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BIG PICTURE

Pricing Q & A
The last step in determining perfect pricing is deciding what to do when you don't know what to do.

by Cheryl Strickland

In the first part of this series of articles on pricing, I discussed my method for determining how much a workroom should charge by the hour for its services using the Manufacturer’s Pricing Technique (see D&WC, November 2003, page 72). In the second part of this series we learned how to perform a time study and analyze how long it takes us to make each different style of window coverings we offer (see D&WC, December 2003, page 47). We then put both answers into our pricing formula (CHARGE = HOURLY CHARGE X TIME) and used the result to create a set price list.

Well, that all works great if you have all the information you need. There are some questions you might have that haven’t been covered yet, and that’s what this month’s article is all about.

Q: What do I do if I’m just starting my business and do not have a year’s worth of expenses to count up or haven’t had the time to do a time study yet?

A: I have several suggestions for you. The first is to guess. You calculate as closely as possible what you project your expenses will be for a year and how long it takes you to create each treatment. For help, try to find someone else who has a workroom with a setup similar to yours and ask them to share with you what their expenses have been. (You may be wondering how you could meet someone who has a business similar to yours. The answer is: networking! And, of course, the annual Custom Home Furnishings Educational Conference and Trade Show is a good place to start!) The instructors and attendees (even the vendors!) are very willing to share and help each other. Many new, long-lasting friendships are formed there.

Another option is to temporarily use the price list of another company until you have been in business long enough to accumulate your own information. You could collect price lists of your local competitors or from industry friends.

When you have been in business long enough to determine your hourly charge and to perform a time study, you then can revise your temporary guessed price list to the exact pricing you desire. Review your price list each year to determine if it still meets your goals. Regularly repeat the entire price-setting process to update your price list.

Q: If all prices are based on how long it takes me to make a treatment, how can I price a one-of-a-kind treatment that I’ve never made before?

A: That’s one of the toughest challenges we face! I first would analyze very carefully exactly how the treatment had to be created. Then I would visualize the fabrication step by step, making the treatment in my mind.

While seeing myself perform the steps, I would mentally keep track of how long it would take me. I then would add up the time, making my best estimation of how long it would take to create. Then I would double my estimate and base my quote on that time.

I would double this estimate because no matter how carefully and thoroughly I’d plan a fabrication it always took me about twice as long as I figured. If the job went faster than I guessed, I would just make a little extra profit on that treatment. But there always were jobs that I’d end up losing money on, so it all evened out.

However, if I ever felt by the time I had finished a job that I had overestimated, I could certainly reduce the price. It’s always easy to greet a customer with a price that is lower than the estimate.

Another suggestion is to ask other professionals if they have ever made that particular treatment or one similar to it and if they would share with you how they established their pricing.

Q: What if while analyzing the results of my time study I discover that I am not making money on certain treatments?

A: Several different solutions exist to handle this situation:

1. Raise your price on that treatment. Obviously, if you’re not making money on a treatment, you could raise the price you charge for it until you do make a profit on it. But what if you don’t think the market will bear a higher price? Then go on to suggestion No. 2.

2. Produce it faster. Sometimes a simple little tool or piece of equipment can increase your production so that you are not losing money. Sometimes, it’s simply learning a faster method through continuing education.

3. Contract it out. Often, a workroom that specializes in a particular type of treatment can make it much faster and cheaper than a workroom that only makes it once in a while. Beside that, you can be making money creating a different treatment (one you make a profit on) while at the same time making money on the treatment you contracted out. It’s a win-win situation.

I know of quite a few small in-home workrooms that just don’t have enough room for a professional 12-foot table. Creating large pleated panels would be very difficult. They still sell the draperies in these large sizes, but they contract that work out to someone else to actually make.

4. Stop offering that treatment. You could decide to stop making that particular treatment altogether. Although most workrooms find that they must be full service and offer a wide variety of styles, a few workrooms specialize in one particular style or a limited number of styles.

5. Keep making it at a loss. Why would you still want to make a treatment that you are losing money on? For two reasons:

First, you could use it as a loss leader. Grocers use this tactic all the time to get buyers in the door. They know that once there, the shopper will not pick up just that one sale item; they’ll leave with at least a basket, if not a shopping cart, full of other items. Your customers could do the same.

Second, you can continue to offer it because you provide full service. If you sew for decorators and designers, they do not want to travel all over the place to get their work done. If you are profitable on everything else they bring you, you will gladly make the treatment they need along with all the rest of their order to accommodate a good customer. Besides, do you really want them taking any work to another workroom if you can help it? They may be so happy with your competitor’s service that you lose them as a customer. Ouch!

As you can see, determining the perfect pricing for your business does take a little effort, but it is not all that difficult. Try the Manufacturer’s Pricing Technique and see how well it works for you.