PROFIT BUILDING TIMELY TOOLS TO BOOST YOUR BOTTOM LINE!
Tool #6 – Buy Right to Build Profi ts! By George Hedley
Construction estimators and project managers 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 that fi re fi rst while estimating new projects, bidding and taking time to secure additional quotes gets put to the back-burner. When they’re overworked, they don’t spend adequate time securing price quotes from more than the same familiar few suppliers and subcontractors they’re used to do- ing 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.
Get Another Quote! To stay competitive, contractors must continually
seek new suppliers and subcontractors to do busi- ness 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 com- petitive marketplace, a few percent advantage on your bids can signifi cantly increase your revenue. What suppliers or subcontractors have you been using exclusively for a long time without check- ing 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 as well. 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 The 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 sup- pliers and subcontractors will boost your bottom line, even if you decide to stay with your old faith- ful you’ve used for years. To ensure 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 fi ve quotes per trade, your overall price will signifi cantly go down and you’ll get awarded more jobs to build. To keep focused on staying competitive, consider paying estima- tors 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 construc-
tion 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 nego- tiating the purchase or subcontract terms, make it a point to ask for a 3 to 5 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 percent 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 ma- terials add up to 40 percent of your total job costs for the year and you get discounts on all material purchases, you’ll increase your bottom line by 2 percent. 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 1 or 2 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 percent discount off the full amount owed.
Amount Owed Discount
Amount Saved $40,000 5% $ 2,000
Cost of Borrowed Money for 30 days @ 5% = – $ Net Amount Saved
166 $ 1,834 Do the math. When you pay a subcontractor
$40,000 before you get paid by your customer and get a 5 percent 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 pay- ment, fi gure the cost of money. If you use your bank line of credit to borrow the $40,000 to take advantage of a 5 percent subcontractor discount, and you pay a 5 percent 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 20 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 profi t.
George Hedley is a licensed professional business coach, popular professional speaker and author of “Get Your Business to Work!” available at his on- line bookstore. He works with contractors to build profi table growing companies. To request your free copy of “Profi t 101 For Contractors,” sign up for his free monthly e-newsletter, hire Hedley to speak, be part of his ongoing BIZCOACH program, or take a class at Hardhat BIZSCHOOL online university, visit
www.hardhatpresentations.com or email
gh@hardhatpresentations.com.
8 METAL CONSTRUCTION NEWS June 2012
www.metalconstructionnews.com
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