Buy Right To Build Profits

Buy Right To Build Profits

Many contractors have the same person estimate projects plus act as the project manager. As a result they often get busy pricing too many jobs or running too many projects at one time. When an issue comes up on a project, they usually take care of putting out fires rather than working on the bids at hand. Therefore estimating new projects, bidding, and taking time to secure additional quotes gets put to the back-burner. When they’re overworked running projects, they don’t spend adequate time 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 contracts to the same companies year after year without getting additional quotes from new or different suppliers or subcontractors. I hear excuses like ‘we like to use people we trust.’ There are lots of other choices who you can 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 advantage on your bids can significantly increase your revenue. 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, when the real reason is you’re too busy to hassle or take time to get more prices. After all, they 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 item you buy from them or project you bid on?

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 and 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 your 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 build. To keep focused on staying competitive, consider paying estimators a $100 bonus when they get at least four quotes on every trade on major projects. This small incentive will keep your focus 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!

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!

Professional business owners must have a bank line of credit to help them make 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.

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   $40,000
Discount   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 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