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Do you sometimes resent that designers mark up your fabrication prices when they sell to their clients? Do you think you would make more money if you fabricated your own treatments and sold them directly to the home owner? Are you absolutely sure about that?
It is very common that most people who start in the workroom business do not have a business management education. However, there is another aspect of business they are lacking and that is a basic understanding of commerce. By this, I mean too many people do not understand the real differences between wholesale and retail and how they really work.
DEFINITIONS
First, let's look at some definitions according to Webster's New World Dictionary.
• Wholesale: "the selling of goods in relatively large quantities and usually at lower prices than at retail, esp. such selling to retailers for resale to consumers." Note: Large quantities are not essential to be considered wholesale, especially in the custom workroom industry.
• Retail: "the sale of goods or articles individually or in small quantities directly to the consumer."
• Consumer: "a person or thing that consumes; specif., a person who buys goods or services for personal needs and not for resale or to use in the production of other goods for resale."
So from these definitions a workroom is the wholesale business, the designer or decorator is the retail business, and the home owner, into whose home the window treatments go, is the consumer.
THE COMMERCE CHAIN
I have heard repeatedly that workrooms resent the fact that designers and decorators mark up their labor and therefore appear to be making more money off their work than they make themselves. But what the designer pays the workroom is the designer's cost. The markup a designer adds before selling products to her clients is what pays the designer's overhead and salary.
When you fabricate window treatments you are running a manufacturing business, which is a wholesale business. The manufactured treatments are then sold to the retailer (the designer or decorator) who then resells them to the consumer. In order for the retailer to make any profit, she must mark up the cost of the products she buys before reselling them. Whether it's workroom labor, installation, hardware, lamps or artwork, the designer has to mark up her costs before selling to her customers. Otherwise, she will not make enough to pay her bills (or pay herself) and will go out of business. If all the designers went out of business, there would be no wholesale workrooms!
Let me take this explanation a step further. Many of you fabricate your own window treatments and sell them directly to the consumer. In other words, it appears you have skipped the middleman. But what you actually have is two businesses. One is your workroom, which is the wholesale manufacturing business, and the other is the window treatment consulting or decorating business, which is the retail business. To practice good commerce, you should treat your two businesses separately. My accountant encourages the separation of your wholesale and retail businesses in your bookkeeping.
The reality is, if you do not separate your businesses, you will have no idea if one is making money and the other one isn't. Your workroom should be set up to charge a wholesale price to your retail business. That wholesale price should ensure the profit the workroom needs. Then, your retail business must mark up that wholesale price to sell to the consumer.
Just because the same individual does all the work doesn't mean you should skip the profit the middleman makes. What happens if you get more fabrication work than you can handle? You might farm the extra work to another workroom. Then you will have to mark up the charges from the other workroom before you resell the product to your client so you can make a profit.
Let me give you an example. In my town, there is a Rubbermaid manufacturing plant. There also is a Rubbermaid retail store that is not a factory outlet. How do you think its prices compare to the other stores in the area selling Rubbermaid products? They are just the same or in some cases even higher. Rubbermaid is no different than you who are fabricating and selling directly to the consumer. It buys from its wholesale plant and resells at competitive retail prices.
WHOLESALE TO RETAIL
Raising your own wholesale prices to arrive at retail prices offers three advantages:
1. You'll make more money, which you deserve to be making in the first place.
2. You will be in the same league as the designers and decorators who have to buy all their fabrication from workrooms because they don't sew. This means, as a competitor, you will be asking for prices more in line with other designers and decorators.
Think about it. Suppose your prices are so low that everyone comes to you. You would be grossly overworked and your competitors will be out of business. On the other hand, if they can make the kind of money they make selling your fabrication, why shouldn't you as long as you are selling retail? It only makes sense to work smarter instead of harder.
3. Some time in the future, you may decide to sell your fabrication to designers. If so, then you would already have a wholesale price list in place that you know will make you money. Most designers will not work with a workroom that also sells retail if they don't have a lower wholesale price list for them because that's the way commerce works!
EACH LINK IS A SEPARATE BUSINESS
Your workroom, whether you do wholesale or retail, is a separate business. Set your wholesale prices to where you will make good money for what you offer in fabrication. Look at it as a stand-alone business even if you offer retail, too. Your retail business must charge enough to cover all purchases it makes, including the fabrication it buys from your own workroom. This is necessary for you to make a reasonable profit in your retail business. Again, treat your retail business as a stand-alone business. This is just good business management.
If you are strictly a wholesale workroom and you're not making the money you deserve with your fabrication, then it's your own fault. It has nothing to do with how much a designer raises your prices to her client. The Rubbermaid plant charges what it needs to charge to make a profit manufacturing plastic containers. It doesn't concern itself with what retailers might charge for those containers when they are resold to the consumer.
I once spoke with the husband of one of the Jill-of-all-trades in our industry. He told me that his wife had found a niche. He thought that because she was making it and selling it directly to the consumer, she didn't have to charge as high a price as the designers who didn't do their own fabrication. He had no idea how much money they weren't making because of this misguided thinking.
Now that you understand the rules of commerce, I hope you have a clearer perspective and perhaps a better attitude toward the other links in the chain. Take time to evaluate your pricing structure. Make the decision now to design your prices so you are making what you deserve for your knowledge, experience and ability and your place—or places—in the commerce chain.
If you have any questions or comments about this article, previous articles or any topic of interest to workrooms, please contact me at:
Workroom Operations
Draperies & Window Coverings
666 Dundee Rd., Ste. 807
Northbrook, IL 60062-2769
Fax: (847) 498-0231
E-mail: kstein@workroomconcepts.com
Web site: www.workroomconcepts.com
Kitty Stein, WCAA, is a 20-year veteran of the drapery workroom field, having owned and operated her own business for 18 years and having taught classes on window treatment construction. Until 1990, Stein and a partner owned a workroom with nine employees. She since has opened her own smaller workroom, Workroom Concepts, that has just one employee. She also does workroom consulting, seminar speaking and is the author of Order in the Workroom available through Draperies & Window Coverings.
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