Meet “John”, a cabinetmaker who has been in the business for over a decade. John is known for his exceptional craftsmanship, and his clients rave about the quality of his work.

However, despite his talent, John struggled to turn a profit in his business. He would take on any job that came his way without considering the profitability of the project. As a result, he found himself working long hours and not making the money he deserved.

In this article, we will explore the reasons why tracking your profit margins is essential to the success of your cabinetmaking business.

Tracking is Essential

The first step to not becoming like “John” is to get a good handle on tracking. This doesn’t have to be a super fancy and expensive software tracking system.

Most of the times, you already have the tools you need to get a better understanding of your profitability on a job by job basis.

Here are a few things I would recommend you start tracking to help you make educated decisions as a business owner.

Material Costs

This one can be tricky to keep track of because there are so many vendors and bulk purchases.

Obviously you can use your accounting software to correctly assign your purchases to the right category but it doesn’t give you a good picture at the job level.

For example, if you buy a trailer load of plywood that lasts for 6 months and you only use it certain jobs, its hard to account for that on your job by job summary.

The good news is, your manufacturing software is likely very capable of handling this for you, especially if you use CV or Mozaik.

It is very critical that you keep your plywood, board stock, outsourced doors, hardware, and other costs up to date if you start using your software to keep track of your material costs.

Once the prices are all in place, you can simply run a material summary report to get a very close estimate of how much you have in material costs for that job.

Labor Costs

This is probably one notch higher on the tricky level…

There are several software solutions available that makes this possible such as Tractivity and Production Coach, however, these can be very complex and expensive to implement. I’m always a fan of starting small and working into bigger things as needed.

You can still get a pretty good estimate even without specialized software.

You can estimate your time by manually keeping track of how much time your employees are spending on a job, or you could create a quick formula based on how you schedule your jobs (per dollar/week, or per cabinet/week).

Obviously, this won’t be as accurate as having your employees clock in and out when they are working on a certain project, but it also is not as intrusive. Do your best to get these labor costs as accurate as you can.

Review in a Spreadsheet

At first, it won’t seem that helpful to know how much material and labor costs you have in a job because you won’t be sure what to do with that information.

As you continue to track your jobs, you will see trends emerge.

These trends might includes such ideas as:

• we are always losing money on vanity-only jobs

• we don’t make as much on the really custom jobs as we do on the simple jobs

• my material cost percentages are all over the board depending on what type of job I am doing

I put together a quick spreadsheet for you to reference and get inspiration from.

This is obviously a very very simplified solution, but if you are not doing this in some manner, you can start here and continue to add to it as you go.

I have been surprised the amount of shops I talk to that don’t have as clear as a picture that they would like to on their job-by-job profit margins.

Conclusion

In conclusion, as a cabinetmaker, it's crucial to understand your profit margins to ensure you're running a profitable business. (and not waiting until the end of the year to know)

Tracking your material and labor costs will allow you to make educated decisions when it comes to taking on jobs and pricing your work. While it may seem overwhelming at first, even a basic spreadsheet can help you see trends and identify areas for improvement.

Don't be like "John" and work long hours without seeing the profits you deserve.

Take action today and start tracking your profit margins. It will be worth the effort in the long run.