How Framers Really Price Materials
The second part in this series looked at how the framing industry is marking up materials. That analysis showed that framers actually do a very good job of starting with the right pricing in their POS software. The starting point—the price that comes up when you enter any order—is the mark-up you place on the materials you buy. If framers used those prices, there would be many more profitable frame shops today.
This installment of the series explores what happens to pricing once you start to manipulate the original prices. Markup is the second-most important factor in making money—next to mar-gin. Margin is the key to making money and is what you have left after you apply any discounts to the mark-up. Margin is what is left to cover all your expenses and still make a profit. It doesn’t matter where you start your pricing; what matters most is what you sell it for.
Let’s see what’s happening in the framing industry in the time between entering an order and completing the sale…
Markup is the second-most important factor in making money—next to margin. It doesn’t matter where you start your pricing; what matters most is what you sell it for.
How the Industry Really Prices Moulding
In the March issue, it was shown that 53 percent of all sales that framers make come from moulding. The average pre-discount retail for all frames is $113.84. But the actual average price framers collect per moulding is only $88.94! This means framers discount each frame they sell by 22 per-cent. That $25 per frame ads up to more than $25,000 in missed revenue for a shop doing $200,000 per year.
Chop moulding has an average cost of $41.38 per frame and an aver-age retail price of $127.18, making the potential profit $85.80 per frame. However, framers discount chopped frames an average of 21 percent, reducing the price to an average of $100.87. That reduces the markup on chops from 67 percent to 59 percent.
Length moulding costs a framer an average of $25.92 per frame and the industry markup is a healthy 75 per-cent. But the LifeSaver statistics show that framers discount length moulding by an average of 22 percent. This dis-counting reduces the margin on length moulding from 75 percent to 67 per-cent.
The real opportunity for those selling length moulding is to understand that they can increase their markups more than they do now. Why? Because the average chop moulding sells for $100.87, and the average length moulding sells for about $20 less, at $79.53. Customers have no idea what you pay for materials. Why can half the industry sell the exact same moulding for 20 percent more just because they bought it chopped instead of in length?
Remember, too, that the waste on length moulding is about 22 percent. Combined with the labor it takes to create frames, framers seriously need to evaluate the profit they make with length. Length moulding can be profitable, but not as it’s being sold by the average framer. Markups need to be higher, and discounts need to be reduced.
The chart above illustrates that although length moulding costs far less, the average frame has a 22 percent waste factor that must be considered when calculating actual profits. The end result is that the average custom framer today only makes 1 percent less in gross margin using chop frames. Because the average ticket is $20 higher for chop framers, they actually have higher revenue in moulding sales! Remember, too, that this illustration does not consider the additional labor associated with using length moulding; it only looks at the way the industry sells products.
Many could interpret this as saying that it’s far more profitable to sell chop than length. It actually is—if you mark up and discount just like the industry is doing. However, the potential for better profits using length is real. Markups either need to be raised or discounting reduced.
How the Industry Really Prices Matboards
As reported, 18 percent of a typical framer’s revenue comes from selling matting. The average mat is priced in the system at $25.11, and it costs a framer $12.36. Previously, this column talked about how mats were low in profitability because so many of projects were small, making waste high.
To compound the bad news, the study showed that framers are marking down mats by 17 percent! That means you make less than a 50 percent return on the matboards you sell. While labor has been drastically reduced with the use of CMCs, many of those machines are leased or financed, which adds to matting costs. The bottom line is that matboard markups are too low and dis-counts are way too high. The discounts alone costs more than $5,000 a year in profits for a frame shop doing $200,000 in sales.
Many argue that this study doesn’t include profits made from selling mat scraps. That’s true, and there is little data to rely on for that. However, so many framers stock mats from numerous manufacturers. They totally under-estimate the cost of doing so and reduce the ability to recapture missed profits through scrap use.
How the Industry Really Prices Glazing
A total of 16 percent of the average framer’s revenue comes from glazing. The average retail price for a piece of glazing is $35.55, with an average cost of $8.42. That means the markup on glazing overall is 72 percent. However, framers typically reduce glazing prices by 14 percent, reducing the gross mar-gin on this material to 68 percent. Glazing also has far less waste than matboard because there are far fewer SKUs to inventory. The result is that almost $3,500 is lost from profits due to glazing discounts for a shop doing $200,000 in custom sales.
Summary & Next Step
If the industry sold custom framing without discounting, the typical frame shop would see sales climb by more than $43,000 a year! That would cure a lot of problems for most framers. Framers reduce the average price of frames they sell by 18 percent, taking the price from a suggested retail of $242.07 per project down to $198.54. That’s a big reduction to take on every sale, and it’s killing many framers’ ability to make money.
The typical shop needs a gross margin of 68 to 72 percent to make money. The amount of discounts means that the average frame shop is now receiving only a 63 percent mar-gin, costing tens of thousands of dollars. The average shop has the correct markups in their POS software; however, these markups are entered into the pricing tables incorrectly most the time, causing prices to look too high on most quotes. Because of this, many framers don’t believe in the pricing of their system and feel that reducing the price is a good solution. Hopefully, the information in this report will change that thinking. Framers need to charge the pricing required so they can stay in business. If you don’t do that, you can’t continue to do what you love. If you can eliminate the urge to reduce the prices that are in the POS systems, you can change the health and future of your shop—and the industry.
What Should You Do?
If you feel your shop may be typical of what is happening, you need to make some changes. How do you get the margins you need when your customers have been used to the discounts you’ve been giving? How do you charge more in a time when price seems so important? Can you discount and still be profitable? The answer to all those questions is yes, but it will take a very specific plan. If you would like some additional insight into the ways you can change your pricing strategy, go to the new PFM website for several ideas.
Hi Ken, I love reading your articles and have been following your insights. Although I’m a picture framer in Canada most things you talk about hold true no matter where we frame. I followed quite a few of suggestions and feel they have helped my business quite a bit. One of the best things you brought to the forefront was Discounting and how if hurts not helps our businesses. I have been using Frame Ready software since 1998 (similar to lifesaver) and rely on it more & more for consistent pricing. I’ll keep reading your e-mails and taking notes. Thanks
Thank you Joe! Great to hear that you are trying to minimize your discounting. Thank you for all your support.