Price Is Not Negotiable

Remodel Bud

i took the blue pill, doesn't work.

Remodel Bud

no comment, except i passed the gatekeeper.......he gave me the key, then i fired him

AskForTheSale

Being how the Presidential debate was a joke last night, I thought I would practice my skills here tonight to prepare myself in four years and to help you keep the dust from accumulating on your keyboard.

I should have inserted the word "some" in front of the word "people" in that comment you thought was an oxymoron.

I have lurked here for awhile if you look at my join date, and even before then, and know there are some knowledgeable posters here.

Mike Finley

Let'r return tothe original topic:

Mark is obviously a small contractor, he is doing the work himself, he isn't a salesman, he will be installing the work he sells. This is what I assume from the little information he has provided.

To answer his question - quite simply - NO. You shouldn't go down the losing road of price negoation, you especially should not increase your estimates (putting you at more of a disadvantage) only to lower them to make the close.

When a client wants to dicker over price, first get the objection defined and discover what the true objection is. It may not be the bottom line prce, but a confusion as to what is included. Get the problem defined. The solution could be as simple as explaining that you are including something or that a competitor isn't including something. If it does eventually come down to price then you need to look at why your customer doesn't see the increased value of what you do. From the very begining every business needs to create value in the eye of their customer, as to why what they are selling is worth buying.

In the end if you negotiate your prices you will give up profit. As I have said many times before the root of most evil in this industry stems from contractors not selling their services at rates high enough, not too low.

My advice to you Mark is when a customer want to dicker to stop and reexplain what you are providing. Reinforce why you charge what you do, what the client gets for the money. When you are able to convince the customer that what they are paying for is worth it you are selling. Cutting your prices to make the sale is not selling.

Now let's take some advice given step by step, because later in this thread much of what was origianlly advised is back peddled upon.

Old, tired, techniques like this are associated with slimey salesmen, and unethical businesses. In this post you may not like being lumped in with them, but when you point out in your first reply to the poster techniques associated with "tin men" you shouldn't be upset when it is pointed out. You should simply explain your position.

Marking up to mark down is not selling. I consider it auUnethical practice and I often see it associated with high pressure, low quality home improvement businesses, often being window and siding or sunroom companies.

Remodel Bud

Very well thought out. I agree 100% & for his type of business, you are right. Sell the value, then if you cannot close them, call Mike he'll pay your mortgage for you.

Mike Finley

Actually if he can't close them without resorting to lowering his price they probably aren't worth closing.

Remodel Bud

Thats the easy way out & a term for " I don't know how to use Sales Techniques" Most upscale builders don't need sales people as their work speaks for itself and at that dollar the customer is not using a money as a deciding factor between builders & may not even be entertaining two estimates.

For us smaller project guys, we don't have the luxury of being lousy sales people or if a customer shows resistance saying " oh, he wasn't worth it."


AS Jack said +++ MUST SEE === http://www.youtube.com/watch?v=gYEf8XZKlUU

Apex McGann

Bud, please do not think of this as an attack on your character. It is not meant that way if it sounds like I am. I really want to understand your position. I am, to paraphrase Michael Gerber, a technician that has had an entrepreneurial fit and found myself in business without truly understand the non technical end of it. So forums like this are a big help in rounding out the education on the fly. Thanks for being here.

So this is the big question. How is that a Hi Vol Remodeler is able to operate with a similar profit margin structure as a Lo Vol Remodeler and keep the doors open. Let me use a short tale to start an apple to apple comparison and than point out the questions I have...

Mike and Bud are subcontractors that met on a worksite run by an incompetent fool of a GC and decide to go into the GC biz together as they could do all the work themselves. Quickly they find out why the foolish GC was a fool, because they walked into the same picture. They did not realize the complexities of running a business. But they were not really fools and just a fast learned what was needed and they split up the duties, Mike heads up the sales / admin side of the biz and Bud handles the production. They got one of their wives to do the books and brought in a few subs to get the work load done. They made money on some jobs and lost on others. So to really get things to gel they took a weekend and hashed out the job cost and over head for the work they had done and decided on this model for bidding jobs.
COGS + 150% markup = 5% profit for the company.
COGS = material, labor, etc expenses to physical create the end product.
150% markup = overhead expense of being in business + a small profit for the business. (Don’t kill me on the numbers it’s the model I trying to establish here) So with a bit of tinkering with the figures it came together and work filled the pipe line and the cash started flowing. Mike and Bud decide to bring in a few more subs to get more jobs going at once. Bud is jazzed running from job to job handling the clients and subs; Mike is pleased with the growing bank account and potential for future business improvement that it represents.
One day a few years in to the partnership their paths diverge in the wood. At one their many family cookouts Bud and Mike come to the conclusion that they should, despite their great friendship, dissolve their partnership. Mike desired more time with the family, while Bud wanted to take on even more work. So Mike down sizes a bit limiting his jobs to one, maybe two at a time and is able to spend more time at home and Bud ramps up to create a hi vol business. Both Mike and Bud continue to use the same financial model that they developed when together. Occasionally they would bid on the same job. Some times Mike would get it some times Bud.
As Bud's business grew he tried to share the changes in his business approaches with his friend, but often Mike would become obnoxious and the wives would run interference to cool things down and change the subject. The boys came to the mutual understanding that business was not a subject that they could share much anymore and it came to pass that over their greeting handshake Bud would say. “You know Mike you should negotiate your sales price. You'd get more work." And Mike would reply, "Bud, regardless of how far a jackass travels he never comes back a horse." The two would smile and with that out for the way they would have a great time together.
But in the back of his mind Mike always wanted to know how his friend did it. If it was not for him becoming defensive, he might have asked a few pointed questions like; how did Bud set his price point? Was the negotiation range a sales expense? And thus part of the expenses covered in the markup part of the financial model they had developed? Or was the range tacked on to the sales price after markup? Mike wondered if when they bid on the same job for what Mike bid at 100k, was Buds bid with a 5% range set at 105k and Bud will lose the 5k to get the job or had the volume of work allowed Bud to bid the job at 100k and lose 4.750k to get the job and not effect his profit margin?
How is it possible for Bud to have the same overhead expense as I do when it is obviously it is not the same? He has building and warehouse expense I do not have. He has office staff to field calls and handle communications between sales, admin and production, he has a full time book keeper, he has additional expenses in marketing and sales administration, and he has additional supervisory expenses in production to oversee all the subs. With all these differences between their two businesses in expenses and with profit being such a small part of the markup figure how can volume make up the difference?
Every one in a while a job goes a little sour and I have to eat a little humble pie. And it cost up to half my profit on that job. Say 1 in 20. With all the additional expenses Bud has and all the additional factors involve in his business it would be a miracle if his ratio was better than mine. And if his profit margin is lower than mine one ‘Aw sh*t’ could wipe out the profit from an entire job if not more so.
When we look at the Hi Vol marketplace today materials and human labor is the most costly part of any business. .. The Wal-Mart’s, the Mickeys Ds, the box stores, they all use the profit center of volume discounts of materials and hiring the 'least' competent individual for the job. And that job normally pays just enough to keep the person from leaving. How does Buds Hi Vol business NOT use that part of the model? How, in light of the higher cost in materials and labor, increased operating expense in a sales force and FOP(front office personnel) how is he able to keep the doors open? How is he able to compete with me?
Volume with lower profit margin may work for the big operations like the box stores but at what point does it Really become realistic for a smaller operation like Buds business or smaller. At what point do the requests for short banks loans to cover payroll and operating expense end and steady and increasing cash flow is the norm?
But content with his business, his family, his friendship; Mike let this be one of those mysteries he just did not get around to figuring out.
Thus ends my tale. Pardon any character assassinations. Any similarity to people living or dead is a coincidence.
So Bud, or anyone that would like to reply, I ask you how would you answer this concerns that this story brings up?


Mark

Remodel Bud

Okay, I didn't read all that. I got lost around the part of me being a jackass and coming back....and not being a horse.....something like that

I agree with Mike on many points and respect his opinion. Lets get that straight. I will maintain a professional attitude and not lower myself anymore , especially if i can come back a horse or something like that

ONLY you can decide what jobs to take and what jobs not to. Even sleazy me and all my tin man tactics (BULLsh@*t) had a margin on any project I would never go below on my set pricing. Rarely , if ever did I go near bad margins. We still ran a great profit but did work in an environment that required high sales acumen. Only you can determine that percentage based on your business needs, overhead etc. I NEVER worried how other companies could do this or that with prices, I just knew what mine was and focused on that. I taught my sales people to build value and how to get the JOB, because we were generally in the higher priced companies, but we were proud of that.

If you focus on being low priced, WHICH I DON"T CONDONE, it can become a habit and boom....you're out of business. Learn to sell value and what makes you different, learn to beat your competitor at their own game. Learn to sell! We don't all have the luxury of being a upscale builder that doesn't have to sell on a daily basis. 10- jobs a year........thats not selling, it's reputation.

Remodel Bud

Honestly, our G&A was pretty high and the production managers were paid very well. They were paid 45-65k range and there were managers for every product we sold. Window dept had two, Siding had two, Patio room dept had two. Our Patio room Department built rooms varying from 15k-45k on avg. So the barley living model you had...doesn't apply. These guys were excellent at what they did...so there goes that idea you had too.

How did we keep the doors open? THIS is what I have been saying all along. IT is about maximizing your potential and running an excellent business model that uses a business plan to perfection, THE BUSINESS PLAN and every ounce of energy to perfect every number to make them align.

Production
Meet customer and do take off, order properly, get materials in before job starts, maintain high quality in field,Paid to install product on time, efficiently, keep labor percentages in line, service on time, collect on time frame estimated to customer. Weekly meetings to train, go over accts receivable, uninstalled report( back log) and just manage EFFICIENTLY to watch costs. We analyzed our pricing every quarter off our financial statement to ensure profit margins were in line.

Advertising

Analyzed by lead tracking what worked, what didn't, cost per lead, Advt % vs. Sales volume per source, studied how to buy more efficiently to keep prices down instead of going up on Print, TV, radio, Direct Mail. Made a Advertising pro-forma and analyzed every piece for the best results. we invested 800k-900k a year in advt in Ricmond on avg. After years of doing that you get pretty good at it. Soo many more things to say, but you get the idea

Sales

Trained, monitored and motivated. Ran leads with sales people, tracked performance. Made the sales people install all products before selling to gain product knowledge. Too much to discuss....
A sales office that had high earners, from almost non existent turnover and a product & labor team that made them proud. Sales were full commission and worked hard to produce.

IT ALL STEMS form a National company perfecting a business model that thrives




HOW was this done.........a business model that runs like a well oiled machine, been perfected over time and 100% effort.

Apex McGann

Thanks Mike,
This is the kind of stuff I need to hear. I have given away a lot of my business in the past. I can now understand my need to became a lot more self confident in my dealings with clients and not fluctuate on price. Knowing the valve of the workmanship and valve of the service is a strong place to stand in the contract phase. I know the valve and quality of the work I do. I don’t translate it the dollar valve very well. It is a place for me to step up to. I would think that this is a position that any sales person would want to come from. Strong and confident in product knowledge. If the product also include a negotiation range, than the range was for the salesperson to decide the price of the product and sell at that price.
Back in the 80's I work for a copier sales and service company, I was in the service end. (Sorry to tell ya, but I’m not young, just kinda new to being in business) two of the sales men were Bob and Tony. Bob was dynamic. Pressed, polished and quaffed. He sold more high end mchs than anyone in the company. When he walked in a room he just lit it up. Folks were happy to see him. He just oozed Christian charm. Tony on the other hand he did not do so well. He just could not get appointment with the doctors and lawyer that would buy the high end stuff. In fact he often ended up selling the trade ins that came through service on Bobs deals. He liked to whine and compliant about how the contact fell through and he could not make this appointment, life was just unfair to him. Yada, yada, yada. I confess I never saw their actual numbers but I would hazard a guess Bob did not use his range much. He did not need it; he sold on his charm and sales skills. Tony on the other hand probably gave the entire range away nearly every time. Why do I think that? Well one of the earlier posters said it best, something about tight pants and big balls. This reminds me of another sales man I knew here in Nashville. He worked at a fine Jewelry store. Nice guy, local southern boy, about 60. One day he is working with a customer that is in for the second time looking at a ring. As she is handing the ring back to him she says 'I love that ring Joe are you sure I can’t Jew you down on the price a bit? And without a bit of hostility and with a southern twang that would make Glen Campbell proud Joe replies, ' Ma'am I am a Jew and you can't Jew a Jew. But I'll tell you what I can do for you. I am going to let you buy this ring for 10% over the retail price. And I am going to let you buy it today. With that he took out a sales form wrote it up and red faced, the lady bought the ring. That is price negotiating.

Need less to say I have a ways to go to play in such arenas. But Mike let me ask you directly. It’s the end of December, work has slowed down and the pipe line is just dribs and drabs and a nice job comes along that would get you through most of January but the client says in so many words. Hey I know you’re slow. How about cutting your margin in half I’ll give you the bid? If you were in my shoes what would you do?


TIA

Mark

Remodel Bud

hey, neither of us said lose money and cut margins like that. If you don't know the answer to that question you asked already, it's time to start re-reading. I never sold my company short, you shouldn't either. IF you need work that bad, it is time to re-evaluate what you are doing!
DO the same things, get the same results. It's not just about drop the price and BINGO. It is about sales techniques" my whole point that somehow I didn't get across properly."MY FAULT.

MIKE IS RIGHT YOU sound like you need some true VALUE BUILDING, marketing tips. I tried to assist you, but this is the wrong format, too subject to varied business situations. If you want help, seek it in a more professional forum. I think your needs are beyond a thread in a message board. Again, it will come down to sales advice. Do what you have to, but it comes down to sales advice....period

Mike Finley

Good story Mark.

Only a couple of edits.

#1 Is Mike isn't in the dark or wondering what Bud is doing. Mike has been extremely successful inside and outside the contracting business for many, many years, has a full understanding of business, marketing, sales and accounting. Mike also understands large scale and small scale business models. Mike understands how to create a successful business that operates with little similarity to his peers. A simple example. Mike recenty explained to the shock of a peer that since starting this company he has never worked a weekend and has probably gone on 5 estimates that were scheduled outside of the official 9-5 working hours of his company.

#2 Mike's money is where his mouth is. Mike's businesses have always enjoyed jaw dropping profit ratios totally mystefying to the industries they have been or are in. During Mike's personal sales career, Mike was always in the top percentage if not the top sales person in any team he has been on and has held higher gross proftis then anyone before or after him, profit ratios so high that when he had managers they actually had to question what he was doing because surely something was wrong if he could do this while noone else could.

#3 Mike is old enough to know that 99.9% of the people in this world want success but won't follow the advice given to achieve it. Instead they choose to deny their shortcomings and chock up the success of the person giving the advice to luck or circumstances.

Other than that I liked your story.

Remodel Bud

nice. priceless! we can tell

Mike Finley

Number 1 no matter what -- the sh*t you read on the Internet is just sh*t on the internet. When it comes to putting food on the table, keeping the baby fed and the roof over your head, that's where the rubber meets the road and you will do what you have to do to provide for your family.

So if you cut your prices to keep your family fed on this job, so be it. You won't be the first and you won't be the last to do it. No man has the right to prevent another from surviving and providing. (Most of what we talk about here is about ideals, and must be taken in that regard)

But the good news is if you do cut your prices to get that job and if it kills you to do it, and everyday on that job you think about it and know just how much it sucks, then that means a lot. Because that is what will set you apart, that's the difference between yourself and the majority of your peers.

Back to your question - if you know that when push comes to shove you have no choice you will have to take this job then it's not a matter of will you cut or not, its all only about how much do you have to give up to get the job.

I'd start again with the process and rebuild value, try to get back to your starting price, reaffirm all the reasons why you charge what you do.

If after that it comes down to a cut and dry - I hear what you are saying, but I don't care, cut your price and the job is yours. AND you're willing to cut, then it's time to find out how much you can not cut. Start defining the true amount. You said I need to come down $3000, I don't think I can do that, I think I can come down $150. (Be quiet, wait for him to speak) Nope, I need a big discount. Well, what's a big discount to you? How about $175? That's a pretty big discount to me...

You get the idea.

Every man has to draw his line in the sand. I run my business a lot differently then others, I'm never in a position where I have to take a job and that's a sign of the successful implementation of my model.

However, if circumstances are different and the circumstances are feeding the baby or not, all things change. However my goal would be to never be in that situation ever again. And that can be done by changing how you do business slowly, one step at a time.

Remodel Bud

That is some nice advice Mike and I see some sales coaching. I really think that is what this comes down to, sales training to help close more deals, RIGHT?!. Of course, take care of your family, please do that. Be careful, do not get in a pattern of dropping price ( right Mike!) so we are right back to my original thought. LEARN SALES TECHNIQUES. Maybe not mine, but definitely learn some.

Maybe you do not like my message or approach, but i cut right to the heart of the whole SOLUTION in the very first post. SALES....my goodness we had to go through ALOTTTTTTTT to get to this too. S_A_L_E_S!!!!!!!!




GOOD LUCK! I WISH YOU THE BEST WITH ALL MY HEART.

AskForTheSale

Look him in the face and tell him you volunteer at your church on the weekends and you do not have anytime to volunteer Monday-Friday, but thanks for asking. If you would sign right here I could provide you the high quality work I can see you are looking to have performed in your home and zip it and do not talk until they talk first.

Apex McGann

This is great I can see what kind if business you ended up with. The business plan must be killer. Did you have a large influx of cash to get it up and running or did you go through all the growing pains?

I might have missed it in one of the post but why has no one discussed that negotiations is way more that just the price range thing. I appreciate all the post on the negotiate on price, but, negotiation is something that each of us do every day with just about everybody that we deal with whether it our kids begging for money for a toy or a wife looking for more time and attention or a customer who will provide us with a lively hood. Negotiation in a larger scale is called relationship building. If a person has the choice to buy the same thing from five different people at the same price he will buy it from the one he likes. In fact chances are good that if he likes you he will buy from you even if your price is higher than the next guy. Each of us has a different style to our relationship building. Mike builds relationship with his clients with a stanch stance on craftsman quality at a no nonsense price that affords a living wage for all workers and a reasonable profit to the business. While Bud is more of a ghost in the machine, he influences the workers that deal directly with the client through corporate style memos, trainings and one on one reviews that ensures that his standards are a part of every contact and every deal that his company does. And me, my method of client relationship building has, until about a year ago, has been so poor I'm ashamed to say it but it boils down to making casual friends out of clients, deliver a very good product but effectively put out an alms bowl to receive offerings at the end of the job. Three different people, three different negotiation styles. And I’d wager that not two people of the 1000 or so that have read this thread have the exact same style. And no one style is really more right than the any other. A style is only wrong if it does not serve the individual use it. My method would probably serve me better if I was a Buddhist monk but im not a monk. And now that I realize that im not a monk but a technician that needs to take responsibility for the admin and management of his business, it's time for me to change not just my negotiation style but just about everything about the way I do business. Thus if has been for me for over a year now. Learning to administrate and manage one step at a time.
So you two guys are just fine the way you are. As far as I can see your negotiation styles work for you and you’re happy with them. Anyone tell you they don’t’ work, tell ‘em to take a hike. I hope that some day I can offer advice on here rather that the other way around. Until such time I am humbled by your greatness.

Thank you and good night


Mark

Remodel Bud

First of all, I think you just did offer advice and it was excellent!

Did I have a large influx of cash? No, just a credit line. Capital is always a great benefit though. Most companies fail from lack of capital, bad planning to overcome mistakes made early or make it through the start up phase. Just keep the faith and be a student always.

#1 I mentioned negotiating is more than just price, but didn't word it properly i guess, my fault. It can be just a way through asking leading questions finding out the real reason that person didn't agree to invest in our company, your co. etc.etc. It's is probably price, but you have to isolate the objection and overcome it.

#2 A ghost, maybe. Involved, yes. Visit jobsites, always. Hold people accountable & empower them, definitely!

#3 seeking advice, priceless. You are smarter than you give yourself credit for.

rbsremodeling

The pricing of my services is based on my overhead,Direct cost, salary, profit etc.

My overhead is for the most part a fixed cost. It changes of course is add or subtract something from it.

My overhead lets say is 30k a month.

I must mark up my cost by a number to arrive at my price to cover my overhead. BUT

My overhead cost are not the same every month. My October-Dec my monthly over head cost allotment is less than the months prior to these. I structure my overhead that way.

Jan-September are my busiest months. So I pay most of my fixed overhead bills during this time.

In Oct-Nov my prices can be less if needed, because I have paid it down during the busy months. This leads me to be able to negotiate if I have to during the slower months. I try never to have to do this but last year was a perfect example of this.

If I did not have this option I would have been out of business and not been able to weather 6 months of economic turmoil that most of us faced.

I have a min mark up to cover overhead but not a maximum.

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