Pricing Yourself Out of Business?

April 4, 2003

By Rick Stenberg

Bad economic times can affect most businesses — some more than others. The stone-fabrication industry is one that can potentially reduce its vulnerability, as long as everyone adheres to similar pricing and quality standards.
Stone fabrication has seen a huge boom over the last 15 years. As with any hot business, everyone wants to get on board … and that causes over-saturation. Just look at the dot.com business. Everyone jumped in, a massive failure occurred, and – due to little, if any, standards set in place – the majority of those companies went under.
I’ve been in business for 18 years, and I’m entering my third recession. This one is playing out like the last two, and a lot of shops are going to disappear. The common denominator that I’ve witnessed with these failures is the reduction in price and quality.
It’s also reinforced one of my business strategies. During a recession, I never lower my prices.
In the first recession I went through in the 1980s, there were six fabrication shops in my immediate area. Four of them went out of business during that economic downturn, all were bidding so low that they ran themselves out of business. The fifth shop, like mine, held to the standard of quality and didn’t fall into the lower-price trap. Today, both of us are still in business – and very busy.
During the second recession I experienced in the early 1990s, the same held true. I even had another shop open right next to mine, offering much-lower prices. I lost some business to him, as human nature in getting a good deal will always play a role. With his low prices, though, came short cuts in work, which resulted in problems.
Even though he thought business was good, with a very busy shop, my neighbor also went out of business. Why? Because he lost money on almost every job, and couldn’t pay his bills.
It’s important to understand the costs for most shops hold about the same for a specific geographic area (i.e., building purchase or lease, cost of slabs, payroll, workers’ compensation, power, water, etc.) If one shop in your area is charging, say, $110 ft² for standard bullnose, and one is at $65 ft² (which I’ve seen many times in my area), that’s a 69.3-percent difference. At $110, I don’t make 69.3-percent profit, which means the shop charging $65 is well below my cost per square foot.
What does this tell me about this other shop? First, it tells me that they’re cutting lots of corners (both figuratively and literally), which – in the downhill progression – affects the quality, makes the customer unhappy, and ends up as bad publicity for our industry. Second, it tells me they may be eliminating some expensive overhead items required by law, such as workers’ comp insurance. Not paying workers’ comp, for instance, may cause the closure of the company.
Third, it tells me the shop may be busy, but it’s probably losing money on every job and soon will be going out of business.
What’s my point in all of this? Just remember that if business slows a little, don’t panic and believe you have to have a sale or cut prices to lure customers. This type of reaction is self-destructive.
Consumers who wants slab in their homes, and want it done well, will get it. If the price is $110 ft² and quality work, they’ll find some way to budget it in. It doesn’t do any good to do a project for $65 ft² if your actual costs are $90-95 ft². If your reputation is quality, people expect to pay more — so charge the amount necessary for that quality. The better members of the slab-fabrication industry will survive through the bad as well as the good economic times.
Let me share with you another stone industry that has survived through a lot more recessions, and even the Great Depression: the diamond industry. That community of individuals set a quality and price standard that never wavered. The quality of a beautifully cut diamond enabled them to set a high value and maintain it through every economic crisis. Everyone in the diamond community agreed that high quality demanded high prices; consumers came to accept the belief that possessing a quality diamond was expensive.
The slab-stone fabrication industry will do well if it learns to accept these philosophies, and gets everyone to strive for a beautiful, first-rate job on every project. Consumers will then understand that the value we place on our products is realistic, and beauty does come at a price.
The value is in the quality, not the cost. If we educate the consumer, then all of us will have a greater chance of surviving through poor economic times.
Rick Stenberg is founder and owner of Marin Marble in San Rafael, Calif., where he’s stayed in business for 18 years. His work is throughout the United States (including Hawaii) and as far away as Indonesia; it’s also appeared in Architectural Digest and Home Builder, among other publications, as well as several television shows. Outside the shop, he lives and works on a Sonoma County farm growing wine grapes and raising Holstein cattle, sheep and chickens.