To stay competitive, contractors must continually seek new suppliers and subcontractors to do business with. When you have companies competing for your business, the price you pay will go down by a few percentage points. And in today’s competitive marketplace, a few percent advantage on your bids can significantly increase your revenue. What suppliers or subcontractors have you been using exclusively for a long time without checking their prices? Why haven’t you taken the time or made it a priority to get other quotes? Are you positive they’re giving you the best possible price on every item you buy from them or project you bid on?
I know trust and customer relationships are important, but you’ll get the same service at a better price if you keep them honest. Go to Home Depot or shop the Internet and look at what retail buyers pay for the same products you use on a regular basis. Call three other suppliers and get quotes on items you buy all the time. A few phone calls and meetings with different suppliers and subcontractors will boost your bottom line, even if you decide to stay with your old faithful you’ve used for years and trust.
To ensure you stay competitive with your pricing, incentivize your estimators to get as many quotes as possible. Over time, if you get a minimum of four to five quotes per trade or supplier, your overall price will significantly go down, and you’ll get awarded more jobs to build. To keep focused on staying competitive, consider paying estimators a $100 bonus when they get at least four quotes on every trade on major projects.
Another way to stay competitive in your construction business is to seek discount opportunities with subcontractors and suppliers. Start a policy to ask for and always, always, always take every discount offered to your company. When negotiating the purchase or subcontract terms, make it a point to ask for 3 to 5 percent discount for prompt pay or no retention withheld. If you don’t ask, you won’t get!
When offered a discount for prompt pay from subcontractors or suppliers, always take it! For example, if you purchase $10,000 of material for a job and get a 5 percent discount for full payment by the 10th of the next month, you’ll pay $500 less than what you bid and sold the job for. If materials add up to 40 percent of your total job costs for the year and you get discounts on all material purchases, you’ll increase your bottom line by 2 pencent. This is big!
Always ask subcontractors and suppliers for discounts for early payment quicker than normal. Often they want or need to get paid faster than the contract or standard terms require. Offer to pay early in exchange for a 3 percent or 5 percent discount off the full amount owed.
Do the math. When you pay a subcontractor $40,000 before you get paid by your customer and get a 5 percent discount, you save $2,000 and get to keep it. On most jobs, you’ll likely get paid back by your customer within 30 days. To calculate what you actually made on an early payment, figure the cost of money. If you use your bank line of credit to borrow the $40,000 to take advantage of a 5 percent subcontractor discount, and you pay a 5 percent interest rate to your bank for borrowed funds, your cost of money on borrowing the $40,000 for 30 days is only $166. Wow! You just made $1,834 on your banker’s money. Do this 20 times in a year and boost your bottom line by another $36,680.
George Hedley works with contractors to build profitable growing companies. He is a professional construction business coach, popular speaker and best-selling author of “Get Your Construction Business To Grow & Profit!” available at his online bookstore at www.HardhatPresentations.com. To sign-up for his free e-newsletter, be part of a BIZCOACH program, or get a discount coupon for online classes at www.HardhatBizSchool.com, e-mail GH@HardhatPresentations.com.