Price vs. cost vs. value

Before we closed the door on bids for this year's annual Pricing Survey, there were a number of spirited discussions in our online forum about the merits of the survey. Some thought the wide variations in pricing showed the survey was inaccurate and not valuable. Others were urging us to force bidders to price everything the exact same way to get a true "apples to apples" comparison. Still others said the huge price ranges reported made it hard for them to apply the information to their own shops.

Perhaps the best way to start to respond to these issues is to explore the typical methods shops use to price work for customers in the real world. Take the example of Mr. and Mrs. Smith shopping for a new kitchen. They go to Cabinet Shop A with their list of things they want and even some magazine clippings of kitchens they like. The salesman at Shop A takes the information and some rough measurements they provide and works out a "ballpark estimate" based on how many linear feet of cabinets are involved.

Then the Smiths head down the street to Cabinet Shop B, where there is a certified kitchen designer on staff. The Smiths agree to pay an upfront design fee that will be included if they go ahead with the project at Shop B. The designer talks with the Smiths and determines a number of important issues that weren't raised when they talked to Shop A. After a site visit and accurate measurement, as well as some further discussion, the designer works out a detailed plan and itemized estimate.

The Smiths are amazed at how much more expensive this second estimate is, so they take all the information and head over to Shop C to get a third price. Shop C's estimator looks over all the specs and notes that his shop would use some different "but comparable" hardware and other materials in the project, but that could save the Smiths some money. He delivers his price.

Now the Smiths have three prices for "their new kitchen," but those are really three prices for three different kitchens, even though the Smiths may still think they provided the same specifications. No wonder the prices vary so much. It's the same with the survey. Even when the specifications are detailed, a whole range of factors conspire to turn the apples into applesauce as each shop prices according to their own methods and markets.

This all begs a variety of questions. Should this be the way it is? What can shops do to even the playing field? As long as work is custom, there will likely be too many variables to ensure really close pricing between shops. An equally sad truth is that too many shops still overlook key costs and routinely underprice their work. That's really more of a costing issue, not pricing. When it comes to competing in your market, you need to educate customers for the true value you provide, cost accurately to ensure a profit, and then price the work to sell.


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About the author
William Sampson

William Sampson is a lifelong woodworker, and he has been an advocate for small-scale entrepreneurs and lean manufacturing since the 1980s. He was the editor of Fine Woodworking magazine in the early 1990s and founded WoodshopBusiness magazine, which he eventually sold and merged with CabinetMaker magazine. He helped found the Cabinet Makers Association in 1998 and was its first executive director. Today, as editorial director of Woodworking Network and FDMC magazine he has more than 20 years experience covering the professional woodworking industry. His popular "In the Shop" tool reviews and videos appear monthly in FDMC.