August Pro to Pro

Have a question and looking for feedback from industry peers? This month KBDN listens in on dialogue between industry professionals as excerpted from the KitchenBathPros.com online Design Discussion Forum.

ESTIMATED VS. ACTUAL CABINET NET

QUESTION
Have you ever experienced the order edit process where you catch items you should have included in your estimate but didn’t? During order edit, I make sure I catch the error and include the “forgotten item” and pray that my margin does not fall below my target.

The estimation process is sensitive in that I would like to stay competitive to get the job, but I also want to maintain some additional “fluff” to cover any omissions from the cabinet estimate, while also being mindful of padding the estimate too much and losing the job.

Fortunately, underpricing a job doesn’t happen too often, but when it does, it invariably occurs when the factory has to customize cabinets or panels. I use 20/20 for cabinet quotes but sometimes the pricing has glitches, and sometimes the glitches are because of my own omission. I hate rushing quotes but time is usually against me.

In order to protect my margin, I am considering excluding custom cabinets and panels off the contract price until I can finalize the quote with factory.
I really wish I could edit my entire order to the manufacturer before I finalize my invoice to the client. But how do you get a client to commit without giving a firm quote? What are your thoughts on protecting your margin?
—KB Design1

RESPONSE 1

I have found that I can probably get within, maybe, 90% accuracy of the net cost of the kitchen, sometimes more, sometimes less, depending on the complexity of the job.

Actually, let me digress. The answer, for me, to your first question is “nearly always.”

Let me step back even further. I have found that the initial rough estimate may be the most critical piece of all.

I tend to estimate fairly high, at the start, purposely. Yes, from time to time, I will lose someone due to my initial estimate pricing, but because of this type of situation, I’m willing to let a few go and get those clients who are less price sensitive.

Here is the language which is on my estimate form that I give clients on the first visit:

“All cabinet estimates are based on: raised-panel door standard, standard cabinet finishes, standard wood species, 30"-32" wall cabinet height, full-overlay door. Cabinetry features which add additional cost over and above the estimate in each quality range are: paint: 10-15% upcharge, special/custom finishes (glazes, distressing) certain wood species, custom designed specialty cabinets, inset door style, ceiling-height cabinetry, decorative feet, columns, brackets, special moldings, etc. Prices are subject to change without notice due to manufacturers’ price increases. Note: Lower prices refer to few cabinet options; higher prices refer to a fully appointed kitchen complete with mouldings and interior options, except for special features noted above, and reflect the more typical end cost. Above options noted may add from 10-40% in additional costs, or more, depending on items selected above. Based upon your product requests within the design process, there is no guarantee that your end cabinet cost will reflect this estimate’s figures. Should your actual cabinet cost be higher than this estimate, options will be provided on request to reduce your cost to reflect this estimate’s figures.”

This sets them up to understand that pricing on a kitchen can be very fluid, and that they, in part, are responsible for the price rising, depending on what they want.

Also, partly due to this issue you raise, my policy is to charge a design retainer somewhere between $3,500 and $5,000, and not to release my plans at all until the contract is signed. Actually, the only plans I will release are very, very preliminary “shapes and forms” plans that I initially present to the client. No cabinetry is filled in…just shapes, forms, and potential appliance locations…and not to scale, so my clients can consider multiple plans at their leisure before they choose one. After that, I do not release anything else until the contract. That also ensures that the job remains with me.

When everything is done, and I have priced the kitchen, I see how it compares to my original estimate. I nearly always have room for profit, over and above my normal profit margin, because I have estimated well at the start. I always include extra profit in my final pricing, just for your reason. I don’t fault myself if a few things are forgotten…I do the best I can in the pricing, and cover myself the most that I feel I can in the profit. Thus, in the editing process, I will easily fill in any blanks and not get crazy about it.

Price is such a sensitive thing, I would not revisit pricing with a client. Set your price expectations up properly from the first visit, do the best you can, know that you will invariably forget things, and fearlessly and justifiably add that profit overage, which will cover you later. Oftentimes, truly, I will add things over and above the contract, if the additional overage (to me) was generous. Then, I also feel generous and add in some items that were not in the contract…things like customizations…and I do not divulge any of that to the client. Just my way of making the job the best it can be.
—susanckd

RESPONSE 2

I agree with Susan. And there is another fringe benefit to this system: Yes, you may lose a sale or two, but you can compensate yourself for this with a slightly higher margin, which in turn gives you the opportunity to put a bit more of your heart and soul into the project and make it even better. Typical result: More word of mouth and more, often better, quality clients. Sort of a quality versus quantity thing, but it seems the bottom line is the same or better this way.

I learned the hard way and tried to be competitive or even lower than the competition, which made me too busy. I was stressed out, made mistakes and was disheartened when it came to going that extra mile because I knew it was cutting into my margin. Now I have the luxury to add a little extra just because I can.
—Veronika

RESPONSE 3

Laurie asked, “What are your thoughts on protecting your margin?” which brought to mind a concern I have about the amount of time invested in pricing out a kitchen, weighed against the desire to give an accurate estimate and avoid missed costs.

Susanckd wrote, “I have found that I can probably get within, maybe 90% accuracy…” Perhaps simply adding 10% to the initial estimate would both save time in the estimating process, and provide coverage for missed items? Susan’s language on her estimate form goes a long way toward bringing a client’s expectations more in line with reality, so that if, say, they decide to change from 30" cabinets to 42" cabinets, they won’t down the road feel like a victim of “bait and switch” when the price goes up.

The issue I grapple with is this: How much detail and time should be put into pricing out an initial design, when, as we all know, the final kitchen design will be at the least slightly different, oftentimes very different, and could even be from a different cabinet line. The amount of time I invest in a potential uncertain sale trying to itemize every last penny of a design that will likely change certainly affects the bottom line margin.

Susanckd makes a good point: “I’m willing to let a few go and get those clients who are less price sensitive.” What do you think of using a rule of thumb like: Save time by doing quick, rough initial estimates to which you add 10%, and add 5% (or less?) to the final net for potential missed items?
—Donnalyn

RESPONSE 4

Donnalyn, I’ll share my formula with you, and everyone.

Essentially, estimating a kitchen takes me about five minutes. I either scale an architect’s drawings or I will take some measurements at the site. It doesn’t matter where the cabinets go, I sometimes just measure the existing cabinets…knowing they will be reconfigured.

Then, I do this. Let’s say we have 30 linear feet of cabinetry.

For a middle quality estimate, I will do 30 x $900 = $27,000 and 30 x $1,100 = $33,000. They will be within that range for middle quality cabinetry, but I caution them to expect the high number – the low number is achievable, but to not expect that.

For a high quality estimate, I will do 30 x $1,100 = $33,000 and 30 x $1,500 = $50,000.

On my estimate sheet, where I have various categories of costs, I nearly always put in the high-end number and come to a complete total. Then, they are at the very beginning of getting used to these numbers, and I then ask them what they wanted to invest after, not before. It’s always easier to go down, and they can see that we can go down to middle quality cabinetry if necessary.

I never price a kitchen any other way than through general footage measurements, which takes all of 5-10 minutes to come up with these numbers.

Donnalyn, in answer to your question, for me, I cannot take the time to invest time in the details before the sale, so I don’t. I have been doing it this way for many years, with near zero complaints. It may depend on what region of the country you are in, too. I think people (clients) in/near cities may be more accepting to this way of doing things, while people in the more rural areas may not be.
—susanckd

RESPONSE 5

Thank you all for your feedback. I have worked for a high-volume showroom in a city that competes with several showrooms in close proximity and several “big-box” stores. There was a saturation of common cabinet lines where the homeowner could buy the same cabinet line from 10 different showrooms. In this climate, it was not uncommon for homeowners to go looking to shop my quote against the others. The showroom I currently work for still has several dealers that compete for business, but this town is not as price sensitive as the last, and I can certainly see the value of bidding the way it has been explained here.

Susan, two questions come to mind in the quick quote scenario of 30 linear feet at three price levels.

1. Do you consider a standard wood species oak?

2. Are you including installation in the linear foot rough estimate?
—KB Design1

RESPONSE 6

In answer to your questions:

1. Yes, oak is definitely a standard wood species.

2. Yes, installation is included in that linear estimate.

My main point is to avoid, at all costs, being pigeon-holed into providing a client with a narrow price expectation. That is absolutely the kiss of death in our business, as costs can go way up or way down, depending on options, of which there are many. I am very clear with my clients throughout the process when I hear things they want that I know are pricey. I’ll stop right there and give the “let’s not fall in love yet” speech. Pricing expectations should be in the forefront of our awareness every time we meet with the client, I think. It works to continually shape and mold their expectation, into general, rather than specific, numbers.
—susanckd

RESPONSE 7

Susan, I would like to toy with the formula that you provided in this string. I sell Quality, but don’t offer as an “installed price.” If you were to adjust the figures per linear foot, removing the installation, what do you think it would be?
—Design Diva

RESPONSE 8

I think I’d probably deduct about 7% give or take, after you get to the full price.
—susanckd

RESPONSE 9

Susan, would you summarize your sequence for the process you have shared? It sounds very good but I wonder how to implement it.

Is it an accurate conclusion that 1) at the first meeting, you ballpark the job with your formula and provide a copy of your disclaimer about pricing; 2) at the next meeting, you present general plan with shapes only; 3) then they sign a contract that includes $3,500-5,000 retainer after only seeing shapes; 4) you design in more detail and release drawings, and 5) the order is placed and retainer becomes the down payment?
—sks05

RESPONSE 10

In answer to your questions:

1. Yes, I ballpark the job and provide an estimate form, which notes various pieces of information about the estimate

2. No, I don’t do any drawings until I have been paid the retainer.

3. We go through the design process, and the first phase is shapes/forms/appliance locations/dining area, etc. but without individual cabinets, then we go onfrom there. Yes, they are computer rendered drawings.

4. Drawings are not released until a contract is signed. The retainer becomes down payment.
—susanckd

RESPONSE 11

I generate my own leads and the dealer I order through pays me a 10% commission on the cabinets and 5% on any of the other aspects of the project (plumbing, drywall, countertop, etc) that I have sold. I also write the orders and follow through the job until completion.

My total compensation may correspond to the $3,500 to $5,000 retainer you charge but as a separate entity from the dealer, I haven’t been treating the retainer as a down payment. I refund it after the contract is signed between the client and the dealer and then I receive my commission in portions based on the payment schedule of the contract. I include the design fee back in when I am preparing the pricing for the proposal, as well as any expenses.

Unfortunately, I am not covering my design time up front when a job is designed but doesn’t end in a contract, and I am also taking on a risk of not being paid if something goes wrong with the job.

Any suggestions on how to structure a larger retainer as an independent entity working through a dealer?
—sks05

RESPONSE 12

Believe it or not, I’ve also reconsidered a restructure of my design retainer, even though I am collecting $3,500 to $5,000. I have recently put into my retainer that if the project does not go through, that the client will owe me $100 per hour for the time spent on the project, plus staff time, with the original design retainer to be deducted from the total sum (of hours). You know, sometimes we can work for many months, and time really adds up. If it’s one of those jobs, then I believe not even my $3,500 retainer comes close to the actual time spent. So, I’m now going to be working with this clause in my retainer form.

I also say that the retainer does not reflect the value of the time spent or something like that. I will probably be one of a handful of kitchen/bath designers who do this, and I would imagine that it could make a difference in terms of who goes with me or not, but I’m going to test it anyway.

Another way to work would be on progress…preliminary plans is one fee, elevations/floorplan another fee, decorative detailing another fee, electrical plans another one, moving toward the final working drawings, which would be part of the contract. All those fees could be deducted from the total price, or a percentage could be. It all depends on the clients. Some hate to keep writing checks, others don’t mind.

Just to be clear, my retainer is deducted in the contract from the total cost, and then they have to pay a deposit at that point to order the cabinetry.

I don’t know where you are located, what your market is like, but you could put that sort of clause in too, if it “fits” with your philosophy. Or, just up the retainer charge. Although my customers hate to pay, they always end up paying. And, they have to, because the contract says that payment must be made even if there is a manufacturer’s defect. Although, the verbiage is as good as the client’s willingness to pay, of course. Maybe others will have some suggestions.
—susanckd

Editor’s Note: Material for Pro to Pro has been excerpted from the online Designer Discussion Forum at the KitchenBathPros.com Web site under an exclusive agreement with Kitchen & Bath Design News.

KitchenBathPros.com is an online networking community for kitchen and bath professionals whose goal is to create a central forum for industry professionals, open 24/7, through which they can collectively share knowledge and information. This sharing of resources enhances the industry’s value to the public, builds more successful businesses and raises the bar of excellence in the industry.

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