Back when you launched your lumberyard in the early 1990s, you figured the path to success was to make your company an invaluable resource. After all, the more you can help customers solve their problems, the more they’d view you as a partner, and not just a vendor. As the owner of what has become the leading pro-oriented LBM company in your market, it’s clear that you were onto something. As your company has grown, you’ve consciously worked to make sure that philosophy remains a core value. From free product deliveries and help generating leads to doing free takeoffs and estimates, you’re proud of the reputation your company has established… though you’re learning the cost of some of the ‘free’ services you offer.
For example, you know how important accurate takeoffs and estimates are to your builder and remodeler customers. After all, most of them use the numbers your team provides as the basis for their bids—typically without even checking them for accuracy first. Deliveries are another key benefit, especially the way that your team builds loads. Instead of just piling materials on the flatbed in random order, they build the load with the items the jobsite crew will need first, and on down the line. That way, no wasted time and labor unstacking lumber, siding, etc. to get to materials needed right away.
Since they don’t appear as line items on your invoices, you don’t technically charge for these services. Instead, you’ve built the cost into general company overhead, and you make sure that your prices are sufficient to cover your costs while still providing a fair margin. As with most things in life, everything was just fine, until it wasn’t. In this case, the “wasn’t” came in the form of Harry Haggle, owner of Haggle Homes. Here’s the story.
Harry is a successful builder, whose company has established a niche for building quality starter homes. He built his business from scratch, starting as a carpenter’s apprentice, then gaining more skills, and striking out on his own. He’s come a long way from his humble beginnings, but his relentless haggling with your salespeople over the smallest detail is getting old. It’s gone from negotiating each item, line-by-line, on your proposals, to negotiating the cost of services you don’t even charge for.
What Harry’s asking isn’t necessarily unreasonable, but frankly, it’s a waste of everyone’s time. And you know that what Harry does with you is the opposite of what he allows at his company, where the answer to price concessions is always: “No. The price is the price. Take it or leave it.” Since he’s the lowcost provider, people tend to take it.
“Look, I know you provide free delivery to all your customers, but I happen to know that we order more efficiently, so you don’t have as many ‘fill in runs’ with us as you do with other builders. Since I’m saving you money, it’s only fair that I get a cut of that. Also,” Harry continued, “I know you provide free takeoffs for us and your other builder customers. Many of the homes we build are essentially the same, with only minor modifications, I think we should pay less for our materials than custom builders who require your team to provide a free takeoff and estimate for each new project. What do you say?”
This latest request, combined with Harry’s insistence on negotiating every product he buys from you, and his pushback when you have to pass along a price increase, has led you to think that maybe Harry’s high-volume, low-margin business isn’t worth the hassle. What would you do?
1. Say “yes.” Harry’s request has gotten you to realize that you don’t know your true cost per takeoff, or the variance in deliveries from builder to builder. Learn the answers, then adjust his prices accordingly.
2. Say “yes, but…” Use this opportunity to address the real problem— Harry’s tendency to waste your time. Give a small discount in exchange for his promise to stop negotiating everything.
3. Say “no.” Your team is already very patient when it comes to negotiating new purchases. At this point, his demands for price concessions far exceed any other clients.
4. Turn the table Ask Harry what he says to homeowners who insist on negotiating the price of every item and service for their new home, then ask why you should do any different.
See how your judgment compares with others in the industry at LBMJournal.com.
Final results will appear in The Buzz section of the October 2018 issue.