Pricing product in a small, start-up moulding manufacturing operation. October 9, 2002
I am trying to get a small moulding business started (by small, I mean maybe a half dozen contractors). In checking out the competition's prices at the Home Depot and other lumberyards, I can't seem to come up with any logic to the prices, either by square foot or any other measurement. For instance, 3/4 cove moulding seems to cost twice as much as 2 1/4 casing. What is the method for determining these prices? They use the same material, the same price knives, the same labor. Is it demand?
From contributor M:
Forget about trying to be competitive with the likes of Home Depot. The only way you can make your venture fly is to go after the custom market. To get the answers you’re looking for, though, a little cloak and dagger is called for.
Locate a few custom moulding outfits in your area and, pretending to be a contractor, fax them a few custom profiles and ask them for pricing. If you’re nervous about pulling a Jackie Gleason “Homina, homina”, don’t put your phone number down, just your fax number.
With the answers you get, you should be able to figure out if you can be competitive in your market. If you are, set up a spreadsheet that will factor in all the variables so that you can price your own work consistently and quickly.
Don’t be overly optimistic about figuring the waste factor. I add 50% to the finished width of the profile. It usually works out about right.
Figure your costs; add your profit level (20%?). You cannot compete with Home Depot! Our waste factor generally runs more than contributor M's. It varies greatly with the wood chosen, customer demands, length and width mix of an order, etc. How much setup time does your molder require? If it is equipped with digital readouts and you use a measuring stand, it's quicker. You have to have your profile grinder vs. knife references set to be quick, too. There will be times you hit a staple or piece of gravel in a board and have to sharpen in the middle of even a short run.
Get a list of local cabinet shops and contractors where you live and do a bulk mailing to them. When I ran a small cabinet shop, getting hardwood mouldings was extremely difficult.
From contributor B:
The above suggestion of wasting the competition's time is ridiculous, let alone unethical.
First, don't price your product based on the competition. Price your product so you can make money. If you don't, you will never know how to price anything. Are you going to ask the competition to reprice all of your products every year? They may have different equipment, labor, etc. than you. If they're set up to do long runs, and you're set up to do short custom runs, you'll undersell everything.
Find out what your market "niche" is. Determine your selling price by your experience (material + labor + burden and profit). Only you know what the material and labor costs are for yourself. The supplier to Home Depot might be buying train cars full of lumber, and you're buying a few thousand feet at a time.
If you don't know how to price the work from your own experience (and not based on the competition), you might wait until you can.
From contributor M:
If you’ll reread my post, you’ll discover that my advice wasn’t to merely duplicate his competition's pricing without doing any figuring on his own. It was to learn his competitor’s costs so he can determine if he can be competitive in the same market.
If you're selling cabinets, you can be more expensive than the other shops so long as you can demonstrate you’re providing something (i.e. superior quality, better service) for the extra money.
Moulding isn’t cabinets. Most moulding companies will turn out a good product and usually on a predictable timetable, so it really comes down to price.
If the questioner follows your advice, he will spend a pile of money to purchase the equipment necessary and do an analysis to determine pricing. Then he will start knocking on doors and hope for the best.
If he does it my way, he still does the analysis, but he’ll at least have a benchmark to compare to so he’ll get an immediate sense of whether or not he can make money *before* he goes out spending the kid's college fund.
Before I bought my moulder, I followed the same course I outlined above. The results were a real eye opener. I found that I could make an even higher profit than I had anticipated. Further, when a contractor tried to jive talk me into lowering my prices by claiming that he could get the moulding cheaper elsewhere, the knowledge I had gained enabled me to politely stick to my guns and make the sale.
If you want to argue ethics, go ahead. Me and my bankbook sleep very well at night.
From contributor B:
I didn't suggest that the questioner spend his kid's college fund without first knowing (by experience) what he can sell his product for. He's not selling his competition's product.
We have 20 companies in our market that can run mouldings, and we will buy from only one. They happen to be the highest, but provide the best product (it is profile sanded). There are major differences between each of the twenty, except the "bottom feeders" who are providing junk.
The questioner might have better luck trying so make his own high-end market than joining those bottom feeders (or competing with Home Depot).
From the original questioner:
I'm not sure my message was as clear as I thought. I'm not necessarily trying to compete with Home Depot. I'm trying to figure out the logic of the pricing system where the product that requires more material, same labor, same knife cost as a smaller product can be priced for less than the smaller product.
In our market area, most contractors shop casing prices, because this is the bulk of their molding purchase. All contractors will ask casing prices first and base or crown next and rarely, if ever, ask about prices for chair rail, stop and other items. I've found if I have a close price on casing, the pricing on the other items can be high enough to compensate for the lower price on the casing. It also makes sense on my end, because the more I run of an item, the cheaper I'll run it. Contractors are a strange lot. Be sure you take into consideration how they pay, when pricing jobs. Most like to drag out payments. I figure this into my pricing and give discounts for prompt payment.
We run custom moldings all day, at a higher price than the local competition! Not everyone will buy from us, some don't care if there are 4 knife marks/inch, lumber with checks, etc. Our knives go back to the grinder every run, no crushed fibers. We also offer a complete service, matching curved moldings in both planes, conversion of DXF files into CNC generated templates and over 500 sets of knives in stock. It's shops like ours you will be up against. The advice to know your costs and your competition should be taken seriously before you buy a molder, grinder, big dust collection system, material handling system, forklift, balances, measuring stands, extra heads, bars of steel, and maybe a CAD/CAM + CNC to catch up with the established players. Expensive, not easy, but it can be done. I'd start by going to work for the best one in your area - cheap education.
The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).
Comment from contributor A:
I have a friend who makes 100 thousand feet or so of mouldings per year. He prices his at about 1/3 less than the home center stores (i.e. Home Depot) and does extremely well. But pay attention to the contributors who advise to find your own 'niche.'
You might start with a few contractors and wind up with *plenty* of work to do (be careful what you ask for...you just might get it!)
Comment from contributor C:
I agree with contributor M, but what the questioner is looking for is a competitive price. In order to know how to price a certain item, compare prices with other companies. Home Depot is a large competitve company that orders train loads of material. They sell their material by the truck load, which they purchase only by wholesale price. But the questioner is ordering material for retail price, which makes a big difference. I start by comparing prices from other companies. If I purchase materials from Home Depot, how much will the sheet goods of 4/8 be? How much material can I take out from a sheet good? Well, a sheet good 4/8 equals to 32 sq.ft. I can only take out at least two panels, and have an extra to use as stretchers to cabinets. Man hours, material, machine setup, moulding cutters are all included in the pricing system. Also, overhead pricing in case I run into problems. The comparison to other companies or contractors is only to feel if your pricing range is correct. You would not want to price something higher than the contractor's price, or have a lower price system that will take you to the cleaners. You want to make money based on what you spend on materials and time you will take to make a cabinet, molding, or whatever you are making. There is a book that helps me out in pricing. You should check it out to familiarize yourself with the pricing system. It's called Carpentry Estimating by W.P. Jackson, ISBN #0-934041-98-9.
Comment from contributor D:
We have a small custom-only mill in No. Calif that has been in business for 15 years and the owner has 40 years experience in this industry. The first thing I was taught to figure pricing was to use a factor sheet, which tells you what percentage of waste you will have for a certain size product from a certain amount of rough stock (for example, 2 pieces of bevel 2-1/4 casing from 1 piece of 5/4 stock if resawn at a bevel). Multiply the price of your material by the percentage (factor) and that is your material cost. Next, figure labor at what rate you charge, overhead and you have a price. Be sure to figure labor at a comfortable rate and always add 10-15% to amount of material.
Comment from contributor E:
There are moulding factors that are standard in the industry that are then multiplied by the current market value of the blocks that are used in the mill process. It also depends on the species of wood, priming if needed, and freight. I am a moulding buyer for a large company.
Comment from contributor F:
Pricing all begins from board foot cost. Increase that by 7% for shrink and also your waste factor, which varies with species and cut bill. Take that cost and divide it into the amount of board footage per moulding and that will give you a cost per foot. Mark that up according to market conditions, making sure labor and overhead are covered plus a nice percentage for yourself and reinvestment into the company. By market "conditions," I mean that in some cases a crown mould is the same size as, say, a 1x6, but the market can bare more value on the crown. The board foot cost is the same, but there is more time in grinding/setup, so mark it up a little more to offset these costs. It is possible to compete with the big stores and do it by selling quality for a "resonable" price. If your builders want to nail up paper thin casing and base full of checks and chatter marks, just point them down the road. To quote from the movie Field of Dreams "build it, and they will come."
Comment from contributor J:
Regarding your question about why 3/4 cove molding seems to cost twice as much as 2 1/4 casing, there are a few factors...
1. Cove has back cuts. I know that casing usually has a relief cut, but the back cuts are an added expense. You will realize this as you start to make molding. If you mill an object from 2 sides to an accurate angle, whether you are using a $100,000.00 Weinig or a $1000.00 used W&H machine, you will see.
2. Casing can be milled from thinner lumber, usually ranging from 1/2” to 5/8” max, where cove and crowns are usually 5/8” to 3/4”.
There are a few more reasons, but those are the main factors.
Find a sawmill and make a friend there. It is that simple. The lower your cost on raw material, the more competitive a price you can offer, if that’s what you are going for. I made my best money (dollar for dollar) when I had 3 W&H machines, 2 shapers and no overhead. I could then and now still smoke the Home Depot prices and any others, while still offering a great product. Think about it - I buy s3s northern oak for $1.60 BF. If I am doing 5” crown, that’s only $0.80 LF. If you factor in electric, overhead, maintenance and so on, let’s say worse case a total of 1.16 LF. Home Depot sells oak 4 5/8” crown for $4.44 LF. A builder would probably never pay that, but the point is that if you sold that same molding for $2.50, that’s not a bad profit.