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I was down at our local coffee shop this Sunday morning and while sitting outside drinking my coffee I was reading through an old issue of CWB (Custom Woodworking Business) where I came across an article entitled “Pushing the Limits—Doing the unusual jobs ‘that nobody else wants to do’ is standard fare at Philip Sicola Designs.” About halfway through the article there were a few idea on pricing that got me to thinking about just what was being said.(The emphasis on certain phrases are my own)

The idea of pricing on the basis of “perceived value” requires a different mindset for a custom woodworker, Sicola says. “When a cabinetmaker starts his own business, he figures prices by thinking, ‘It will take me 10 hours, I’ll have so much in material, plus a certain percentage of overhead,’ and that’s how he figures the cost. But I don’t. In high-end custom work, what’s important to the client is the perceived value. Money is not an issue. I base my price on what I perceive to be the value of the project, and then I work backwards to figure out what to do to equal this value. That’s how I do all my jobs.

 

“The perceived value is partly from the client and partly from you,” he continues. “You both agree that something is worth $10,000. It may only cost you $500 to build, or it might cost you $12,000 to build. You have to control your own costs to stay within the budget
you create. I have sold things where the actual cost to build them was only 10 percent of the price and I have sold things where the cost was 130 percent. That’s what you call the learning curve.

 

This fireplace surround is about 25 feet tall. The curved fireplace panel is a softwood substrate covered in aniline dyed silverleaf. The center portion is textured resin covered in LuminOre. This project cost over $50,000. Back lighting accents each side.“Once I realize what the value of a piece is, I won’t come down on the price. However, it does take a little bit of nerve to do that and say, in essence, ‘I really do believe in myself,’” Sicola adds. “And it’s risky. I give prices on a job before I even know how to do it. I’m on the leading edge all the time, and I think pricing is one of the hardest things in this business. I don’t always succeed in making money, but most of the time I do.”

 

Sicola also says that his standards are very high and he always give his clients the value they expect. “The perceived value has to be real, you can’t just make something up,” he says.

While I often find builders and remodelers who just plain under price their work becuase they don’t know what their real costs and productivity is I think there are certainly a large number of contractors who ‘leave money on the table’ becuase while they are covering their cost and generating a profit they fail to see the “value added” they are sometimes delivering with the services they provide.

I just sort of accidentally and clumsily stumbled on to “selling by perceived value”. Years ago, back in 1999, I got a call to look at a difficult stair railing project. I found out from the project manager when I got there that several other stair shops had been there to look at the job and said it couldn’t be done. The builder told his project manager to give me a call even though at the time I might not have been really considered a genuine stair and railing shop because he said that I would at least figure out a way it could be done ( I was seen as a problem solver).

Looking at the job I said “Yeah sure it could be done, but it wasn’t going to be easy“. The railing they wanted was iron and brass balusters with a solid cherry cap rail. Right there I knew they were talking about getting a specific look and not shopping for a railing that would “meet their budget”. The “impossibility” that the other stair shops saw that I just saw as a “difficulty” was two helical wreath turns that would have to turn 180° and drop 28″ on a 4-7/8″radius. I knew it could be done because I had seen it in books although I had never seen it done in actuality.

Driving back home from looking at the job I was going over the wreath turns in my mind thinking about how I would do them and how long it would take. Thinking back to a sculpture I did in college, carving a chain out of a solid block of wood I figured it would take me a full day to shape each wreath from a glued up blank. So I began to think…$55 dollars an hour times 8 or 9 hours…works out to between $440 and $495 labor … the cost of the cherry for that piece…wide thick stock at $6.5 to $8.50 a board foot… lots of waste…that would be about $60 to $100… for each wreath I should charge something like $540 to $600…when all of a sudden… a little voice in my head said “HEY WAIT A MINUTE!

These two pieces are the only obstacle keeping all those other stair shops from being able to execute the project the way the end-user-homeowner wanted it….What are those two pieces really worth then? …What are they worth to the builder who has promised the owner that he could get the job done for them just the way they really wanted it?… Arbitrarily off the top of my head I then decided to price the project based on something like a $2400 price for one wreath and a $2700 for the other.

 

Flanzer Cherry Railing Wreath Turns

It was right then in the midst of all that visionary thinking and figuring that I got pulled over for speeding. Lost in thought I had no idea how fast I was going.

Well, altogether with all of the other railing work to be done that only amounted to a 5% or 6% increase in my total project price but those two pieces were earning my company money at the rate of around $240 per hour (they ended up taking just a few hours longer than the 8 or 9 hours I guestimated). My price was accepted no problem and the builder had his markup on top of that when he presented it to the client.

So I learned a lot from that one project that forever changed the way I have priced projects since then. After working up a basic estimate for a project I look at the whole project again and try an break it down into smaller component parts that I can rightfully charge a premium for. I’m also now genuinely in the stair and railing business since we can fabricate stuff that other shops can’t or wont.

There’s no real valid formula yet for determining that pricing premium. Right now since it’s usually me and not one of the troops that has to fabricate those parts personally I think about just what would it take to get me off of my butt and make that part for a client when I could be doing something else I really enjoy like watching a Yankee game. Seriously that’s how I think about approaching and determining a perceived value and ultimatly a price. Product PRICING is subjective thinking as opposed to the objective and pragmatic thinking involved product COSTING.

That makes me think that there are really two part to the equation. What’s it worth to the client and what’s it worth for your company to take the risk in attempting to produce the piece? You also really have to know your client’s preferences and values(in this case a builder) and the their clients expectations and tastes too (the homeowners).

I am reminded of a the apocraphal story I found in the back of Mark H. McCormack’s “What They Don’t Teach You at Harvard Business School” who was the powerful chairman of a talent management company….

It always reminds me of the story about the woman who approached Picasso in a restaurant, asked him to scribble something on a napkin, and said she would be happy to pay whatever he felt it was worth. Picasso complied and then said, “That will be $10,000.”

“But you did that in thirty seconds,” the astonished woman replied.

“No,” Picasso said. “It has taken me forty years to do that.”

This was also from the same project although unlike the stairs and railing my company did not design and fabricate the cabinet casework (in addition to the main stair and balcony we did installations for a number of other rooms on this project). If my recollection is correct they were designed and fabricated and supplied by the noted luxury cabinet maker Michael Gordon Custom Woodwork of Paterson NJ and the staining and lacquering finish work was by my old friend Bob Verdon from up in the Catskills.

This remodeled house at almost 7000 SF is about 5000 more square feet than I would want personally I certainly would have no problem with a cherry library like this.

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J. Jerrald Hayes
Primus Inter Pares at Paradigm Projects, Ltd.
I am an architectural woodworker and general contractor turned IT, Business and Project Management consultant, software developer wannabe senior division triathlete and ski racer, Yankee fan and founder of ParadigmProjects.com, 360 Difference Mac4Construction.com,iOS4Construction.com and now TheBuildingAndRemodelingWiki.com too.
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