How Do You Handle Volume Discounts?

Mike Finley

Here is the question again, and just to clarify I'm not talking about putting the work out to bid to you, or how you would handle it. I'm talking about the market place it self, all the community of tile setters in your area, not you. How would they handle it?

mahlere

please re-read post 53. it is the truthful answer, but it's not what you want to hear.

Mike Finley

B0b- Christ all mighty there is no deep dark secret, the whole point to the exercise is the question posted in post #1 of this thread. This isn't a crusade to create a thread to educate subs. Hit the New Topic button if it is something needed.

Also saying the prices will slowly creep higher - what's the point of that statement? What is it based on? You sound like you are assuming the re-bidding would be along the lines of "I'm getting screwed by my tile setters right now, if you want to get your feet in the door, give me your lowest prices possible!" where did it ever say that? The re-bidding would be identical to the first rounds, here are "5 up coming jobs, we are doing another X amount of after these and X amount per month pretty much just like these, send me an estimate on these 5."

There was no indication that there would be any arm twisting of any sort, just a simple request for estimate, difference being one job at a time as opposed to a volume of work.

Based on your price creep methodology, why are the prices not creeping on me now? What's the difference? The differnce is you assume there is some sort of devious pressure being put on the sub.

Everybody get off the GC screwing the sub and start dealing with the issue without throwing 2 tons of baggage in with it.

Mike Finley

I read your post, why do you assume it is not what I want to hear? All I want to hear is yes or no, it would or it wouldn't.

Assuming the new setters or the current sitters would be creeping prices, why also do you assume there are no checks in place to deal with that? I can estimate the job to the customer, don't you think in doing that I can estimate down to about $50 what the tile setting is going to come to?

Whether it's a current sub or a new one, do you think price creep is acceptable either way? Or that anybody would have to accept it? Evaluation of why prices are rising from your subs is just another everyday facet of business. You evaluate and react accordingly. Justifiable increases validated by the rest of the marketplace are acceptable.

mahlere

That's most of your first post. Take offense if you want, but you are equating your installers labor to an inanimate object that can be replicated at will.

I've given you my experience with this industry (not just what I would do) but what I've seen done time and time again in the real world.

Now, it's blatantly obvious that you feel you can save money by waving a bunch of work at someone. But like Bob said, what happens if you don't get the job? The tile guy bids 5 jobs for you, great. But you only get 3. Do you still expect him to honor that same price he gave you based on 5?

Unless you are building your own bathrooms, and can guarantee the work, you need to take it on a job-by-job basis and build a level of trust and understanding with your subs.

Now, this is directly related to your last question about alienating them by shopping the job around:
Now, I can tell you that me personally, if we are working with a GC/CM and they shop every job, they get no loyalty from me. I consider them the same as every other GC/CM we bid jobs for. They get no preferential treatment. If they want to make sure that my numbers are in line, it's up to them. But, no loyalty. It's a two way street.

From your initial post
Why get greedy and mess up something that is working. If you see that their prices rise over time, then see what the deal is. But a preemptive strike might not be in your best interest in the long run.

Just my $0.02 from the reality that I face every single day.

mdshunk

I consulted my crystal ball, my Ouija board, and I can't figure it out. I even spent $19.99 calling the psychic hotline, and they're stumped as well. All I can do at this point is refer you to my thoughts which were presented earlier. I think my thoughts are pertinant, because I am a sub also. Although the thoughts presented here by the people so far don't represent the tile community in your local area, nobody's thoughts will.

Hou would they handle it? I suspect much the same way I would. I've already told you how I would handle it.

Do you really expect anyone's gonna say, "Look, Mike, here's what they'll do.... blah, blah, blah.". Nobody freaking knows. All we can do is tell you how we'd react. Christ, I think you're the freaking business guru grand wizard, but you're really getting super-weird on this question.

Why don't you freaking ask your tile subs, then you'll know?

Best of luck.

Bob Kovacs

As MD said, there's no way I can predict what your subs will do, but I can tell you what I've seen happen, and it'll likely happen to you as well.

Most likely, your subs are currently pricing based on their "going rate" for the type of jobs you're doing. Lets say for example's sake that's $10/SF. Let's also assume that they've all worked for you in the past, and are comfortable with how you prepare and run your jobs, and you're therefore not paying for the "PITA factor" that MD referenced earlier.

Now you come at them with this large pile of work. The subs will react one of two ways:

1. The ones who realize that your new volume isn't affecting their CODB one iota are going to quote you at the same $10 rate as they have been quoting you.

2. The rest are going to follow the "I'll lose some money, but I'll make it up in volume" theory so prevalent in residential construction, and lower their rates. It's not unlikely that you'd see the $10 rates drop to $9/SF or less.

If you did this with 10 subs, I'd bet you'd get 2 responses like #1 above, and 8 like #2.

The "price creep" will come when they realize that they're not making enough money with the new discounted pricing- assuming they last long enough to make the correction.

And BTW- I never said you were trying to squeeze your subs and screw them- the 8 that answer like #2 will end up doing that all by themselves.

Bob

Mike Finley

I don't know if they are inanimate objects, but they can most definitely be replaced at will. There is no doubt about that. Don't consider me the bad guy because of the facts. They are what they are, maybe I'm in a unique market in order for this to be the case? I take no relish that they could or couldn't be replaced only stating the reality, I don't make the rules or create the economy.

I suspect there is value to volume that is all. In no posts have I ever set a precedent of beating up our subs. If you search you will find it is just the opposite. I've been using elec and plumbing subs for a long time and established an equilibrium with them. Tile subs are new for me and I'll be damned if I am expected to take the first prices established and not explore the issue of whether by providing a good volume of work to them if there is justification for lower pricing.

What it seems to come down to it is it's a terrible reality that sticks in a lot of our craws. It seems to me based on responses that it begrudgingly is true yet we damn sure don't have to like it!

I don't get estimates from tile setters for jobs I don't have signed contracts for. As I said, I can estimate a tile job very accurately. If truth be told I have never had more than one tile setter ever give me an estimate for the same up-coming job. I already know who is going to be higher than who and who can do what type of work better than the other. The prices they gave me the first day are the prices they are using today. It's just a matter of requesting an estimate for the job to have it in writing. It isn't like it comes in at $1850 and I get another estimate for $1800 and award it to the lower setter.

Now what I have done is with a brand new tile setter I will give him copies of a few jobs that I have already had done and know the prices that were paid for the tile laying and let him estimate them so I can get a guage of where he is at. Armed with that we can then talk about specific issues that might be unique to those estimates and quiz him about how he arrived at his prices, did he include doing this and that? You did? okay, how about this issue? Oh, I didn't know you wanted that included, etc...

Tile subs are new to me and this is a process of discovery to establish a system. I don't shop any subs that we have working relationships with. Elec and plumbing work goes to 2 elec subs and 2 plumbing subs, no bids are asked for, just an estimate of the job cost so I have it in writing, the decision of who gets what job is based on their personal availability. I will establish the exact same routine with 2-3 tile setters over time, but first I have to be comfortable with how we are doing business.


We are going to be in business a long time, we are only in about 60 days of using tile setters. The current ones we use could be the same we are using 3 years from now, or they could not. I'm not going to marry myself to them until I am confident I should.

Mike Finley

Thank you Bob, that is extremely helpful.

Now are they really going to lose money by increasing their volume and eliminating the feast and famine cycle they have been on forever?

You know, I'm not crazy, I do realize it does me no good to get a lower price from somebody if they are going to drive themselves out of business. That actually is going to hurt me in the long run. Unless I want to play the game of constantly revolving subs and yo yo quality, then that scenario has no appeal. I want a win/win scenario.

Gordo

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Looks like some pros were here.

Bob Kovacs

Let's examine that sentence a little, because you may be seeing it from the same warped perspective that the contractors who lower their prices see it.

- Are they really "increasing their volume"? Again, they only have so many hours a week/month/year to lay tile, and now they're doing it at a reduced rate. If that rate is 10% lower than their normal rate, they now have to work 10% more hours just to break even.

- How is your volume going to level out their "feast or famine" periods? If they're having "feast" periods, the extra work you're going to give them will just make those periods worse. It may help in the "famine" periods, but unless you've got a consistent amount of work for them (and they end up dedicating a lot of resources just to you- a practice I wouldn't advise), they'll still have ups and downs, just in a different cycle which may not be any better for them than where they are now.

If I was a tile setter in the situations you describe, I'd focus more on finding new GC's/customers to help fill in the slow spots- not lower my prices just to keep busy. That's a far better plan that leaves less eggs in each basket.

Bob

Gordo

Inanimate object=slobbering goob.

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Looks like some pros were here.

Gordo

Slobbering goobs are replaceable. Quality subs are worth their weight in gold. Mike.........this is a no brainer.

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Looks like some pros were here.

mahlere

Mike, I can see and understand your point in the last two posts. That is not how it came across in the beginning.

Then my free advice (take it for what it's worth) is to have an honest conversation with the tile setters. No BS, no agenda, just an honest discussion, as you've laid it out in these last two posts.

Explain to them what you are hoping to accomplish and what you hope to help them accomplish. If you guys can reach your respective goals, while helping the other reach theirs, then you might have a deal.

Good luck.

mdshunk

You have the very mistaken impression that all subs are in such a cycle. While this may be true for some, this statement on a wholesale basis is completely without merit. If you find a tile sub that is stuck in a "feast or famine" cycle, he's probably not the guy you really want doing your tile work.

It seems to me, your ideal tile sub would be an excellent tile man who is a stupid businessman. Good luck finding that guy. I'm sure that there are a few in your town. You can see to it that he makes about a nickel more that it takes for him to be happy in his comfort zone, and you'll be all set.

Bob Kovacs

I was thinking the same thing, but I didn't go there because Mike's earlier statement was something along the lines of "every tilesetter I've met is in a feast or famine cycle", so I presumed that to be accurate for the Denver area....lol. Of course, reality is that the good subs are always busy, you just don't find theme because they're not looking for new customers- the customers just fnd them (and don't look for a "volume discount".....lol).

Bob

Mike Finley

All subs being what? all tile subs or anybody who is sub-contracting?

MD like I said I don't make the rules, but supply and demand rules the economy.

And for whatever reason all the tile subs I run into want more work. I don't run into the ones who are turning away work, I'm sure they are out there, but the old 80/20 rule never lays down. Maybe where you are at 80% of the tile setters are busy and 20% are not, maybe out here it is 20% are busy and 80% are not, unless where you are 100% are busy, sure isn't that way out here, there is a percentage who have free hours in their schedules.

realpurty2

I could agree with that statement Bob if labor was the only factor involved. If Mike is supplying the tile, grout, backer etc, then any discount would be coming out of pocket. If the sub is supplying the materials, there is alot more cash flow to pull from without going into your own pockets.

Maybe I just look at this differently and I've already stated my opinion about it in previous post. But to me, this issue is no different than when you save $5.00 by buying a case of something vs one or two. If the sub is supplying materials and buying in quantities, he could split the discount with Mike and still make money doing so. That's just one example, there are many possibilities actually.

And get the firing squad ready, but personally, if any sub, contractor, independant, or any other self employed individual is pricing themselves out so tightly that they'd have to worry about overtime to recover 10% of anything just to break even... they are doomed with or without offering a volume discount.

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Woman in a Man's World.

Bob Kovacs

I believe Mike is talking about labor-only subs, and that's what all of my statements have been based on.

Regarding your last paragraph, unfortunately, many subs are priced so tightly that 10% could put them under in a heartbeat- and the scary part is, most of them don't even know it. I did a seminar last on Saturday for a group on inner city contractors and start-up businesses, and you'd be amazed by the dumb-founded looks I got when I went over how a $10/hour employee can easily cost the company $25/hour. It happens every time I give that seminar, so believe me you're 100% right that many of these folks are doomed from the start.

Bob

tkle

Every time I do a job for the same individual the price gets adjusted.If they're easy to deal with and the job goes good the next job will be cheaper,if not the price goes up.Either way they always get my best price.Go ahead and ask,that's your job,I won't be insulted.I'll just say no and then give more attention to those that don't try to cut my price.