John Willis writes:
On Tue, 02 Nov 2004 13:31:13 GMT, ender (Jeffrey
J. Kosowsky) scribbled this interesting note:
Globalization, the Internet, and increasing competition are changing
the face of business forever, making pricing more competitive and
transparent than ever before. Now that pricing can be looked up and
compared on the Internet, it is a lot harder for suppliers to price
discriminate between retail and wholesale customers except on the
basis of true volume efficiencies (e.g., buying pallets or cases) or
when the purchaser has dominant purchasing power (think Walmart). The
differential between wholesale and retail pricing erodes as big box
retailers push down the retail price while Internet-suppliers (and
others) allow individuals access to contractor-like pricing.
Those who can't adapt to this reality are not going to survive.
Then I suppose it is ok with you when we get lower prices on shingles
when we buy by the truck-load as compared to buying by the shingle
like you can at Home Depot?
I have no problems with discounts -- the "market" will typically
decide the most efficient and profitable way for suppliers to
price. The only thing I was opposing was the entitlement atitude that
somehow a license entitles a contractor to a god-given right to
special pricing unavailable to homeowners. Volume is obviously one
reason for better pricing, but the usediscounts depends on the volume, on the
margins, on the volume efficiencies, and on the relative power of
buyer vs. seller.
Each supplier is free to decide what discount is required to maximize
its profit (volume x margin). If a supplier believes that selling to
enough people like me at a discount brings them more profit and
prevents me from going to the Home Center or Internet then by all
means they should sell to me at or near the contractor discount. If
they believe that they need to give you more of a discount to retain
your business or that you are cheaper to serve due to your volume then
maybe you will get a bigger discount. However, in this day of
multi-billion dollar purchasers (like Walmart), your power as a volume
buyer is a lot closer to my thousands of dollars a year than to Home
Depot or Walmart's purchasing power.
Wal-Mart doesn't carry anything that will help most contractors in
their day-to-day business. Even Home Depot is only marginal when it
comes to carrying good, quality product and tools. These are
"consumer" oriented stores, not stores that really cater to
contractors.
WalMart and HomeDepot are only examples of how purchasing and pricing
power is shifting. Obviously, I wasn't saying one should buy
specialty electrical supplies from Walmart
Finally, from a "moral" viewpoint, I have always thought it to be
borderline sleazy that contractors make an additional *hidden* margin
by marking up the price of materials. I am happy to pay a fair and
competitive hourly labor rate and to pay a delivery charge on
materials, but I fail to see why a contractor should make an
additional hidden profit by marking up materials due to the old "cozy"
relationship between suppliers and contractors. I now use the Internet
all the time to challenge contractors on marked-up materials pricing
thereby avoiding being gouged and getting a better sense of my labor
vs. materials cost. In fact, this is no different from the uproar over
hospitals marking up the price of Tylenol (beyond the cost of goods
and administration) or government contractors marking up the cost of
toilet seats.
We don't mark up the cost of our materials. Not all contractors do.
But I understand the reasoning. Look, you will end up paying the
contractor you hire the same amount, regardless. Contractors have what
are known as fixed expenses. You know, things like licenses, liability
insurance, worker's compensation insurance, health insurance,
insurance on trucks, equipment expenses, and other overhead expenses.
These expenses must be met. Then there is labor that must be paid; yet
another expense that must be met. After all these items have been
satisfied then, and only then does the contractor pay himself. Would
it help you to feel better if the bill you received showed the price
paid by the contractor for materials as being the price paid by you
and the rest of what you seem to think of as an inflated price charged
to you as "profit?" (Although you don't know what the true profit is
since you don't know what that particular contractor's operational
overhead is.)
I fully understand that the business only works if the homeowner
covers the cost of licenses, liability, workers comp, health, etc.
I just think it is more straightforward if that is built into the cost
of labor rather than as a hidden materials markup. After all, we all
know that if I am paying $40/hour for an assistant, that assistant
is not taking home $40/hour. However, I would prefer the price of
materials to be equal to the actual cost plus a small markup for
reasonable pickup & delivery charges.
Sounds like you have a case of bitterness here. If I can get
contractor-like pricing without doing the above than all the power to
me. Since you weren't going to get that business from me anyway, it
doesn't really hurt you, except perhaps your ego that some "layman"
like me is getting competitive pricing without belonging to the
"guild".
Who has a case of bitterness here? Take the time to learn how to
service your own HAVC without killing yourself. Learn how to do
concrete work, framing, drywall work, electrical, plumbing, finish
carpentry, tree trimming, irrigation systems, appliance repair,
masonry, etc. There are countless things you need to know and buy when
working on people's houses. Learn all these things, get all the
required paperwork, do enough business (although you probably won't
come close to any kind of volume to warrant economies of scale
discounts) and you too can get discounts at real supply houses.
What I am saying is that licenses have nothing to do with pricing in a
free market. Volume is another story, but in the current more
efficient supplier marketplace, pricing is much less sensitive to
volume than people think (as evidenced by Internet pricing and big box
stores).
I am not bitter because I trust the market and know that I have many
ways of learning the actual pricing and getting a reasonable mark-up
over cost.
BTW, the "discounts" places like Home Depot give to contractors? That
is still higher than what real contractors pay at real supply houses.
And the materials and equipment you buy at place like Home Depot is
usually of inferior quality since they like to squeeze their suppliers
for every penny they can and charge the customer just as much as they
can get away with.
I agree, but Home Depot has still forced many smaller hardware stores
and supply stores to lower the price that they charge consumers since
otherwise they will lose all the consumer business and even some of
the small-time contractor business (despite the quality issues at Home
Depot).
John Willis
(Remove the Primes before e-mailing me)