It was a long time ago, but I remember overhearing this while sipping a cup of free coffee across the contractor counter at my local lumber supplier. One of the guys working there was fielding an order being phoned in by a builder, and guy asks builder, “which job name,” and responds to the other side, “oh, that’s a new one, is it cost-plus?”
So I thought, what’s that about?
What if I am your supplier of 2x4s and plywood. I sell you this stuff on maybe a 3-tier pricing basis. Tier one is for your down and dirty jobs, it is the lowest priced tier. Tier three is for when you are doing cost-plus work for the rich and famous. I do job-based invoicing and statements for you, thanks to my new business software. You and I work out a rebate arrangement, whereby I rebate you annually, for tier two and three gross purchases, with the split being about 50-50 for tier two, and 35-65 in your favor for the tier three stuff. Sound good so far? You get to make your “plus” on invoiced figures, then you make a little more next year when you get your rebate.
And if your billings to those rich-and-famous clients get way up there into the KK numbers, that little rebate check from Joe Schmooz Lumber and Supply can send you and your girlfriend on a four-week cruise through the fjords of Norway. Or maybe a new Hummer, all tricked out with GPS and satellite radio playing the all-blues format.
Maybe I am asking the wrong crowd, but does anyone think this happens out there? Having been on the supplier side, I have seen all kind of interesting rebate programs, but nothing tied to the sale price end.
But I go back to that early morning thing I overheard a couple years ago, and I ask myself, what is the difference at the lumberyard if Bob is buying this for a cost-plus job or not?
Replies
i think it happens... but somebody knows about it... and pretty soon a few more know about it and pretty soon , everyone in the world knows what the two scum -sucking pigs are doing...
it's called fraud....
don't you think a person's reputation eventually catches up with them ?
Mike Smith Rhode Island : Design / Build / Repair / Restore
I don't know. I'm a newbie to all of this. I'm just trying to decipher that overheard remark.
I agree with Mike in principle here.
But there's more to it, it we examine this in detail.
How about a charitable organization that 'requests' that any contractors doing their work figure oin making a 'donation' to their cause? Isn't that a kickback?
Take it to another degree of detail,
If you pay for materials with a Rewards Card on a program that gives you air miles or points for 'gifts' with every dollar you spend, or the Discover card that makes cash back payments at end of year.
Is that a kickback?
Suppose you bill 'cost' at price on invoice for cost plus work and you get a 2% discount whern you pay within ten days. Does that figure back into recalculating the 'cost'? OK - so if you figure that in advance but then the customer fails to keep you current and you lose that discount, how do you 'cost' that 2% back to the job again?
I figure that as simply my money as part of cash management to manage overhead cost overall and not job specific.
Now suppose that it is Ten Percent instead....
You have that screen name for being a detail guy getting deep intoi specifics. How deep do you want to go with this? I know how I see things but I think the question is worth laying out for anyone to think about, ethicaly and practically
Excellence is its own reward!
both of your examples of the rewards program... and the 2% for timely payment are a function of the contractor's cash management and the amount of working capital he has..
just as you are not going to charge your customer 1 1/2% more because you failed to pay your lumber bill within the current terms... neither is he entitled to your reward for paying in a timely manner..
what micro was describing is colusion... the supplier invoiced for a higher amount because the contractor gave him the big wink...Mike Smith Rhode Island : Design / Build / Repair / Restore
I know.
Excellence is its own reward!
i new u new.... yust wanted to make sure everyone else new what u newMike Smith Rhode Island : Design / Build / Repair / Restore
Now I wanna hear sumbody tell me what I already know about the charity soliciting 'rebates' and calling them donations while being predisposed to sending the work to the contrators who promise the larger 'rebates'.
Excellence is its own reward!
wish i could help you out, pif.... but i never got one a those jobs... mebbe now i know whyMike Smith Rhode Island : Design / Build / Repair / Restore
Having been close to the biz on the wholesale side of building materials, I've seen the same item sold at a different price to each customer, and within a customer, discounted differently in separate orders based on order size, timing, etc. And with regard to invoicing, bills go out tailored to each account's different demands, some showing full list per line with total discount at bottom, some at net with discount but without rebate, etc., etc., etc. And the powerhouse customers take their discount when paying at or even after their negotiated 60 day terms.
At the yard where I heard the remark, if I take a box of nailgun spikes to the counter, and it is pricetag marked at $52.95, it pops up as less on my invoice, due to the discount I have been given. I don't know what their business system will do, but its ability to discount at different levels seems to me a given.
any business with "contractor sales" has the same thing.... the marked price and " my price".. retail & trade pricing....
you were describing the "wink and nod " price inflation in your original post.. not the same thing..
also you were further describing tiered pricing.. also common and acccepted and ethical...
but collusion is collusion.. and it usually smells like......... collusionMike Smith Rhode Island : Design / Build / Repair / Restore
And the collusion might be as simple as, "please show all my invoices at full list, with my discount shown only on my statement."
Or a little more complex, like, "my cost-plus jobs are to show invoices at full list, with discount taken on summary statement only, and my other jobs are to be billed at net pricing."
In the wholesale biz, we never asked why a distributor asked for his billing in a particular way. We just did it. Maybe this retailer does the same.
I'm not saying how this smells or not. Only making observations on the mechanics of backoffice business. Maybe that sales clerk I overheard at the counter was just being nebby (anybody from Pittsburgh? . . . you'll know that one!)
Just curious how you see this:
Went to the tile store one builder recommended and they had some good quality tile marked especially for that GC's work. There was a considerable discount on it, installed.
If we picked other tile, not marked, they were full price. There was a very good, large selection marked, about half of the store's tile.
Regular price, no discount, if that builder was not involved.
Checked other stores and the same tile was about the same higher price there, so the discount was true. Other stores would not admit to any GC's discounts, just for extra large orders.
Contractor works on a total bid, not cost plus.
Mr. Micro,
I once worked at a wholesaler for commercial interior building supplies.
Almost all wholesalers have a three tier level pricing strategy, but usually it is based on the quantity of material being bought. The tricky part on this is if they are upfront with this multiple pricing levels strategy. Example: If Joe Six Pack who is basically a "pickup truck" contractor pulls up to your warehouse office and wants a price on X number of tectum ceiling panels and the quantity he wants qualifies for a break on the price is the customer told this or does the inside sales person try to hit him up for the full price?
So in this instance the pertinent questions to ask are: do you have multiple prices for the same products and if so what determines the prices, do you have an "economic order quantity", do you have any discounts? etc...
Ask if the supplier has a price list. Ask if this is the only price list. Some suppliers will list the different prices for the same products all on one price list showing the amount of material needed to qualify for different prices. But some suppliers get a little bit snakey and don't do this, instead they have price lists that have totally different prices, and if they think they can get away with it won't show you their "best" prices. The key here is if you are a "larger" contractor or specialize in a trade that does a lot of business with the perspective supplier and therefor may do a lot of repeat, read "bread and butter" business. In cases like this you may usually get the best price schedule.
Then some customers may get even lower prices than those quoted to all other customers. Say for instance you have been doing a significant amount of business with a supplier on a daily basis for a number of years and you have always been a discounter ( you pay your bills earlier than needed and therefor qualify under 2 10 net 30 ). A customer like this is priceless to a supplier as the manufacturer actually floats or finances the material to the wholesaler for typically 45 days or thereabouts. So the supplier's costs are small and if push comes to shove may pass on a price break to keep the customer happy and to keep the customer to switching most of his business to another supply house.
Where fraud comes into play is usually in three areas.
First, if a job is being bid, and you as a material supplier give one price for material for that job to contractor A, you must also give that same price to all other customers who come in with the same bid looking for prices. If you give different prices to different customers on the same job bid, you can be looking at problems with collusion, price fixing, or possibly predatory practices, depending on the specifics of the sale.
Secondly is the area of kickbacks. These can be worked all the way from a manufacturing rep giving "gifts" in the form of off the book cash or other such goodies to the purchasing agents or salesmen at the supplier, to the contractors adding a little extra to their bid if a supply house steers a customer to them and then gives an " off the book bird dog fee" to the supply house. If there is going to be money flowing back and forth on these transactions, you need to be upfront about it or somebody somewhere is getting the short end of the stick.
Then there is also collusion between a contractor and supply house on a cost plus job, or a time and material job. If the contractor asks for two bills of sale, one to be presented to the contractors customer, and then the true bill of sale which actually shows the true lower price for the contractors true records, this also is a form of fraud.
So basically it is buyer beware and get all the information you can about prices and price levels before placing an order.
And REMEMBER if the person you are thinking of doing business with shows any type of an inclination to screw somebody or do something underhanded, than that same person will sure turn right around and screw you too. Birds of a feather flock together. Stick with the straight shooters, or get into a different line of work.
Basically the more homework you do, the more questions you ask, the more suppliers you check will pay off big time in the long run. We noticed that the customers who seemed to get the most work, and who lasted the longest in the lean times were those who worked the supply prices and customer support levels the hardest. Just a nickel here and there on every job really adds up at the end of a year. Just a word to the wise on this strategy. What goes around comes around. If you work your supplier over too hard on prices don't go expecting any big favors if you get your a$$ in a crack and need somebody to pull your chestnuts out of the fire. We had plenty of good customers who got great prices from us, and if once in a blue moon they really needed killer prices on something to get a job, or needed a crane or boom lift to stop by their jobsite and do five minutes of work for free we would help them out. But if someone just absolutely beat hell out of us on prices and needed help the answer was " whoa that's and awful shame, sorry bout your luck fella".
Hope this hasn't been to long and windy, just trying to possibly give a little insight to some of the ways the game is played.
Good luck,
Cork in Chicago
i think you pretty much sum up the way we do business....
we're here to make a profit.... using my discounts to my advantage.. which ultimately resolves to the customer's advantage... but .. the good will and buying power is supposed to accrue to me..
a little golden rule application never hurt either..
and... if i know a guy will knock down a nickle.. i damn well know he won't stop thereMike Smith Rhode Island : Design / Build / Repair / Restore
I guess that Cork's post answered my question. Thanks.
I agree wholeheartedly with the principle cork stes about trust, "And REMEMBER if the person you are thinking of doing business with shows any type of an inclination to screw somebody or do something underhanded, than that same person will sure turn right around and screw you too. Birds of a feather flock together. Stick with the straight shooters, or get into a different line of work."
Your mention of money management etc. works this way for me, I deal with three yards here.
Yard A does a straight 10% discount to all 'contractors' which even can include HOs building their own house
Yard B discounts on a sliding scale, depending on your average volumne. I do most of my stuff there and get 6-7% I don't know how high their scale goes if you do say a hundred grand a month.
Yard C does a straight 2%/10
All three yards come out really close in NET price if you pay on time. Main reason I do business with B is service and quality but the sliding discount helps keep my volumn up there too.
I know others who prefer A simply because they do cost plus billing and like that higher built in discount..
Excellence is its own reward!