Correctly pricing your products is always a balance between the upward pressure to make a profit and the downward pressure to compete in the marketplace. If your profitably high prices don’t garner sales, you won’t survive as a business. And if you price things too low just so you can make sales, that’s not sustainable either.

So, what can you do.

In this Pricing Workshop, we’re going to talk about several strategies to ensure you get your price. The Pricing Workshop series is sponsored by Lockdowel and TradeSoft.

 

Learn to say “No”
When setting your prices, the most important thing is to know what it takes to do profitable work. You absolutely must know your real costs and add your profit margin in up front.

I strenuously disagree with the philosophy that profit is what’s left over after the job is done and paid for. If you don’t add it in up front with calculation and intention, you will never earn it.

But this requires several levels of discipline. You must constantly keep track of fluctuating costs and update your calculations. You also must learn the discipline of saying no to jobs and customers that can’t meet your cost and profit standards.

It’s hard to turn down work, but when you know your numbers and know you can’t make the money you need at the price the customer is willing to pay, you have to walk away. If you keep doing projects that lose money, you can’t make it up in volume!

Find better customers
If you are in a market with constant pressure to reduce prices, you need to find a better market. Again, if you really know your costs, you know you can’t go below that minimum threshold and stay in business.

See this as an opportunity to find better markets. Maybe you need to explore doing work outside your immediate region. This will surely increase your costs, but if it allows you to more readily compete in a market that expects to pay more, it will be worth it.

Maybe it’s time to meet some new designers and architects to help introduce you to a new level of customer. Maybe it’s time to revisit good customers you haven’t heard from in a while to check in and see if they have new work or can introduce you to others in their networks who would value your work.

Sell on value, not price
One of the things I hear often when I encourage shops to raise their prices, is the shop owner saying, “I can’t charge that much. I wouldn’t pay that much myself.”

You are not your customer!

Your best customers value your work differently than you do. They are not just buying lumber and hardware. They have their own value standards. It might have to do with keeping up with the Joneses or finally replacing the tired old kitchen they’ve been staring at for far too long. It might have to do with solving a special problem that only your one-of-a-kind custom work can do.

Here’s an example of the difference. A basic frameless cabinet box might appeal to you because it uses fewer parts and costs less to make than a face-frame cabinet. But the value to your customer might be the extra full-access space in the box or the clean Euro-style design or the ease at which it can be dressed up by different door styles to accommodate virtually any style.

People who buy luxury cars like Mercedes and Lexus aren’t buying steel and rubber. Don’t sell your woodworking customers just lumber and hardware.

Building value
So, how do you build value in the eyes of your customers? First step is to take time to educate your customers. The average person today knows very little about quality craftsmanship as it pertains to woodworking. If you don’t take the time to educate them, they will buy a cheaper product elsewhere and not have a clue that it was different from what you are selling.

Explain how your product is made and what sets it apart from your competitors. Emphasize benefits over features because your customers won’t understand features without your help. For example, don’t just say you use a particular brand of hardware. Instead, talk about the quality, durability, workmanship, and demonstrated performance of that hardware. Assuming you use soft-close hinges and slides, show the customer how that works. 

Describe more subtle differences such as the careful selection of materials. What are the different materials, surfaces, and finishes you offer and what are the benefits of each of those for the customer? Don’t assume that the customer knows anything about any of this.

Also, don’t forget to fully delineate all the services you offer or include in your work. Talk about installation or delivery. Talk about how assembly is done to ensure perfect working order, matching reveals, finish and grain matching, your attention to detail in the installation process, and so on. All of these things build confidence and add to the perceived value of your work.

Combatting price objections
I always remember a story told by a cabinet shop owner on Long Island, New York. One day he had a couple come in looking for a fairly simple bathroom vanity project. He worked up a quick bid of $4,000 for the project. But when he offered that price, they pushed him to “sharpen his pencil,” as the saying goes. “Can’t you do better than that?”

Well, the cabinet shop owner was a little frustrated that day. So, he responded, “Yes, I think I can do better. How about $5,000.”
“You didn’t say better for whom!”

Again, know your costs. Stick to your numbers, and say no when you have to. But here’s one way to not only get a better handle on your numbers but also to subtly add perceived value to your work: use component pricing.

Component pricing is when you price every part of job as a component. It’s not a kitchen. It’s a bunch of separate cabinet boxes, drawers, doors, and additional accessories, all priced individually. You present this as an extensive itemized invoice when you present your price. Your spreadsheet is your friend! The kitchen is no longer a $50,000 kitchen. Instead, it’s $52,325.86 at the end of a long list of individual items.

Then, when customers say this is more than they planned to spend, simply ask what items they would like to remove. This is like the person at the grocery store checkout lane who has to put back items. In the case of custom woodworking, my experience is the customers mostly find a way to pay for the things they requested. Best of all, you are no longer the greedy villain in the negotiation. These are things they asked for.

Psychology: price vs. value
There’s a lot of psychology involved in setting prices, and some of it is counter-intuitive. Woodworking businesses have a terrible habit of competing on price and repeatedly lowering prices to get jobs until the prices are too low to make a profit. That’s an awful way to do business.

Once upon a time, I was in the bicycle business and I learned a very important lesson about pricing from a bicycle shop owner who shared a story.

At the time, there were really cheap bicycle air pumps that you could mount on your bike frame to carry with you if you needed to pump up your tires or change a flat. They sold back then (1970s) for about $2, and they were lousy.

Then there were expensive Italian-made pumps that were finely manufactured and worked much better, but they sold for about $12, which was a lot of money back then. That’s equivalent to almost $100 today.

The bike shop owner located a French-made pump that was really good, and he could sell it at a good profit for just $4. But nobody would buy it. The price was so low they couldn’t believe it was much better than the lousy $2 pumps.

So, just to experiment, he doubled the price to $8, and he sold them like hotcakes. People figured they were a deal compared to the expensive Italian pump. The price was high enough that they didn’t even compare it to the cheap pumps.

Value is ALWAYS as perceived by the customer. Nothing is ever worth anything more or less than what someone is willing to pay for it.

You need to find the maximum price point that your customers consider a value worth paying for. 

That’s when you find the pricing balance between profit and marketability.

Now you have some tools and techniques to get the price you need, and that you deserve based on the true value. What methods do you use to get your price and cultivate customers who value your work enough to pay your price?