Selling Factory-Made and Custom Cabinet Lines
When you offer both your own custom-made cabinetry and a less expensive line of factory cabs, pricing and selling strategies become complicated. Here's a long and thoughtful discussion. January 19, 2011
Question
We are a well established high end custom cabinet company. Recently, we've decided that it would be in our best interest to add a few factory cabinet lines to our custom cabinet offerings. We'd like to have this line eventually be around 25% of our cabinet sales. What are some pitfalls you've seen when dealing with factory cabinets?
With custom cabinet sales, we had the money figured in that enabled us to spend several hours with a client discussing cabinet options and several more hours in the initial design before a deposit was required. With the factory line, there seems to be more emphasis on the bottom line and a tighter profit margin, so how do we make the sale without spending as much time beforehand? I want to be as efficient as possible in design and sales, but still get the job.
Forum Responses
(Business and Management Forum)
From contributor M:
We find it difficult to switch sales modes when meeting with customers and trying to represent a true custom line of products and another line that is much less expensive. Unfortunately, our habits cause us to spend the same time and effort catering to a customer that is not really willing to pay for it, when they are shopping the cheaper products.
By limiting the choices such as styles and colors, and no custom add-ons, we can better minimize the time spent at the sales presentation, and later at the install. If a customer starts wanting too many choices, we try to upgrade them back to the custom line (and the appropriate pricing) and let them choose which way they want to go. What makes all of this even more difficult is when we get a referral by a custom high end client to a competitive shopper that we offer all the choices and services, etc., and they expect the same service. Also warranty issues have to be handled differently. I have a pretty much no-questions-asked guarantee for the stuff we build, but when someone else makes it, I change my policy.
I believe overall the down side of carrying another product line is that I have to operate more like the guys I try to be different from. Such as going in with a low price product and switching to higher priced good, limited choices, or hiding behind a printed warranty that will give a customer no satisfaction. But overall, I think it is worth it to keep the volume up.
From contributor B:
Pretty much an amen to what contributor M said. You will need to make sure you have showroom space dedicated to the factory line so you can showcase the differences in product lines. As far as spending less time on the sale? Well, the limited options help, but we haven't found the secret to that. The best we can do is ensure the markup on the factory product is sufficient to cover the cost of the design/sales time. That will probably make your factory line product somewhat more expensive than someone else's, but taking that kind of time with a client will probably make them willing to pay a slightly higher price point. We have closed some deals where we were higher priced but the client liked and trusted us more because we took the time to make sure as many of their expectations were met as possible.
From contributor K:
Treat that line as a last-ditch effort to close a deal with a client if they can't afford your custom line. If you are still installing, I wouldn't modify your install price, but they can get a different set of cabs.
From contributor M:
Contributor K has a good point about install prices remaining the same. I never have figured out how to tell an installer to do a lower cost install to lower installation cost. If the lesser priced cabinets generate a smaller install allowance, there has to be a difference, right?
When we tried building our own price line of goods, it was difficult telling shop employees how to do a cheaper finish on one set of goods, then to switch back to better quality work on the next order. We were either doing too good on the cheap stuff or poorly on the high end stuff. Outsourcing solved the shop problem for me, but on installing we still just tough it out and usually end up giving more than what was paid for when installing the less expensive stuff.
From contributor D:
I personally think you should not add a cheaper line into the mix. We have tried and what happens is you spend too much time designing and meeting and making changes. You could have sold a $30,000 kitchen, but instead have an order for $10,000. After you figure your expenses you are lucky to make even a couple thousand on the project. Don't waste your time competing with the big box stores. My recommendation is to sell custom items - there are fewer companies to compete with on price. Also, try to expand on the custom products you are offering - maybe custom furniture or entry doors or pool tables.
From contributor Y:
We are also considering adding a lower price factory line. Making a couple thousand after expenses sounds pretty good to me. That's 20% profit.
What I run into is the fact that many mid-priced factory cabinets now offer self closing undermount drawer guides, solid wood dovetail drawers, and 1/2" plywood cabinet boxes as standard items. That might make them too attractive to the client and cost us our custom cabinet sale.
From contributor D:
You say 20% profit would be okay after expenses. It sounds okay, but look at this scenario. By selling a $10,000 kitchen, you gave up a sale of a $30,000 at 20%, or $6000. (I understand you may not have sold anything at all, but what happens if the client that bought the $10,000 would have paid $30,000 for a custom kitchen, but based on your recommendation decided on going the cheaper route and spending only $10,000?) Something to think about.
From contributor Y:
I'm not worried about losing a $30,000 custom sale to a $10,000 factory sale. That's not comparing apples to apples. My $30,000 customer isn't even considering factory cabinets. I am concerned that I may lose an $8000 custom job to a $6300 factory sale. If it isn't lost to the factory line I carry, it will be lost to my competition's factory line. Those are the sales I hate seeing walk out the door. That's the 20% I'm after.
From contributor K:
Another way of looking at it is, assuming you don't change your install price if you are still installing, you make a couple of thousand for design and pushing paper. It also serves as a schedule filler because you are only installing and not fabricating. To me, this is a last resort scenario, if you can't close the custom line. It is money you would have left behind. The danger is falling on that crutch.
From contributor D:
I still say "don't do it" unless you're desperate to make a sale! I think we should stay focused on our main product line and not drift away from that specialty. Why do you want to put yourself in the position of dealer, like every other store that sells other people's products? Also, why do you want to compete with the big box stores? You end up making two custom cabinets to go along with 15 stock cabinets and instead of selling a $30,000 kitchen, you sell a $6300 kitchen.
From contributor G:
None of the above makes a whole lot of sense to me. I agree that the installs should be the same price. That said, why aren't you charging for your time spent with the customer? This is a legitimate service that you should be paid for, one way or another. If you can sell the factory cabinets, make your 20% on them, and make money on the design, consultation, field dimension visit, plus your install, why wouldn't you do it? I realize box stores offer the design for free, but that doesn't mean we should. Market your expertise in design (and make sure you have it). The client will still get something of greater value than otherwise, and we get to stay in business.
From contributor M:
The problem is that many companies figure the design fee into their markup on the cabinets. For example, if the kitchen sells for $10,000 and your cost is $5000, maybe $1000 is figured into the overall price to cover design. If it takes only 10 hours designing the kitchen and meeting with the customer, then you are covered for $100 per hour. But say the client takes 30 hours in design, then you are only charging $30 per hour. Also, for every design you make that does not become a job, you are working for free. I know designers that charge a flat fee for every hour worked, but it seems to me that it depends on your market and your reputation. Many companies will offer a preliminary design for free, not just the Big Box Stores. In a perfect world I think everyone would be happy to charge by the hour for design. The only issue is if your clients accept that practice.
From contributor Y:
Contributor G brings up a point I have thought of. We will probably be doing more designs and getting nothing out of it by adding a factory line. I assume the factory line will attract more tire kickers. As much as I would like to get paid for every design we do, that just isn't going to happen in my market. Especially when adding a lower priced line to the mix.
From contributor G:
Even if you're not itemizing your design time, it needs to be in the total price somehow. Too many people give this away. Don't think that Home Depot isn't covering that time somewhere.
From the original questioner:
Thanks for the replies. I look at the first stage of sales and design as an investment such as advertising and marketing. You are willing to spend X amount of money in order to put yourself in the best position to get a job. Just figuring out what X is for this new line of cabinets seems to be the difficult part. Too little and it could possibly cost you a job. Too much and you don't make money even if you get the job.
From contributor R:
Just so everyone understands what the markup at factory cabinet dealers is... The normal markup is 50-100%. Home Depot and Lowe's normally markup 50% or more depending on the market. Also keep in mind that the big box stores require 100% payment up front and offer no refund on special order items. The cost between custom and factory is not that great in most cases. There are some cheapies out there but many of the semi-custom factory cabinets are not that big of a savings over custom. Unless you can sell a whole lot more than you can produce... Don't do it unless you are looking for a cheapie line to sell to the bottom end. Usually, though, the cheapie customers are more trouble than they are worth.
From contributor J:
This thread is focusing on the up front cost associated with selling factory cabinets. There is more to think about before you get started. If you have no money in the job for design/sales, where will the money come from for all the paperwork, late deliveries, damaged deliveries, ordering mistakes, etc.? We never sold a line of cabinets. We did, however, do service work for one of the largest cabinet manufacturers (Canac). Order paperwork was a full time job just to get what you wanted. Then parts would be missing or late and you had to make multiple trips to the house and on and on, always costing us more money. We were covered for the costs by Canac since this was a service contract.
Just a thought, but hiring a commission sales person (experienced) will drive up sales and they will schedule their own time to make money. They will only put in what is required, knowing exactly what percent they are getting.
From contributor M:
You can beat the pros and cons of a cheaper line to death, but I just had a real life experience. A customer called me 3 weeks ago. Young man with a new family that is remodeling a house he inherited. I knew him as a kid - he grew up across the street from me. He had a project that he wanted me to do for him. He knew I was pricy and told me that while he wanted me to do the work, he probably could not afford me as he had a fixed budget. I told him to let me quote the work and we would see what I could do. I ended up quoting a price line of goods so that I could stay in his budget. We measured, we quoted (1/2 day) and we got the order. Install took 1/2 day. We made a little over $1300.00 on this order. No shop time was involved since we ordered everything from another company. I would not have made a nickel if I had stuck to quoting my custom products. And since I had no other custom orders to quote that week, I don't believe I took anything away from our regular work in the shop. The customer is happy and so am I.
From contributor K:
Did you charge for the install also?
From contributor M:
Yes, I did charge for the install. Actually the normal rate, as I was thinking I would make less profit on the actual sale (markup of the goods) so I was not willing to make less from the install. I happened to do this install myself, but if I had used an installer I would have been able to pay the normal rate to the installer.
Funny thing is, when I quoted the customer, he actually asked, "is that the best you can do on the price?" I am already selling lower cost goods to get the job, and now he wants the cheapest price he can get on the cheaper goods? I know he is the service manager for a major car dealer, and that is the way these guys work. So I tell him as I have been told by these same guys, "I can get you something cheaper, but I wouldn't want to see you buy that particular product." He went with my original estimate.
From contributor C:
Two years ago, after the onset of the recession, I decided to bring on just one factory brand of cabinetry to supplement our own custom cabinets. The bottom line is that it has allowed our company to grow while other shops are struggling to stay afloat. The backup option to downgrade the client to a cheaper kitchen remodel has landed us more jobs. The fact is, your competition may offer the less expensive factory cabinets, and if you don't offer them, you may lose the sale.
What I don't do is sell factory made cabinets at a huge discount from my custom made cabinetry. I typically sell factory made for 15-20% less than custom, which may help close a deal that I otherwise would not have gotten. I still have enough profit margin to spend as much time with the client as I normally would. One benefit is to be able to talk about the features and limitations of both types of cabinetry, while not necessarily having to bash modular cabinets, since we are happy to sell them. Most clients will also accept a few deficiencies in the modulars without complaining since they know what the tradeoff was going to be for saving a few thousand dollars. You might be surprised to learn that after the client decides to move forward with factory made cabinets, they will often upgrade back to the custom line as they go through the design process and realize they would like a custom stain, or other custom features that are not available.
All in all, I think that it is a great idea for you to offer the additional line of cabinetry. Keep it simple. You don't have to offer multiple lines. You just need to broaden your market by offering a lower priced option to the less affluent customer.
From contributor V:
We've been doing it for years and have been pretty successful at the balance. What kills me is when a customer demands custom but is comparing my quote to a Chinese quote. Or shops building custom using Chinese building materials and hardware. Here in Miami we have Imeca. It's the Chinamart/Wallyworld cabinet material and hardware supplier.
Can't beat 'em, join 'em, I guess!
