Question
I just submitted a bid for a church daycare/school, 32 classrooms and 4 other rooms of similar size with tops and installation. Job is to spec with laminated cabinets and balanced (laminated back) doors. Materials are $20K +/-.
I'm at $63K plus installation. Okay, that may be high, but double? There were no less than 10 bidders with 4 in the high $20's. I bid with my trusty Cabinetware, reviewed all my costs for labor, materials and overhead, added profit, and got a number that looked good. I massaged it a bit from my gut and submitted it. High $20's – does anybody have a clue what's going on?
I just finished a conversation with a friend of mine in the machinery business. He said things are slower because of all the new forms of competition (internet, auctions, etc) and a lack of customer loyalty. He also says he has talked to a number of shops where the owners are fed up with competition with the one horse garage operations. We need the work to stay in business but can't afford to give it away to meet these insane prices that some are throwing out there. Does anyone have any good ideas? All comments are appreciated.
Forum Responses
(Business and Management Forum)
From contributor J:
I have two thoughts:
1) Labor costs - if some of the shops are using people who do not have valid work documents, they often pay less than minimum wage, let alone the going rate
2) Change orders. I'm guessing these guys think they will get the money back out of change orders.
Ask whoever is making the decisions if you can look at some of the proposals (at least the proposal that won). And follow the job closely to see how many changes there are, if they fire the suppliers, etc.
If you have absolutely no work, and truly need a job, how low will you go? How low can you go? Do you have highly paid personnel with benefits, machinery payments, high rent? The list goes on.
You don't need an experienced craftsman to assemble laminate boxes. What you need most are assemblers and laminators. Your competition may well have low paid semi-skilled labor that can hustle laminated cabinets out the door for a cost that would seem impossible to you. I've seen operations where guys with a table saw, router, belt sander, and roller for contact cement bang out boxes all day long. I choose not to work that way.
I must take minor offense to the one horse garage. While I work alone out of my garage, I have tax ID numbers, insurances, and all the licenses. I pay the taxes, have the proper zoning permits, file the sales taxes; in fact, probably the only difference between my one man shop and a "legit" one man shop that rents commercial space is that I don't pay rent. That helps to lower costs if I really need to win a job bid.
Self-evaluation of your processes and expenses can help you determine how low you can bid. Sometimes you have to do work with a tight margin until better paying work comes along. If the margin is too tight, perhaps Tom has the best suggestion of all.
How many boxes are we talking about? The average small shop can process a box in about an hour. On a job like this stack cutting is a distinct advantage. I'm guessing they can get the labor down a bunch with stack cutting and a fast edgebander and ptp.
I'm guessing, maybe someone doing this sort of work will chime in. With 4 bids in the same neighborhood it may be a case of having the machinery and systems in place to be competitive with this sort of work. I've seen guys bid these kind of jobs at $100 a lineal foot (uppers, lowers and counters) and heard them say they make money at it.
We all have different cost basis and are quite capable of managing them to our advantage. Could I have bid less? Yes – probably below $45K, not even and why? There is more to this than making minimum wage. Who, among any of you, would stay in business with a 60% material component? One job - maybe. Bad habits form too easily and are hard to break. This is about good business.
For those garage shops I would love to own the building that I am in and have my house right next to it, but zoning won't go for that. The problem is that there are woodworkers that are very good but stink at business. They have the insurance, etc, but like Contributor T above - and I’m not singling you out – he is not paying himself rent from his business so his overhead can be lower so he can charge less. Well you’re giving the customer your rent money that you could collect from your business. That could be in your pocket not your customers’.
I also blame zoning boards in certain areas of the country that will let people have there shops on residential property. Another reason for garage shops are the high cost of industrial rents, taxes etc. They are going through the roof here in the Midwest. That’s what we have found that works to sell your company. Show why using you will make a difference from all the others. A good marketing plan would help also to make you look better.
I've done this work for a long time, but have only been in business for myself about 3-1/2 years. I pose the question not because I want to be right, but because I want to understand what others do about expenses that are not ongoing but eventual, and how they affect shop rates.
As for the zoning, for the time being the county is letting me do it. Even though my shop is well insulated I am obsessed about the noise level, and have spent a fair amount of time outside with the machinery running, to see if the noise can be heard at the property line, which is one of the determining factors in the home based business zoning permit where I live. As long no one complains and they let me do it, I can't see paying rent I don't have to pay. But perhaps as you say, I should pay the rent to myself.
It is unfortunate that some institutional cabinetwork is contracted for in such an unscrupulous and cutthroat manner. I worked for shops that would bid these jobs, and seeing the ridiculously low winning bid numbers on these jobs helped shape the direction of the type of work that I would pursue when I started my own business.
When you say that you have a guy who is married and needs a decent wage, then that tells me that you are one of the good guys. You care about people and I assume that you care about the quality of your work. I am sorry to say, that not everybody out there is not like me and you. This is part of our playing field.
There is also the issue of costs of materials. I have been fortunate with some of my suppliers. Some of them are stand-up guys who are concerned about me and my business. They know what they need, and give me the best break that they can.
I'll get to my point with just one more story. Recently I bid a job for 300 displays. Let me tell you, this is a big job for me and my helper. The buyer came back and told me that we would have to do much better. So I went and beat up on my suppliers. I told them that if we did not get the price right, no one would be getting any money from this deal. I cut out one supplier and saved $1,800 and I went to another supplier and saved over $5,000. The other guys tightened their belts and we got the number where it needed to be. And I did not need to change my costs to make these.
The moral here, you might want to start pushing your suppliers a little harder. You are not paying anything close to what the big boys are. They may very well be able to turn a project where you cannot even buy the materials. I have some great sales reps but some of them just don't care about my business or my family. They just want to maintain their margins and feed their account. It's a mutual thing here. I'll buy from you if you can help me be competitive. Otherwise I am out of business and you are looking for another contact.
In this case, there are some things that you can change, some things you cannot. You can't change how others bid, so move your focus to what you can change. What type of work you pursue, your construction methods, and the relationship with your suppliers.
The problem is that the GC's are bottom line first and the lame brains that bid the job below cost cannot be on spec and deliver for the prices bid. Somewhere, in the process, there are compromises made to the spec and/or price.
I have learned over the years that while others can hammer away at both to get where they want to be, I have always drawn the contractor or architect that will do neither, so I choose to be legit from the beginning and give a standup bid for the work.
Comment from contributor A:
We all need to buy materials and pay employees and if one says that those numbers are becoming similar amongst competitors then the only remaining variable should be overhead and profit. It sounds simple but as a trainer of estimating software I quickly learned that the majority of millwork shops don’t understand what it costs to produce their own product.
Instead, the only number they relate to is what their product can be sold for in the marketplace. So without any solid cost basis many estimators will not know how much if any at all money is being made on their bid. Even if they hope to make up for it on change orders they still don’t know where they stand.
