Making Money Working Wood
by Charles Neil (10/2008)
First of all, the title is almost an oxymoron. Second of all, it depends on your definition of “Making Money.” If you think in the normal realm, you may be okay, if you think in large terms, you will be disappointed.
Export of our last standing hardwoods coupled with imports of products that sell for prices you can’t hardly buy the materials for, have all but shut this industry down. The housing market has had a devastating effect as well.
In the last two days I have gotten five emails about auctions of cabinet and furniture companies equipment, it’s not good...but all is not lost. We need to understand, it’s either cheap or special, average doesn’t work, imports have coined that market. Go to a box store or furniture store and see the prices. I know, it isn’t quality, but the clients and customers don’t know it and often don’t care, they want the look and as cheap as possible.
To even think you can compete with foreign labor is not wise, you can’t.
In the May 2008 Newsletter, I wrote about the special and high end market. They are holding, always have and always will. The people who have money still want it and are willing and capable of paying for it.
Here, in a nutshell is what I’m telling you. A set of red oak kitchen cabinets or hickory or even cherry - yea, so what. They’re average, typical, go look at the box stores, they are everywhere and on sale by the thousands. On the other hand, special woods, tiger maple, birdseye maple, walnut, curly cherry, the list is endless.
The client who we just delivered the Bubinga Island Top to has about $5,000.00 (with the material cost about $2,300.00) in this top and it is set on some painted white, average cabinets. But guess what. The average cabinets don’t look average any more. In May I told you, and it’s gotten even bigger since, the big slab tables and counter tops are the rage in design and decorating. Expensive....you bet, but they are anything but typical. What I wrote in May holds truer than ever.
In a business, you must find an itch and scratch it. You either need to be equipped to produce products super fast and cheap or you need to be on the other end of the spectrum. You will find this hard to believe, but I can sell a $20-$30K piece of furniture easier than a $2-$3K piece. If you think people won’t drop $50-$100K in a set of cabinets for their home, think again. You have to:
A. Reach that Clientele
B. Have a Name and Reputation
C. The ability to produce the products
Woodworking as a business is tough. You have to find a niche and that is hard to do. My niche has always been unique, special using high end woods. The maples, crotches, slabs, that sort of thing and it has worked for me. The biggest problem I have encountered is finding help. People willing to go the extra mile to insure quality are not readily available. A few years ago I down-sized and am going it pretty much alone.
You have to test your own area and market. We have some things in Colorado, basically traditional, high figured woods...pieces that sell well here, they don’t sell in Colorado. Those folks want the western theme. By the same token, the western or southeastern products don’t sell here, people identify with local areas. If you’re in Boston, contemporary isn’t where you want to be, in Florida, it’s the rage. This is hard, but its how it is. I’ve watched it forever.
So, to sum it up, you have to be something special and provide products that are the same and you have to get them to a market that can afford them or you have problems. Simple as that.
Just my view and how I see it, I must tell you that I did a lot of research, Mills are closing, finish manufacturers are down 30-40%, equipment sales are down 40-50% and the market is flooded with used equipment.
If I were in the cabinet business, I would also look to be in the re-model/re-face business and I would definitely look to the slab counter tops as an added offering. I think you will see remodeling and upgrading hold strong. Tighter credit, an abundance of houses for sale, new construction will be a while coming back. The glut of money is gone and those who can afford it are the sound middle class who have saved to do it or who are very sound credit risk and this group knows that good quality is a sound investment and are willing to pay for it....it lasts.
Before I close this, I want to say that the people who are willing to pay your price are not those you may initially think. These are not the Mercedes, Hummer drivers, they are the average middle class who as stated, look for value. One of my best clients is a retired school teacher and a house painter who when needed a new car, bought a used one. The single common denominator of those who buy my products are the ones who live below their means and look for products that are quality and endure.
Don’t wait for work to find you, go after it. Get your name out where ever you can, ever how you can. Remember, you have to be better than the average guy and you have to let them know it.
Pricing
This is hard. The variables are immense. In woodworking you can buy a $90 sheet of plywood or a $35 sheet with the same species veneer. One, the veneer is so thin you can see through it, it’s twisted, bowed, it’s not hardly usable, the other is sound, multi-layered, beautifully veneered. You MUST explain this to the client, you MUST educate them. Just throwing a price doesn’t make it, you have to tell them why or else you are competing with the $35 guy when you are thinking the $90 material.
You can buy cherry from $3 bf to $20 bf., again, you have to explain. The problem is they want the $90 look for the $35 price, and it doesn’t work.
I use the best products and material I can get at the best price I can find. Simply put.
Like the step back we did on the blog. We used poplar as a secondary in non-essential areas, this allowed us to use exceptionally wide walnut for the main focus areas, the result is an exceptional piece that is affordable, but knowing how to finish it was essential.
So, how do you price it? After years of experience you pretty well know if it’s a piece of furniture, it is what it is. Cabinets and remodeling in houses is very different, you never know what you are going to encounter. Building the cabinets is pretty easy to price, remodeling, be sure to leave yourself a clause for the unseen, unknowing, if you agree to put on a roof and then encounter rotten wood, etc, which has to be replaced, if you don’t have a provision, it’s your baby.
I typically price my furniture in a contractual form, an all inclusive type thing, except for the hardware. Reason is, unless it is chosen at the time of order, hardware prices can be all over the place. You can buy a sand cast bail and pull for $40.00 or a stamped one for $15.00.
Now, what I do is immediately give them a ball park price and if they don’t run, we move on. A lot will want a price with Walmart in mind so be sure to have the client understand it’s handcrafted, solid wood and all of that is expensive. Some will say thank you and leave, the others will understand and acknowledge that’s what they are looking for.
It’s the difference between the window shopper and the connoisseur and some just want something special for a specific place, but be sure you have a serious and capable client before putting a lot of time into it.
How I price everything is pretty basic. Time and Materials - simple.
I like pricing cabinets by a labor quote plus materials and profit. In other words, I give a quote to provide the labor, which includes my time, my shop, taxes, insurance, all that. Here is how I do it.
If I want to make say...$25/hour and I have calculated my shop rate which includes fixed overhead (heat, elect, etc) everything involved in having my shop, cost me, say $20/hour. Now I’m at $45.00/hour, but hold on....bits, blades, tools, repairs, sharpening, consumables (like sandpaper, glue, etc) and I have to have a means of replacing equipment later on down the road, I have to go pick up material or have it delivered and that’s not cheap now days, so all that has to be factored in, let’s say that’s another $25/hour. We are now at an hourly rate of $70.00. But...we need to make a profit, right? Profit is defined as above all other expenses, that averages to 15% to 20% so that’s another $14.00/hour so we are at $84.00 per hour.
I then simply try to access how long it will take me to do the job. I then add 20% to that for the unseen and it always takes longer than you expect...always, and if you have employees, then for every $1.00 they make, you have to make $1.25 to $1.50, so a guy making $15/hour, you have to get $30 to $37/hour for them, to cover insurance, taxes, benefits, etc. and the employee’s job is to make you money. If he’s not, what’s the point? When I had a lot of employees, I spent most of my time bidding and keeping work coming, when it got to where I was spending more time fixing and re-doing their work, I made a change. Remember, “You are the one who has to set the standard.” The most you can expect is the least you demand.”
So, once you have a good picture of what it REALLY cost for you to operate, you simply calculate you hours x your rate and you have your labor cost.
Here is a key - the better equipped you are, the more you can do and faster, and sad to say, equipment is far cheaper than people. I don’t do many kitchen/bathroom type cabinets, too much competition. When I do, it is because it is something unique and I can get paid. I don’t do big sets, I don’t have the room and I’m not set up. My forte is furniture, unique, high end, but I get a lot of typical stuff as well, where people just want solid wood, well made pieces that they can hand down to their heirs.
What you are going to find when you do your shop rate and actual time will alarm you, but its factual, and often it will price you out of the market. Do this, make up a piece of furniture or a set of cabinets. Go to a furniture store (a good one) or to a cabinet store or box store and compare your price to theirs. If you are a hobby or part-time, your cost is dramatically lower than the pros, you have an advantage, if you’re a pro, bigger isn’t better. The more mouths, the more food needed. Look around your area, get some good hobby woodworkers who you can call on to help you when you need it. Retirees are excellent, they can use the extra income and you don’t have all of the burdens.
Materials are also tough, when you price a piece of furniture, you need to have the material located or in house, many of the high-end folks will want one board this and that. They want the cream of the crop. Make sure you are on the same page and if you calculate 100 bf, you will need to buy 125 bf to be able to pick and for waste. If you figure 10 sheets of plywood, you would need 12 for the same reason, just remember, what goes in the dumpster or scrap bin costs the same as what went in the piece. I always add about 10% to my materials to offset storing, moving and handling.
You know I spend about as much time processing high figured wood because of twist and warping and all the things associated with them as I do actually building the piece.
So it has to be calculated for, there is no concise way to advise you on price. Too high, you lose work, too low, you lose money. Different markets will tolerate different prices.
Building a Woodworking Business
My shop, two hours north in D.C. area, my rate would have to double or maybe even triple. Property, cost of living, wages, etc. but that two hours is often a normal commute to work for a lot of them, so coming two hours south isn’t an issue, just letting them know we are here is another thing. Advertising is out of the moon, it’s like our DVDs. You just can’t afford to advertise so you rely on the internet and word of mouth and the internet is an ocean of whatever your selling, so while it helps, it is not all it’s cracked up to be unless you are in the top five or so in the searches and that’s a hard place to be when you have to compete with large companies that can buy their way to the top.
The guys in the rural areas that are able to tap into the larger cities and who can keep their overhead down, thus being able to work cheaper, but yet maintaining quality and a good profit margin will make it, these huge shops and factories are not. The import competition is going to do them in. I had a guy come by my shop who wanted a 48" round oak table with a turned base and carved feet. He showed me a picture of one that was solid wood. Looked great, for $499.00. I could barely buy the material and keep the heat on to build it for that. Now consider the store selling it was making a 100% mark up, they only paid $250.00, so where is the answer. I’m not sure.
In my research I found that even the unfinished folks are getting hammered. The import stuff, I’m talking solid wood looks pretty well made, is selling for about the same money and it’s finished and ready to go.
The Chinese work for pennies compared to us, labor is so cheap now they are starting to feel the fuel crisis as well and the people are demanding higher wages so the imports will cost more, but not significantly so, and now it’s shifting to India and we can’t compete, it’s that simple. My planer is a 20" with the helical head, cost, $2500.00, five years ago it cost almost $5,000.00 with straight knives, the difference? Foreign Labor, no environmental policies, no huge benefit packages. People scream buy American or whatever country you live in, Okay, try to find a comparable product at a comparable price.
Here is what I’m doing and have done. I cut back, smaller shop, less overhead. I am looking to take in some “Finish Only” work. There are still some small shops and cabinet guys doing okay as well as the hobby guys. Guess what, they hate to finish. Remember that “itch-scratch” thing, well I have the means, ability and facility to do it. It will make us all better off, they don’t have to deal with it so they can build more. I’m set up and well, I’m pretty fast at it, actually, very fast. So I am able to take a difficult task and make it easier for them.
I also have my classes and DVDs. Bob Kloes in Wisconsin, he sells wood along with his woodworking. He’s able and willing to work with small quantities, that puts him in the small home guy’s reach, he can process and surface high figured material that the average guy cannot, so he opens up another world to them, an “itch” he’s able to “scratch.”
Simply put, you are going to have to cut your cost to lower your price and try to stay competitive, the work that will be here will be hard sought and very competitive, you have to place yourself in a competitive arena. You are going to have to do more for less.
So, to sum it up, here is what I told you -
• You have to maintain a higher quality standard.
• You have to make your name stand out.
• You must educate your potential clients
• You will have to deliver what you claim you can do.
• You have to put yourself in your client’s shoes.
• You have to sell yourself as well as your woodworking
Some other tips:
• You must educate your clients why you’re worth the price.
• Nothing will sustain your business more than satisfied clients.
• If you compromise your quality and integrity - you will not survive.
• When you make something, remember, it’s what your future client will be looking at to see if they want to commission you to do their work.
• Quote a fair price that you can live with, but don’t cut corners, fair and honest will win every time.
• Stand behind what you do, even if it’s not your fault, it will serve you well.
• It’s all in the details, send a thank you card after the job is over and done.
• Send a holiday card, thanking them again, let them know you appreciate their business.
• Don’t harass them, but keep your name in front of them.
• Diversify a little, don’t keep all your eggs in one basket.
• Remember that your tools and equipment are what sustain you. Buy the best you can afford and take care of them.
• Last, but not least, there is no such thing as an extra customer.
The economy will strengthen but the consumer will be more frugal and cautious. They will spend their money where they feel the value is and where they feel confident. Talk to your customers, get to know them, involve them in their project and go the extra mile.