Volume Pricing for Store Fixtures
How can a woodworking shop bid low enough to get high-volume orders and still make money on the work? March 12, 2009
Question
I am a cabinet shop first and a store fixture shop second. Got cabinet pricing for my shop down pat. Onezee or twozee store fixture pricing, no problem. Maybe even 20 - 50 units are easy enough to price. The problem is when I need to price 100, 250. 500 or even 1000 unit volume prices. I keep bidding, but never get volume jobs. Obviously, my volume pricing is too high. Luckily I keep getting the chance to at least keep bidding on these jobs. My question is... How much does volume lower the price? If I could get just one 500 unit job, I would gain very valuable experience, but that isn't happening. Is there a percentage guideline or some other method that will help me?
Forum Responses
(Business and Management Forum)
From contributor K:
It may not only be the pricing. Have you gone back to the customers who keep asking you to bid (even though they didn't give the previous job) and ask them - "I noticed that on the previous jobs you asked me to bid on, you decided to go another direction, and I appreciate the fact that you are continuing to ask us to bid. I know a lot of factors go into making a decision on these types of project. What do you think would have put us over the top on the last bid?"
The most we could do here is what you are doing... speculate. But if you ask the sources themselves, you will get the answer you are looking for. It may have not only been about pricing (could have been better materials, better production, better delivery schedule, etc.), but if it was, focus on that aspect and ask how far the spread was between what you quoted and the winning quote.
Based upon your operating profit needs and that answer, they may not even be a potential customer. If it is drop-dead pricing that you can't touch, just because they found someone to take a project at a loss or are tooled/processed up to be able to do it at a lower rate than you, doesn't mean that you should venture into a project that doesn't meet your objectives.
Remember, if you take on a job that is below your minimum operating profit requirements (even to get the "experience"), that profit will need to be made up elsewhere. Otherwise, it will create a host of other problems affecting your main business.
I'm all for getting your name out, but the strategy of breaking even on a job to do so while trying to break into a new market is very risky, as the reputation you create is that you do great work for cut-throat pricing, cutting your own throat (and your profits) in the future. More work, less pay, is not a winning strategy.
From contributor X:
Different cabinet shops have different overheads, number of employees, wage expense, tools setups, material pricing, and the list goes on and on. Shop A has a pinch press that saves labor on the job. Shop B does not have a pinch press and does his work manually, thereby there is an increase in time regarding labor. Each shop does the same product but it's being charged differently for the time and work done. Regardless, we are all working for a profit on each job. So if you're equipped to do the job faster and in less time, the job should be theirs if the overhead is within reason. Because you can purchase things in bulk, the savings there could be passed on to the customer also. So it all depends on many variables, each one affecting the prices.
From contributor P:
Economies of scale might be what you are missing. At around 100 units is where you will see the difference. If you look at a guy working on a project, a very small percentage of the time is spent actually adding value to the product. On a volume job, a much higher percentage of the time is spent adding value to the product. This is because of more efficient material handling (pallets instead of conveyors instead of carts). It is because the worker has higher certainty on what he is doing (repetition = certainty). You can use cheap labor for this sort of work. Setup time is amortized over many instead of a few. At a higher volume jigs and machinery make sense that wouldn’t pencil out at a lower volume. On larger volume small things that slow production become abundantly clear and get fixed. These same things don’t even get noticed on one-offs. This reduces your labor cost to a fraction of what it would be with a short run. Obviously material can be purchased at a much lower price. You have considerable leverage when you buy in volume. Another factor is that when you enter into this arena, you are competing on a national or international level against shops that have very fast machinery.
From contributor L:
If you know what your costs are and price accordingly, then you have to improve your costs or forget the big jobs. As a small shop we occasionally get requests to bid larger volumes than we can be competitive with. Sometimes feel we are just being used to verify their supplier's pricing. A few bids to them and then we decide to save our time for something more productive. Unless you know someone on the inside, it's difficult to get reliable information on the other bidders. We've had better luck just making parts for other manufacturers when it comes to larger quantities. We've also been down the road of "here's an order for 100 display cases, they need to ship to various stores in the next two months." Six months later we still have 25 of them taking up space and not paid for. Won't do that one again! It's difficult to develop a good working relationship with big companies that operate on "lowest price" (bids).
From the original questioner:
Thanks. Within your answers is my problem. I know I have to maintain a profit. I think my fear of not making a profit is keeping my bids too high. I am the only one bidding for this company. They take my work and add theirs (plastic parts and graphics). Their salesmen are on the road selling our combined products head to head against their competitors.
I did ask, as suggested, and yes - our combined prices are too high. They already bid and work in volume. Maybe I should ask them for help even though they work with a different product.
Contributor P hit the nail right on the head. I believe the efficiencies of volume will be much higher than I am taking into consideration. I guess more specifically, what I am asking is... Does anyone have even a rough idea of how much the "economies of scale" can speed up production in a very well equipped facility?
From contributor P:
There are too many variables to answer that question. I would guess around 50%. Store fixtures generally require more handwork than cabinets; consequently there is more opportunity to save labor.
You can use a stop watch and time each task separately and this will give you an idea on how long it is going to take, but you will see a big difference in how long the task takes when doing a few and when you are doing many. Also this doesn't address the non-value-added tasks and this is where you are going to save labor also.
From contributor A:
Our single product or prototype display price usually runs 3x to 5x the best volume price (500+). At a certain point, the savings to go from 100 to 250 to 500 to 1000 are in the 1-4% range for each price break. Unless you hit a volume number with material costs.
Contributor L, always have a storage clause and a payment clause for getting paid when complete, not shipped. Be willing to rent space for them to store their fixtures away from your plant. Retailers are used to storage costs.
From contributor P:
The 50% I was referring to was for a short run to 100+ units. From a Prototype to 100 units I would agree that 3-5x is in line.
Some retailers will only accept the "pay when needed" thing because some vendors are willing to do this. Not that it is a good idea.
