Having others build the doors, drawers, boxes – what's left? Guy does not need a cabinet shop when he can get others to build to his specification. Got a big truck?
I would guess the other bidder's price is just right at $69k for the product that he/she is going to provide. The contractor would be unwise to spend an additional $30k on cabinetry if his customers aren't going to care about the difference in cabinets.
One other thought - maybe the guy has already bid on a similar spec home and is building cabinets in an area with much lower overhead than you.
An analogy I've been working with lately has to do with the sandwich shop next door. I'm sure that, given a choice, their customers would prefer to use cloth napkins... but only if it was free. If you tried to charge another 50¢ for this upgrade, the customers would pick paper napkins, and be equally happy.
We used to offer a similar upgrade, but it had to do with drawer boxes. We assumed that since lumber drawer boxes were obviously nicer, the customers ought to prefer them. Our focus seemed to be educating them about what they ought to want instead of giving them what they did want. As it turns out, they are just as happy with pre-finished appleply and side mount Accuride slides. As a consequence, dovetail drawer boxes are not on the menu anymore. We now use a castle pocket drill and give them "threaded steel dowels" instead. For the more discerning, we point out that these steel dowels are not only threaded, but they come in a US10B oil rubbed finish!
As we promote it, a drawer is a drawer. They all do the same job and they all look the same when they are closed. The place we prefer to put your money is where it matters... and that is where you can see it or use it. While we don't offer dovetail drawers, we do put a Formica floor under every sink, because that's got some real benefit. We also have a killer pullout garbage can. We market it right next to the very best one Rev-a-Shelf sells. (The kind you have to take to the carwash to clean.) Ours is made of Formica and travels on a 500lb side mount Accuride. This pullout has fenders to protect the slide from coffee grounds, and you can clean it.
This pullout used to take a full day to build. We are now down to around three hours. The goal is to cut that cost in half again. Our agenda is to provide the very best quality available and to become the lowest cost producer for that quality. Lowering costs just involves eliminating steps and simplifying the ones that remain. These steps are part of a continuum that begins with the customer and ends when the bookkeeper gives you a one-page synopsis (with a $100 bill pinned to it). This is a long and meandering journey and there's a lot of places to cut fat along the way.
Look at how much meandering there is for a single product family. Most of the things we build have about 12 to 20 discrete procedures. Each of these procedures has 2 to 4 sub-plots you have to pay attention to. Some of these nuances can be eliminated at the point of sale. An example of this is mineral stains in maple plywood. If you ask the customer if they would be willing to accept some less-than-perfect plywood, they're going to find another cabinetmaker. If you instead put a drawer on display that is filled with kitchen stuff, then ask them how important mineral stains are... you will get the answer you want. If you can find a way to explain how that rusty looking stain probably had something to do with a meteor a couple of million years ago, you can probably get the price you want.
Assume those dozen procedures take 60 minutes to accomplish. If you are spending $20 an hour on a guy, it's going to cost you $20 to get the job done. If there actually are a dozen steps involved, it does not take a big leap of faith to assume that you can probably eliminate at least one or two of those steps. There are probably a couple of those steps that can be done quicker with a small tweak in technology… If you simplify these steps, it is probably not unrealistic to assume that a $15 an hour guy could probably be as successful as a $20 an hour guy.
If you can move something from 60 minutes to 45 minutes and can do it with a $15 an hour guy instead of a $20 an hour guy… your costs go from $20 to $11.20. The goal is to drive down costs, not wages. You don't make money by keeping wages low. You make money by shipping product. If you can finish a kitchen quicker, you can get another kitchen done that month, or quarter, or year.
Contributor T, good thoughts. I'm going to think long and hard about how we can work on our production. It's just so hard with 2 or 3 guys and such a small shop to know where to begin. There's times when we are so busy we have to stop production because we have no more room. As good as that sounds, it really hurts business, because I need to turn work away from customers who need stuff done soon. And that loses referrals. I'm working on that one, too. Bigger shop? Deliver unfinished and finish onsite? Something has got to be done.
If you want to focus on mass marketing and reduce your prices as part of marketing strategy, in order to capture more market share, because you were able to cut costs (whether product or procedure related), that's one thing. But if you are a custom shop with limited output, that's another altogether. Don't dumb down custom work... Separate yourself, target your demographic, and most of all, charge for it... You're professionals; be compensated as such.
Think of this like a game of soccer. When there is just you and one other guy, it is real obvious who to kick it to. When you are building one cabinet complete before it leaves the bench, it's real obvious what should happen next. You will not have to suck up brain power managing crazy ways of remembering what has been done and what still remains.
When you are only building four drawers at a time, you only have to generate this much math. If you sequence the production of these drawers in a way so that they are not completed until there is a cabinet ready to receive them, you will already have a place to stick them. If you don't have to give up precious floor space to store canyons of (not yet needed) drawer boxes, you will have another place to stick a chop saw closer to where you need it.
It's not hard to imagine: A kitchen with 30 cabinets will overwhelm you, but you've got resources to spare if you are building just one bathroom vanity. Figure out how to make that 30 cabinet kitchen turn into 10 bathroom vanities.
It doesn't cost any money. You don't have to buy any equipment. You just have to lower your batch size.
