Deflation

joasis

So lets talk about pricing.

We all know what inflation is, and deflation is the opposite....stores cutting prices to get you in the door. Profits are less, but they live...and that is the point.

I recently lost a bid to a hack contractor from another state.....25%........I guess he was hungry. Now, after some reading and research, I wonder how far some of us will go.

I took a look back at that bid, and could have cut 15% and still made a few bucks....if I canceled my liability insurance (not required in Oklahoma), I could lower my bid another 5%. No subs or rather, no GC fees would reduce the bid more....and that may be a direction we have to take.

It is a sure thing a lot of you will say I will sit at home before I work for less....and all the lines like it, but when will you actually take a look at what you may have to do to survive until things get better? We know a lot of contractors will fall and fail during the coming year, and if you survive, don't assume this will be easy street from now on....it is probably easier to get in and out of the contracting trades then most self employed ventures....so as fast as the competition vanishes, look for them to return.

So what will I do? I don't know, but I am reviewing bids right now on the two large projects I hope to land, and seeing what I can cut and where I can save so I don't loose another one. And no guys, I will not drop my insurance.

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SLSTech

That's just good business sense - almost all business should be looking at how much of their OH they can cut. If you can cut or trim some OH then you can lower your prices which will help you be more competitive. Without work, you are not making your OH or profit goals. Advertising should be the last item cut - but it should be reviewed to see if you are getting what you put into it.

As for the GL insurance, while I agree with you, I would suggest you review your coverages. There maybe items in it that you don't need, maybe you can lower the limits (say from 5 to 3 or 1), & save some money. All insurance policies should be reviewed yearly.

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Leo G

Every year my taxes go up, the electric bill gets bigger for the same usage, fuel costs go up (don't think for a minute that these lower prices will stay when summer hits). All my supplies have been creeping up. And people want me to lower my prices? I can't do it. I won't do it. I make a good living, I don't come close to making a killing. Everything I do is custom, so I can't really setup to do things efficiently. I can't really stream line, if I do I loose my advantage of having a lot of different areas to fall back on in times of slowness. I don't want to work for a wage in my own business. If I am going to do that I might as well get a cubical desk job and work 9-5 and come home and think about everything except work. Pay would suck, but you get bennies.

My pricing won't be coming down anytime soon. I always give the best price I can so that I get the job. Anything less than that I might as well sit home and watch TV.

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Mike Finley

Only thing I will add is I think you are coming to the party later then most Joasis, (which is a good thing from the point of view that who wants to join this party anyways!!!???!). I'm sure the guy from out of state is in your state for a reason other than he just got up one morning and said it would be fun to do work in Oklahoma. It seems your area or maybe just you have been immune longer then most. Keep that in mind cause while you are just starting to realize what you are having to do, many others who may already be taking work from you have already gotten there probably 3, 6 or 9 months ago.

joasis

Yes, they have. My daughter called this afternoon, and my SiL is being laid off today. He works for an oilfield supply store....and they are getting tight. He used to work for me, and I suppose, I will put him back on until things change. This is getting close to home.....when the oil field service companies start lay-offs, things are getting tight.

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neolitic

One of my customers is a manager
in HR for BP.
He canceled a deck late in the fall,
because he realized he had just laid off
guys right up to his seniority level.

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dirt diggler

Joasis - you've been doing this A LOT longer than I have. But I've had a bit of schooling (and unfortunately I haven't graduated yet). However, let me offer my perspective to you:


Nothing good ever comes from lowering your prices. Really. Dropping 15% is a lot.

Remember - things can happen. A vehicle can break down ... you can get hurt .... your pipes can freeze and cause damage ... unforseen problems onsite at a job ... a supplier cancels a credit line.... warranty issues, etc


When people drop their prices - it's 99% due to a state of panic. It really is. It's that feeling where you think "I'll never work again" - so you drop your price. It's an emotional reaction - not a business decision.

Good business sense is realizing ... being able realize when a market is no longer existing for a product or service -- remember, there must be a demand for your business, if it is to be a business. Please let that sink in.


I say this next part with all due respect. We've talked and I think you know my perspectives a bit more than most here (I think so, at least). You're a good man, so I don't mean to offend you here ... but - I think you need to STOP worrying about the sky falling. I can tell just in your writing - that about ever since maybe September (give or take a month) - that you've become really wound up over many current events that are taking place right now.

I would stop worrying about the election, the Dow, the inauguration - stop worrying about things that haven't even happened (and are purely speculation at this point). Stop worrying about those things because - you cannot control them (at least I don't think you can). But I can tell that you are so UNNECESSARILY worked up about the world around you - that you're failing to focus on yourself.

I bet if you took a solid month OFF from the P&R section ... your life and probably your mental health WILL improve.



There is no 'glory' in surviving. It's a waste of time really. You're 48 I think - you've got another 20 years of good working time. That's a long time, at the same time it is not. Why spend it pinching pennies and worrying? Hell, if you want to worry - why not THRIVE while you are doing so???

You have a college degree, for one - and teaching experience. Why not look at teaching? Hell, that would be fun. You don't have to close your doors - apparently you have family (son, SIL) who could maybe help oversee operations. Have you thought about that at least??


A business should not replace a job - and it shouldn't be a job. It should allow you to make more than you could at any conceivable job out there. Otherwise, it is NOT worth the liability, risk, and responsibility.




You know - just the risk in taking a job alone - you NEVER know what can go wrong. Hell, ADD 15% just for that fact alone. Nothing worse than being stuck on a job and knowing that you're just working in the red.


If nothing else, really, take some time away from watching the news at least. The media, afterall, is the true cause of this "recession."





I say all this too ... wondering just where in the hell I will be in 3 months. I'll throw dead weight off the ship to keep from sinking ... but I sure as hell am not going to toss the cargo. That's not good business. Contracting is - even in good times - a bit of a crapshoot in it's simplest form. I hate to say gambling. But you only win this "game" when the dice roll right. Even in good times.

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Thanks in advance!!!

neolitic

I said this before, only partly
in jest, and it's not as deep as Dirt.
(Every pun intended)
Two good skills for these times:

Compartmentalization
Denial

You just have to find a way to
shove it aside and smell the flowers
at least for a while.
You need to spend some time just
pushing ahead with what there is
that's still productive without the cloud
of what's yet to come.

I had to learn the hard way in
the last "Big One" in '80.
You can not let yourself think/worry
about this crap 24/7.
There will still be too much you can't
control, and you won't be in a frame
of mind to deal with what you can.


This from a guy who wound up losing
credit, a house, and a wife
(I really missed the house!)
by the time it was over.


1¢
(Adjusted for inflation)

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joasis

Not bad Dirt, but the P&R is stress relief. My entire point about the post above is kind of a "now what"? Lets assume you keep pricing up...I haven't come down yet.....and lets say you don't get any bids because others are doing the work cheaper. So you have an option....sell yourself over the competition, and that does not work in many areas. Sit at home....and that won't last long, or find something else to do. I don't want to teach school again.....or whatever. I like what I do for the most part. Or....you can see where you can cut and keep your business running.

Lets say I have a $20,000 bid for labor to erect a 5000 sq.ft steel building. This may take a few weeks, or as little as a week. If I cut it 25%, I make less....but I am still here. I could do the erection for half, if I had to....and hope there are no "what ifs" on the job.

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dirt diggler

J

if anything - I think you need to raise your prices. There is likely going to be less volume of work coming in --- the only way you can possibly compensate for that loss is to raise your prices.

Otherwise, you're cutting your prices ... and you don't have the volume. That is a deadly combination.




Raise your prices. Improve your Sales approach - and get out and kick some tail


it's going to be like this for awhile. Like I said before - there's no reason to suffer in life.

Late bills, collection calls, the phone getting turned off, IRS payment arrangements, suppliers blackballing you, subs blackballing you, being liened .... it's no way to live. It certainly is not what having a business is all about. But it's what happens when you cannot operate one properly ---- throw in a couple "unforseen" circumstances, a murphy's law, and a couple underbid projects - and that can happen very fast. That's worse than being out of work.


let me add something:

NOTHING good ever comes out of cutting your prices. Nothing. You'd be better off getting into something else - and then coming back to the market when it's more in demand.

it's hard though ... i turned in a proposal a couple days ago. I was tempted to play with the price - but at the last minute, I went and put my real price back. We'll see what happens and I can't control it much at this point.


but nothing good comes of it

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Thanks in advance!!!

MEL

I looked at what I am paying my subcontractors to install roofing and it is less than what I was paying 8 years ago.

They say they are happy with what I am paying them now, they say it's better than what my competitors are paying.

Maybe you can lower your labor cost too.

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MEL

Blast&Coat

Labor Cost are down, that has been the silver lining that allows be to bid a little lower on jobs. I realize it varies with whichever trade you ar ein and if you have workers who have a certain hourly rate you have agreed to pay them.
But, lots of peple are out of work and lots of people who want some extra money on the side and there is plenty of them that do quality work (and some who dont AS a GC we are in the position to hire these people are lower rates reducing our labor cost and then bid lower to get jobs all the while keeping your profit margin exactly the same.
Many of my bids I write up with the options of paying my workers at a $10 $12 $15 rates. If we have plenty of work I use the high numbers, if we just need work I go low. In my opinion I should not have to lower what I get paid regardless. That is why I run the company that is why I have the option on what to pay my workers. I dont think of it as taking advantage of anyone by any means, Skilled workers are out there and they will work because more than likely otherwise they would be doing nothing, or if they are doing something everyone wants extra money especially now a days.
That being said, like I said there are a millions variables to this be it industry, payroll, time etc etc etc. Just a thought as to how I justiy putting ina lower bid and not hurting my margins

Brock

It comes down to this. What would you make as employee of a firm that performs your trade? You lower your rates to this level in these times just to keep the lights on until it turns around. One of my old trim subs has proclaimed he is now working for less than Mexican wages.

I will be all caught up in March and would be bidding at Mexican wage but the phone hasn't rang in three months so I will proly up just folding up shop after 23 years.


...

wellbuilthome

I really hate to lower my price . I think I'm reasonable to begin with . What i started doing is running 50/50 half my leads i charge a bit more and half the leads i charge a bit less. If i like the HO or the job is close to the house or if the job is not very complicated I charge them a little less . I mite give away some of my sub work @ cost . I have a 15% throw between the Two prices 71/2% up 71/2 % down . So far Ive only signed 2 bath rooms on the cheep side. Now i have 2 first floor remodels with kitchen and baths to do at regular price and a nice addition sold for spring at the inflated price or the price i would like to charge . I'm booked out 4 1/2 months now . I really don't know about the spring. I picked up 4 leads last week . I think 2 of the jobs are mine. I'm going to selling one hi and one low or maybe not . My biggest fear is the price of material going up . My jobs are sold 6 months out? Last September my material was up 8% from the spring . This year ?
I'M going to hang in and what for the big turn around John

Brock

Lumber prices here are dirt cheap. 1980's pricing on a lot of stuff. 6' cedar dog ear $3.69! precut studs still well under 2 bucks. OSB 7/16 down to about $5.00 per sheet (shot to $24 per sheet when the war kicked off and I got burned on one job before I noticed) The only thing I've noticed that has really jumped is rebar and petroleum based (asphalt) shingles. Paid $2.69 for a 10' #4 bar last week.

Brickie

Is this the first time you lost a job to a hack??? Clean the crap off your shoes & go forward. You can't let fear paralyze you.



Are you saying that you aren't getting any bids at all???

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