How Do You Handle Volume Discounts?

mdshunk

I just re-read this entire thread. I think that RealPurdy and I are saying the same thing in a different way. I'm saying that I don't give a discount, but I do automatically remove the PITA adder in the bids when I see that it is no longer necessary. RealPurdy is saying she removes her cushion when asked, and calls it advertising that she didn't need to pay for to get that work. In the end, I guess the result is the same. I hesitate to call my method a discount, however.

If a guy is giving his rock bottom price for every bid to a new customer, he's sorta shooting himself in the foot, in my opinion (unless he really needs the work for some reason). Every new customer bid of mine gets some PITA adder just because I don't know them.

realpurty2

That's it in a nutshell MD.. both the same thing just different wording. Like I said before, My way is not the written in stone absolutely correct way, it's just how I choose to do it and it works for us.

Pearce Services more or less said exactly the point I was trying to make in post #12 of the things repeat work can save on cost.

As John said in #13..when Mike calls and says there is no more work, then that is when we move to other jobs that are out there. I don't know if my wording was wrong and implied we'd turn down other work to stay strictly with one GC, if it did, that was not my meaning. The job that has the biggest profit margin is the one that goes on the schedule, no matter who it's for. Everyone else waits in line or finds another contractor. For example, we do all the electrical work for one local GC. If he has electric, it's guaranteed to be offered to us first before anyone else even knows of the bid. He won't even get any other bids if we express interest. If we are too busy, he gets told no. If we can work his job in, then we will make every effort to accomodate his schedule. His rates are drastically less (but still profitable) than others because we know when we go in there will be no delays, no complications of schedules, and the check is written the day before we are ready for a draw. The guys all like going to do his jobs. There is no pita factor or lost time. Just in/out/paid time and time again. As long as that continues, his rates will never be the same as other jobs. Do we leave money on the table? Some I'm sure... do we miss it? Not at all because the simplicity of those type jobs are worth far more sometimes than the few extra dollars we'd get charging full price.

Using this same example, when we have work we can not get to or something out of our scope, it gets refered to him. We get the same lower pricing that we extend to him. It all works out in the end.

And to Maj... I am VERY sorry if I offended you. I was not targeting you specifically. But just as I had hoped, we actually created a post that expressed more than one opinion, had opposing sides to consider, and had more value to the contracting field than your favorite movie, pet's name, or "facts". (With no disrespect meant to those post either, I just missed our old debates that were trade related where there was something to learn or atleast provoke thought no matter what your opinion was.) So for future reference, let me add this disclaimer to all my post. Just because I state an opposing opinion doesn't mean I'm attacking the other... discussion always has two sides. If you want a "yes" man type post, mine isn't where you'd want to look.

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Double-A

We have the same subcontracting professionals work for us routinely. I don't hesitate to ask for a discount on our jobs from them because of the work we put into the job on the front end, but, I do it in a way that respects their work and their worth.

"John, I respect your work and knowledge, so I'm going to ask you the same question I ask you every time we meet to discuss a new job, 'Is there someway or something I've missed or could have done differently to save money on this job; by asking for a better rate from you, or doing something differently to make your time on the job shorter, or easier"?

The answer to this question was the driving factor for the following things:

• We provide schedules to them showing when each trade will get in and out and update them as needed.
• We provide a budget for their area of work, showing what we have allocated based on their bid.
• We allow almost exclusive access to the job site and parking as close to the work area as possible. Our folks show up early, unload and then move our trucks and trailers away from the prime spots.
• We check and recheck that everything our subs have asked for or needs by way of material, power, water, work lights, heating, trash receptacles, etc. is available the day before they are scheduled.
• We have a check and a lien waiver ready for them as soon as they are done. They don't have to wait for or chase their money.
• But, and this is the most important part, we see our subcontractors as professionals in their crafts and team members in the job at hand. We strive always to respect that, while at the same time, pushing for the best work at the best price they will offer.

Note that I said 'offer', not 'that we can get'. My obligation is to my company and my client first and foremost. I look after our interests first, then our subcontractor's interests, but I try to do it in a way in which we all win.

I want value and service for my subcontracting dollar, not the lowest price. Asking a subcontractor to balance value and service is just good business for both of us.

We're dead in the water without our subcontracting professionals and we know it. We make sure they know it too. When their time on the schedule comes, they are the most important folks on that job site. Period. We rely on them to do the great work they do and they rely on us to provide what we have promised. I can get cheaper subcontractors, but I can't get better ones.

I have never had a subcontractor offer to lower their rates to us, but I have seen that it has been done as they got to know and understand the way we work. By going the extra steps and respecting our subcontractors as professionals and businessmen we've created what I would consider the optimum arrangement for both of us.

So Finley, by way of advice to you, I would say that if you're getting great work from your tile subs, try to cut their costs to you as much as possible by making your job site the place they can do their best work in the best working conditions they face. Treat them like fellow businessmen and always look out for their needs and interests and you'll find your money going further with them, even if they increase their price to you.

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realpurty2

AMEN!

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Mike Finley

This is our current relationship and our jobsites operate as you have described.

Very interesting opinions, as always.

Please consider this - Let's say for whatever reason I lost the current tile setters we use and was forced to get new tile setters.

Do you believe that today putting the work out for new bids as a volume of work such as $5000, $10,000 or $15,000 worth of tile setting month in month out, would or would not result in lower bids as opposed to getting the bids based on an individual tile job here, an individual tile job there... (which was how the current rates we have evolved)

Because that is really all it comes down to in my mind.

-- If you believe the new rates would come back lower then it would indicate I am currently over paying, because volume is a consideration for a tile sub-contractor.

-- If you believe the rates would come back the same either way, then it would indicate that I am not overpaying and volume is not a consideration to a tile sub-contractor.

mdshunk

I never bid based on future promises of work, whether I believe you or not.

mahlere

Mike,

as an electrical contractor, I hate GC's. Just wanted to get that out of the way.

Now back to your question.

When we are contacted by GC's, we do two things. Raise our rates and yell at them in advance for not being ready when they say they will be.

It's very rare for a GC to actually plan his job correctly for us to not waste time. We always get the "we're ready for you to finish on Monday" call. Only to show up on Monday to find out that their definition of finish is hang 2 light fixtures and put in 3 switchs (on a 2000 sq ft addition)

We also don't really discount our pricing to anyone. Where they will save money is if they cut down my down time. I think someone made this point earlier.

If I need $70/hr to cover costs and make a profit (on an 8 hr day) then I need $560/day. If you can turn a 3 day job into a 2 day job (by having the site ready, etc) you can get a $560 discount.

But to ask for a discount just because I do good work for you and keep your customers happy. Go with the cheaper guy, see how he does for you.

But then again, our business model isn't to felch GC's and pray they like us. We do primarily service work and installations for the owner. GC's typically have to put up with us, cause the owner wants us.

Beyond all that, you are in business to make money. Most guys, especially subs haven't grasped the P&L thing yet. Beat them up for a discount, they'll probably give it to you. I mean, you're going to give them $15,000 of work a month. They don't even consider their bottom line most of the time.

Good luck.

Mike Finley

Not looking to beat up anybody, as indicated:

That's a good point. It also illuminates the issue of the current subs because to them it isn't a promise, they are already seeing the volume.

I really don't see the advantage of discussing the evils or GCs since it isn't relevant to the specific issues, I'd rather here people address this specifically.

mdshunk

HA! You've seen this statement before, for good reason: "Past performance is no guarantee of future results".

I still maintain that getting a lot of work from one GC is cause for concern, not celebratory discounts.

realpurty2

Would.

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mdshunk

Should? Could? Are we practicing our past plural verbs?

Gordo

Finely, sit your tile setters down this week and let us know how it went.

Really, I want to hear what they say. Please follow up.

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Looks like some pros were here.

mahlere

make his job easier, you'll get a discount.

dougchips

MD, I pay my subs less per job then they could get if they spent the time and money to market and sell their own labor. I provide them with over 90% of their work. So I get a volume discount and they have a GC that provides them with as much work as they can handle. This process makes me a nice profit and I retain subs, a win win.

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dougchips

I'll second this one! I have heard 100's of time "give me a great price on this job and I have a multi-family home for you to do".

On the flip side, when I talk prices with a prospective sub, I offer that they can call any of my existing subs to find out about volume and how I am to work with.

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dougchips

Beyond all that, you are in business to make money. Most guys, especially subs haven't grasped the P&L thing yet. Beat them up for a discount, they'll probably give it to you. I mean, you're going to give them $15,000 of work a month. They don't even consider their bottom line most of the time.<---Quote Mahlere.

Shhhhh about the "subs haven't grasped the P&L thing yet-----shhhhh

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mahlere

P&L? Who? What? I have no idea what you are talking about....

mahlere

I think that most subs try to give the GC their best price. I also think that most subs give the GC an unrealistically low price at first. Buying the work if you will. As time goes on, and the sub performs well for the GC, more work comes in, etc. The sub realizes that he's not making any money on this work. Yeah, he's busy, but at the end of the day, their is no money. So he slowly tries to raise his prices.

This is a tried and true method for idiotic sub contractors world over. A mythological idea of "give them a cheap price to get your foot in the door. Then when they know you do a good job, you can raise your rates."

Mike, you will definately get a better price if you shop your work. But, I'd lay even odds that your new guys price will rise within a short period of time.

If you are looking to save money on your subs, it's easy. Be up front and honest. Take some of their burden onto yourself - provide labor for clean up, schedule the job better, limit their time on site, etc. Do those things and they will probably work with you nicely to give you a discount.

But has been stated, we (sub contractors, both idiotic and non) don't provide a product, but rather sell time. And yes, it would cost us more to go out an find work, rather than just do yours, but as my pappy used to say "I can go broke hunting and fishing and having fun, I don't need to work my way their"

What I mean by that is this, if it costs me $500/week in advertising and downtime to generate $5000 worth of work. And I can do this $5000 in 4 days and make $4500 ($5000-$500), then why would I want to work my tail off 5-6 days a week to only make $4000?

(these numbers are totally pulled out of thin air, but I think you get my point.) There is a point of diminishing returns.

maj

Jeez Doug.............

Use the quote box at least.


I started reading this and knew I read it somewhere before!

Then I saw that you actually typed in that it was quoted from mahlere.




Why not just quote it?

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Mike Finley

Thank you purty.

More relevant information

- there are no tile setters I am dealing with that are booked full every week, they are all in a feast and famine mode and seem to always be in this mode no matter who they are.

- I have talked and/or hired tile setters who's rates range from $3.00 sq ft to $9.00 sq foot. What I have seen is that on the low end of $3-$4 sq foot their work is all about speed and they are low qualilty, and messy.
- In the $8-$9 range they are usually very high end, too high end, specializing in almost all extreme custom work involving almost 100% working with natural stone. Or they might be coming down after working in the mountain communities for the last few years.
- The swing from $5-$7 is made up of all guys who are very competent, can do a variety of work involving any material, the difference between a $5 guy and a $7 guy just seems to be the price they charge, basically based on what they want or need to make.