Get Another Quote & Take The Discount!

Many contractors have the same person estimate projects plus act as the project manager. 
This is what I call a ‘combo’ estimator/project manager. As a result, combos often get busy pricing too many jobs or running too many projects at one time. When an important or urgent issue comes up on a project, they usually take care of putting out the fire rather than working on the bid at hand. Therefore, estimating new projects, bidding, and taking time to secure additional subcontractor or material quotes gets put to the back-burner. When combos are overworked running projects, they don’t spend adequate time to securing enough price quotes from more than the familiar same few suppliers and subcontractors they’re used to doing business with. As a result, contractors tend to buy materials from and award purchase orders and contracts to the same providers year after year without getting additional quotes from new or different suppliers or subcontractors. I hear excuses like: ‘we use companies we know, like and trust.’ There are generally lots of other choices who you can know, like and trust, if you take the time to get to know them.

Get Another Quote!

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 point advantage on bids can significantly increase your revenue and profit. 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? I bet you’re using the excuse you want to use the same companies over and over again to avoid problems. While the real reason is you’re too busy to hassle or take the time and effort required to find additional providers to submit quotes on projects. After all, your regulars likely give you a few tickets to the football game every year too. Are you positive they’re giving you the best possible price on every project or every item you buy from them? 

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 to 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 insure you stay competitive with 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 keep focused on staying competitive, consider paying estimators a $100 bonus when they get at least four quotes on every trade on major project bids. This small incentive will keep everyone focused on what it takes to win more work.

Double Every Discount!

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 three to five percent discount for prompt pay or no retention withheld. If you don’t ask, you won’t get!  Professional business owners must have a bank line of credit to help them take these discounts, make more money and grow their bottom-line. I recommend a bank line equal to two months of sales volume for most construction companies. If you don’t have a bank business credit line, get one. Most banks charge an interest rate of prime plus one or two percent on borrowed funds. 

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% 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% of your total job costs for the year and you get discounts on all material purchases, you’ll increase your bottom-line by 2%. 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% or 5% discount off the full amount owed.

Amount Owed to Vendor $40,000

Discount For Early Pay           5%

Amount Saved $  2,000

Cost Of Borrowed Money for 30 days @ 5% =      - $     166

Net Amount Saved $  1,834

Do the math. When you pay a supplier or subcontractor $40,000 before you get paid by your customer and get a 5% 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% subcontractor discount, and you pay a 5% 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 twenty times in a year and boost your bottom-line by another $36,680. 

To make more money, buying right from the right suppliers and subcontractors must be a priority. Implement these simple tools to make more profit. To start now, get your copy of George’s ‘Profit 101 For Contractors’ email GH@HardhatPresentations.com”

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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.

George Hedley 

HARDHAT Presentations

Phone: (800) 851-8553   

Email: gh@hardhatpresentations.com    

website: www.hardhatpresentations.com