During the economic downturn, we’ve all heard plenty of horror stories about cutthroat pricing competition led by bottom-feeding lowball bidders, many of whom really couldn’t deliver the goods. Legitimate businesses suffered and felt increasing downward pricing pressure. But the results of this year’s CabinetMakerFDM Pricing Survey indicate there might be an upside to this in the narrowing of the gap between high and low prices.
In previous years of the survey, mainstream popular projects such as big residential kitchens often garnered a huge swing in pricing in which the low bid might be as little as one-sixth the amount of the highest bid. This year’s survey still shows significant variance in pricing from the lowest to highest bids, but the gap has dramatically narrowed. Instead of high bids being six times the low bids, this year they are closer to two times. And if you remove the lowest and highest bids from the equation, the field gets even narrower.
Attention to costs
Talking with survey participants and the original bidders on the featured projects, one thing is clear. The pressure of the current economy has forced shops to pay lots more attention to tracking their real costs against their estimates. Gone are the days when a shop owner could blithely price jobs by the foot without running the actual numbers after the job was completed. Even shops that price by components are intimately acquainted with the labor, materials, and overhead costs that make up those component prices.
Of course, another factor is also apparent in the survey: experience. The average respondent to the Pricing Survey has been in business for more than 20 years. None of them have been in business for less than five years, and a few respondents are multigenerational businesses with more than 50 years on the clock. There is no question that economic pressures have pushed some more tenuous businesses out of business entirely. And, sad as it is to see any business fail, it’s a good thing for the industry when the marketplace thins the herd a bit.
Sound business practices such as knowing your true costs and turning down unprofitable work will always win out over those who sell only on price and probably can’t deliver the goods.
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