To mark this, the 10th annual Small Shop Pricing Survey, there is a mix of projects from past surveys and one new project, but one thing never changes: The bids submitted by shops all across the country are similarly all over the map.
Also in keeping with the theme of looking back through the years, we added a new question this year to probe how shop experience affects pricing. Bidders were asked to report how many years they have been in business. There had been lots of suggestions over the years that most low bids in the survey were coming from more inexperienced shops. This year's survey proves that's not the case.
Experience not a factor
Results in this survey show that even shops with decades of business experience can turn in low bids. Although the very lowest bids generally were turned in by shops with less than five years' experience, the second or third lowest bids came from shops with 20 or 30 years to their credit.
All the highest bids were turned in by shops with at least 10 years' experience, but in several cases, shops with less than 10 years show up in the top tier of bids.
How the survey works
It is important to understand how the survey works. Each year we obtain the original bidding specifications from real projects done by real shops. We ask for volunteer shops around the country to bid on the projects as if they were real jobs in their shops. We ask them to price the projects using their standard pricing methods, but for comparison, we also ask that they supply breakdowns for such items as materials costs, shop rate, construction hours, and so on.
Despite all attempts to make the survey an "apples to apples" comparison, not all shops provide all the same data. Some don't provide itemized categories because they price by the foot. Some bid the jobs making changes to materials or leaving something out, such as countertops. Where that is the case, there are explanatory notes.
Of course, this reflects the real-world nature of the survey, since no two shops do everything alike and prices always reflect differences in preferred building practices and materials.
What can you learn?
Despite the wide range in prices in this survey, and for that matter, in all the surveys of the last decade, there is a lot to be learned. To use the survey as a tool in your shop, explore the itemized categories to find flaws in bidding.
For example, materials and construction hour estimates vary widely throughout the survey. Take the example of the Home Library. On that job, materials estimates range from $404 to $5,400 and construction hours go from 20 to 100. Obviously, if a shop estimates $400 in materials and 20 hours of work when the job really requires, as it did, $751 in materials and 50 hours of construction, then the bid is unrealistically low.
It is especially illustrative of the wide range in bidding to look at the one commercial project in this year's survey. While it attracted only seven bidders (the same as it got when it first ran as a project in the 1999 Pricing Survey), the Coffee Bar project came in with the widest range of bids. The highest bid of $103,400 is more than nine times the low bid of just $10,971. This is so despite more complete bidding specifications and detailed drawings for this project compared to others in the survey.
Another project that reported a wide range was the Home Library, in which the high bid of $19,875 was more than eight times the low bid of $2,375. Ironically, the highest bidder, a Florida shop with 10 years experience described the project this way: "This is bread and butter work, no brainer." Yet that shop's bid was more than $8,000 higher than the next highest bidder, a South Carolina shop with 25 years experience.
So, that takes it back to another perennial discussion point: If the wide range in results is not from experience or lack of it, and it doesn't correlate with other factors listed in the survey such as the use of estimating software or CNC equipment, then is it purely a case of regional differences?
Unfortunately, there is no clear answer here, either. The size of the survey sample is just not big enough to accurately probe regional differences. The best example this year is the Cherry Kitchen with 29 bids from the United States and two from Canada. Four bids are from one state, Missouri. But those include the lowest ($5,720), the third highest ($15,420), a low midrange bid ($8,605), and a high midrange bid ($10,500). Clearly, high and low bidders exist everywhere, probably in the same town and even in the same market.
Everybody in this business jokes about what "high-end" means. For one shop, high-end cabinetry goes into a $500,000 home; for another shop, high-end is nothing less than a $5 million home. One example of this, where a clear marketing boundary exists, shows up in the Display Cabinet project.
Revived from the very first Pricing Survey, this cabinet project can be seen from two markets. If you see it as studio furniture, it commands one price. But if you see it as just nice "high-end" cabinetry, the prices drop dramatically. Both in the original survey and this year, bids on this project divided neatly between high and low, with a significant gap in the middle.
This may point to a key issue of pricing that every shop must address on an individual basis: Who are you pricing your work for?
At a minimum, all projects must be priced to deliver a profit to the shop. That's where bad estimates on time and materials show up in the itemized section of the survey. But the survey is not really intended to be a costing or job estimating test. What is important here is that all shops must price their work to sell in their markets. That's a function of marketing to a specific audience. That's why the high price bid by the Florida shop of $19,875 for the Home Library is a "no-brainer" to that shop, but the original rural Utah shop that did the project charged $4,291 in 2002 and says it would charge 50 percent more than that in 2006.
The best thing is to use the survey as a tool in your shop. Go to www.cabinetmakeronline.com and download the bid package. Do the projects that best mirror the work you do in your shop. Then compare the results with those of the shops printed here. Finally, do the really hard work. Analyze your results and adjust your pricing and estimating practices to better match your market and your profit goals.
To download the .PDF file of the Results Graphs, please click here.
Also available for download are the individual graphs: Cherry Kitchen, High-End Maple Kitchen, Home Library, Coffee Bar, and Display Cabinet.
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