Competing with an Online Cabinet Company? Let’s Take a Look at the Numbers
By Thad Whittenburg
As more and more companies turn to selling cabinets online, it’s probably a good time to take a step back and understand their expense model and what customers might be looking at pricing-wise.
Please keep in mind that these are estimates but they shouldn’t be too far off.
Online Company Expense Model
|Category||Includes||Percentage of sales|
|Direct selling Cost||Designers payroll, commission, taxes etc.||10%|
|G & A||Corporate/HR/Accounting||3%|
|Misc||Office supplies, computers, phones etc.||3%|
|Operations||3rd party delivery||5%|
If their goal is to make a 10% Return on Sales(ROS) they would need to be selling their cabinets at a 36% margin. Most traditional Kitchen and Bath businesses price their cabinets at a 42% margin or higher when it comes to selling retail. That’s a 14.3% increase over the online price. Now here’s the kicker…the online companies don’t have to charge sales tax on the product unless it’s in the state they are located (The Supreme Court ruling on this is still in question). The average sales tax in the U.S. is currently running 6.51%(includes local tax). Now you’re looking at a 20% plus price spread in those states that charge sales tax (all but 5 states do).
The timing of this blog is because there are some large online cabinet companies that are throwing some serious money at the SEO for their websites. Try doing a search for “Kitchen Cabinets” and see how many online cabinetry businesses are in the top positions.
I still believe that the bricks and mortar stores will own the largest share of the cabinet business if they can continue to make sure they deliver an experience to their customer that will warrant the price difference. Even so, K & B dealer’s need to start preparing and adjusting their business in 2 different categories:
- The first one is that they need to make sure they are lowering their expense model so that they can stay competitive.
- The second one would include them becoming a hybrid business which means that they could also sell cabinets online if their customers prefer to shop that way.
We’ll talk more about these categories in the coming weeks but if you really want to understand the critical changes you should consider making, please be sure to join us in our upcoming workshop on September 17th & 18th in Tyson’s Corner. (https://kbglobalpartners.com/event/building-your-kitchen-and-bath-business-for-the-future/ )
In the meantime, check out https://www.cabinets.com/create-a-kitchen. It’s pretty cool and even if you’re not selling cabinets online, you should have something similar on your website.
I know you are busy so I’m trying to keep these short and sweet but as always, I would love to hear from you. firstname.lastname@example.org