Pricing Glazing for More Profit
It’s really confusing to set up glazing pricing tables, and that’s why most framers often have a difficult time managing them to maximize their profits. Making matters more challenging is the fact that glazing profits are influenced by waste and yield and by the need to keep suggested retail prices up to date. This is a challenge whether you use software to automatically calculate your glazing prices or if you use a manual chart.
While point of sale (POS) systems have the handy ability to update the costs of things like moulding and then adjust retail prices to maintain the mark-ups you need, glazing costs are not automatically updated. As costs creep up over time, using an old POS default table means less and less money goes into your pocket unless you make manual adjustments.
With all the sizes and varieties of glazing, it becomes very difficult to set up a pricing strategy that makes sense. Complicating the issue is that using the same pricing strategy on premium glazing products as on basic glazing doesn’t translate well in the sales process.
Anticipating waste and yield also makes it hard to understand how many sizes of each type of glass you should stock. Many framers struggle with adding extra sizes because of the cost of increasing inventory. Those decisions can affect your profit.
Analyzing Annual Sales by Category
Based on recent pricing and sales data of the industry, here is a chart showing typical annual sales for a shop with $250,000 in annual sales. (For a look at comparable data for $150,000 and $500,000 shops, you can find more information on the PFM website. The website also contains information on how to set up a glazing pricing chart.)
Looking at the chart, a $250,000 frame shop sells about 705 pieces of glazing each year. That may appear a bit low, but the data also shows that 31% of all custom projects in this size business are sold without any type of glazing.
Adjusting Tables to Improve Profits
In setting up pricing tables, adjusting suggested retails can have a dramatic effect on glazing profits for a company of this size. Applying retail prices to the sales breakdown in the units sold chart would produce $23,140 in glazing sales per year. Multiplying the same sales units by the suggested retails in an updated pricing chart would increase glazing sales to $29,975. This is an increase of $6,835, or 30 percent more in sales per year without increasing the number of projects sold. While increasing prices could reduce sales, prices were raised 15 percent overall but resulted in a 30 percent increase in sales.
How can prices only go up 15 percent yet produce a sales gain of 30 percent? The answer is found by analyzing and setting prices to take advantage of where the most sales occur. As seen in the units sold chart, more than 50 percent of all projects created are smaller than 36 united inches or the common size of 16”x20” (364 of the 705 units sold are 16”x20” or smaller). Knowing this, you can increase glazing prices in this range much more than for larger united inch ranges. This produces two very powerful results. First, because so many sales occur at or below 36 united inches, you get a much higher benefit by applying a higher mark-up to this range. Secondly, price increases are much less noticeable on smaller projects, making it much easier to adjust the pricing scale without increasing customer objections to pricing.
Conversely, this same strategy can be applied to large projects. In a typical $250,000 shop, only 81 of the 705 projects for the year was larger than 24”x36” or 60 united inches. That means only 11 percent of the work is this large. Therefore, you can significantly reduce the mark-up on these projects because they mean so little to the profitability of a shop. The good news is that you can make prices most competitive on sizes that are noticed most by customers. The new suggested retail pricing program raises prices for 16”x20” projects more than 23 percent while only a 3 percent increase is suggested for 60 united inch projects. The combined pricing strategy produces a sales gain twice the size of the overall suggested price increase.
Adjusting Tables to Improve Profits
Several other factors influence the strategy behind the new suggested prices. The use of premium products has dramatically risen since an old (default) chart was created. This has made the pricing process more difficult because standard glazing mark-ups now make premium product prices disproportionately expensive. The industry has traditionally based pricing strategy on markup, but premium products and items with significantly higher costs should be priced with more of a “return on investment” strategy than a mark-up percentage. The money received for a competitively priced premium product may not meet a store’s overall mark-up policy, but the revenue received creates a very positive effect on profit.
A company that requires a 72 percent gross margin to be profitable should not mark up all glazing (or any other classification of materials) to that level across the board. Analyzing the data shows the impact of each size and material on your business and allows you to design a pricing strategy that produces the overall mark-up of 72 percent without overpricing premium materials and large projects.
A de-emphasis of regular glazing also has an impact on the new suggested pricing. Although 29 percent of glazing sales are still made with this material (206 of the 705 pieces sold), that percentage has dropped since the last default table was made for glazing prices. It probably hasn’t dropped enough. Framers still need to increase their commitment to preservation framing, but that is changing slowly. The new suggested retails incorporate a sharp increase in the mark-up of non-conservation materials. This is done for two reasons. First, these products are cheap, and framers can improve margins without raising their prices all that much. Second, it narrows the gap between non-conservation glazing and entry-level conservation materials, thus encouraging more customers to invest in recommended framing materials.
Using a new pricing table will go a long way to improving your glazing profits. All frame shops have different expenses and different levels of competition, so there is no one-size-fits-all model. Pricing changes will have different impacts based on different volumes of framing sales. If you sell much more than $250,000 in custom framing, you should be able to (in theory) reduce the suggested prices. Factors that influence this could include paying less for glazing because your volume earns better vendor discounts and higher sales volume could allow you to be profitable with less mark-up. The opposite can be true for shops doing less business per year. You may have to experiment with slightly higher retails. Try revising pricing on smaller projects and less costly materials first, and pay attention to the relationship between the prices of different materials. The best way to maximize your profit is to set your pricing at levels that allow you to meet your own expenses and produce profit after these expenses.
Many framers wonder if they should stock extra sizes of glazing instead of just using 36”x48” or 40”x60” and cutting what they need. The data in the charts makes it pretty clear that investing in more in 16”x20” in Conservation Clear and Museum Glass could help most framers. Since more than half of all sales fall in this range, you will get a better yield when you cut glazing that is much closer in size to what you really need.
Premium acrylics have increased in sales because of their ability to preserve and provide clarity without the weight of glass. This has raised the question of whether buying full sheets or pre-cut sheets is more cost effective, especially since the average cost per square foot does not go up significantly on larger pre-cut pieces. Investment in full sheets can often be more than the sales price of projects, so framers selling fewer than four to five projects a year with premium acrylic are probably better off buying pre-cut sizes.
Setting up and updating pricing charts for glazing can be beneficial, especially when you look at product options that are the most likely to have the best return. This new strategy can help you create your own individual pricing program based on your operating expenses. Combined with your knowledge of your own operation, this offers an excellent opportunity to improve profits while having minimal impact on your overall sales.