Pricing Puzzles (The Case of the Custom Corbels)
How do you explain to the customer why one-off woodworking products are so expensive? January 15, 2008
UPLOADED_FILE>
Question
I recently finished a large kitchen add-on for a client. The day I finished installing that work, the client discovered that some existing corbels that were removed during his remodel weren't going to work in a new area as he had planned. I told him I could make the four corbels for him and size and design them to fit perfectly for his application. He agreed and we left it as a time and material project as opposed to a bid or estimate.
I have a hard time when it comes to billing people for smaller time and material projects like this one. By the time I designed and made the necessary template for the rather small corbel design, then sawed, planed, sanded and assembled the four bracketed units, I was already sweating the time involved.
Now all I had to do was set up my finishing equipment to spray four corbels and then turn around and clean the equipment. So now they are ready to install at a jobsite that is a 45 minute one way drive for me and I will need a compressor and nail gun onsite as the main tools.
I am always uneasy when seemingly small projects are costly because of being done a-la-carte. How do you handle this? I feel like I will need to apologize for the cost of small items that look really easy after they are finished. I suppose if I never want to feel this way, I should just bid everything up front, but I usually end up losing money if I try to bid small work that requires the same setup time as large work.
Forum Responses
(Solid Wood Machining Forum)
From contributor B:
I can identify with your plight. You have already determined that it is a losing deal. If you want it to become a profitable situation, just give it to him with a smile. You will make your money down the road as a result, and if you did well on the job, you can feel good about it.
From contributor J:
Compare what you are charging to what it would cost if he had gone to a store and purchased the corbels outright, and had them finished and installed. Let's say that the corbels are simple in design and can be bought for around $30 each. If your shop rate is near the industry standard for a small shop, it would fall in the $60-$90/hour range. We will settle on $75/hour for argument's sake. That would mean that you could not have spent more than 30 minutes manufacturing each corbel in order to be competitive with the assumed cost of $30/each. If you spent longer than that, you lost. As for finishing and installing, that is value-added. Do you see what I mean? I guess what I'm trying to say is that the cost of something is subjective. If your bill falls within 25% of what he could have bought it for elsewhere, I think you will be okay. Otherwise, you might have some explaining to do.
From the original questioner:
If you are saying give them for free, contributor B... This guy will have a nice pension when he retires, and I need to make my money before I retire. Can't do that for free!
What you say makes sense, contributor J, but... A company that makes thirty dollar corbels makes them by the hundred so that the time for each setup step can be divided by one hundred instead of just four, like mine. The other thing is that I am not sure this size corbel could be found. If it does exist on the internet or somewhere, how long would it take to find?
I know what I did is fairly priced. It's still hard to bill for because of the knee jerk reaction on the part of the buyer who won't take into consideration what a hassle it would have been to find a corbel that was the right size and in the correct species of wood with left and right wall ends available. He will only see the cost.
From contributor S:
It's a little tougher when working for the owner direct. If working for the general contractor and billing him, I don't give it a thought - he's going to mark it up, and he knows what it took to do. It's part of his job to explain things like that to the end client. If working for the homeowner, I add in a little fudge factor at the start for little things that crop up at the end. With a kitchen in the $20K to $30K range these days, adding in $500 to $750 at the start isn't usually noticed. In the case in question, I would make a nominal charge for the corbels themselves, and mentally take the rest out of the original add on. That way I don't do it for free, but don't look like a complete jerk either. Kind of a slush fund approach, but it keeps the customers happier.
I learned a long time ago not to try and analyze the size of the box with the invoice. I found myself giving too much away because I was embarrassed to give the guy a 10x12 box and ask $500 for it.
From contributor X:
I would figure the total price, then divide it in half, half for the consumer to pay, and the other half charged to an account of advertising/free gratis. The consumer ends up paying for supplies and gas, etc. Many times in bidding track houses, we'd thrown in the vanities free just to get the job. In apartments, the laundry room would be free. The cost of doing business. Everybody was happy. On our end, we'd charge a little bit more so we were happy. Satisfied customer is what we want!
From contributor U:
We weed some of these out with our shop minimum of $75.00. We tell them that up front when they come in to get corbels that fit just right. If we have them in the storeroom, they are usually marked and that is the price. If we have to make them, we say there is a minimum for custom parts and that their corbels will most likely be above that. Then it is their choice. You are in a tough spot with this one, as you gave the customer no range. Get something for these, and lesson learned.
From contributor W:
I think you're all missing the boat here. I've found the key in those types of situations is to let them know up front what you think it will cost. If it scares them, then let them try and find a less expensive solution (while gracefully explaining why it will cost so much). And as for underbidding it when you give them a price (not underbidding intentionally, but due to ignorance of the cost), doesn't seem like you'd be in any worse situation then you are now. Time and materials in these types of items is a lose/lose situation. You lose if you artificially drop the price, and they lose if you charge fair market cost because they think they've been ripped off. Give them your best guess up front, and get past the perception aspect right away.
From contributor N:
I think contributor W is on the right track with this. Truly customized, one-off work is fundamentally more time consuming than mass production, and inevitably more expensive; you do yourself a disservice by pricing it as if you bought the thing at Wal-Mart. It's not always worth doing, but sometimes it is. It's best if you can give your customer the information they need to make the right decision for themselves. T&M is risky unless you've developed a solid relationship with the customer, with clearly established expectations.
That said, it's often not worth the time to work up a detailed quote. For tiny projects it's worth developing your quick guesstimating skill. If you guess low, you've learned something - adjust next time.
From contributor K:
I think contributor W is on it. We have to deal with these kinds of issues on the front side. I think you understand that too, if you think about it. You’re a small shop, which unfortunately, not everyone can afford. If you are like me, you step gingerly around requests from church members and neighbors to “come take a look at” fill in the blank. It’s not that you don’t want to do their work, but you flat out can’t afford to. You don’t want to be elitist, but you know going in that adding a pantry to the site built cabinets with rabbetted plywood doors is a loser – and it would be rotten to charge your going rate for the same. So over the years, you’ve probably developed a nice way of saying “gee, I’d love to, but..."
My wife very kindly reminds me that sucking up costs is more probably rooted in pathology than in reasonable business practice. Another one of those things I’m working on.
So, here are a couple of things I’ve become acquainted with, and hope to master:
1. Be careful with cost-pus. This sounds dumb, because cost-plus is always a moneymaker. But for perfectionist-types like me, who want their customers to be satisfied with all facets of the project - including value – it can cause problems in the head. On the rare occasion I do cost-plus, I make sure I give a cap that I am comfortable I will stay well below. Billing a cost plus job when the customer is starting to get nervous takes an amount of intestinal fortitude with which I am unfortunately poorly endowed.
2. Be honest about costs. This sounds silly, too, because we’d not be long in business if we didn’t pay attention to costs. But that “quick” frame or door which can be made from “scraps” is actually more expensive than 1 of 30 doors in a kitchen. In some situations, I forget this. I sometimes have to physically sit down and write out the steps (like travel) to make sure I get things right.
3. Then be forthright about costs. Be willing to itemize them for the customer. I have no problem charging "exorbitant" prices as long as I know it’s fair to me, and the customer is fully informed.
4. Take some time before giving an answer. I often get caught up in the moment, and say “yup, I can handle that,” and then start thinking about how much it will cost.
5. Make sure the customer understands they can get a lesser product much cheaper. Begin sentences with “well, you can get one at Lowe’s for…” I know this is diametrically opposed to wise market strategy – we aren’t competing with Lowe’s, after all. But it’s more about managing my head than the market. To date, the quality of my work, and the relationship I have with my customers, has managed the market just fine – it’s my head that causes me problems.
6. Don’t worry about the yahoo who will come along and yap about what he could have done it for. You know that he will come, and your work has already stood the test of his yapping. I’ve read enough of your posts over the past few years to know you are a lover of the craft whose work will stand up to the critiques of yahoos. I hate to admit in public that I worry about yahoos, but it’s another thing I’m working on.
7. Know thyself. I’ve gotten into bad situations before when I tried to be a hard-nosed businessman, and ended up feeling rotten. Some guys are built to be hard-nosed, and some aren’t. I’m not.
From the original questioner:
Wow, I didn't know what to expect when I posted this and I am once again feeling like I am part of a great brotherhood! Thank you. Reading these words has allowed me to know that I am not alone in dealing with mental anguish that comes with billing customers for small items that are normally invisible and buried within the cost of a larger body of work. My strong suit is definitely at the bench attending to the quality I demand of myself while being rather short suited about the important aspect of knowing how long it will take and what it will cost. Working on that!
From contributor R:
The trouble with cost plus is when a customer agrees to such an arrangement, he has already set a price in his mind's eye and it usually isn't anywhere near what the work is worth. If you haven't already figured it out, very few people have any appreciation of craftsmanship, as in we don't need the money, and we just knock this stuff out for fun. Take the time and give them a price up front and everyone will be happy in the long run.
As far as giving them the work to avoid some possible confrontation, you have got to be kidding me - what a great business plan that is! Do what you both agreed to do. Give him an invoice for time and materials and look on the bright side, it may not be an issue and you will be paid a fair wage for your good work.
If it does get ugly, apologize for the misunderstanding, put them back in your truck, and tactfully suggest he might find something more to his liking at Home Depot. Faced with this choice, and what could be more fair? Your customer will probably come around, pay what you ask, and even be happy with the work. If not, chalk it up to a lesson learned, and ask your wife where she would like the new corbels you made for her installed.
From contributor Z:
I try to itemize the project as much as possible:
Materials (marked up)
Design labor
Milling labor
Assembly labor
Finishing labor
Installation
= Total
You can see what goes into the project and why the 4 pieces are $300 finished and installed (or whatever it was). I don't do this on larger projects (I don't want them to have a line item veto), but on a small one, it helps justify the price. I itemize the invoice so the customer can see why it was high.
From the original questioner:
Thanks. I did something similar on my invoice, like: design, fabricate, finish, deliver, install. I agree that it softens the blow when you have five items listed instead of just a bottom line. I do exactly as you do on large jobs, to avoid the line item veto and to also separate myself from the factory box guys who list every screw, etc.
