Many contractors think of material prices as fixed, especially when running a small company with limited buying power. Material prices don't vary drastically from one supplier to another with the exception of some unusual and rare options, but you can still trim your costs down considerably by taking advantage of basic negotiation techniques. Always start by simply asking for discounts from suppliers. If the supplier stands firm after a request, try one of these tactics to boost profits and lower costs without drastic measures.
How long has it been since you've contacted new lumber mills in your region and tile manufacturers you haven't worked with in years? If you're just sticking with the same handful of companies to save time on ordering and to standardize your bids, you could be missing out. The recession caused many construction material companies to close or restructure. As a result, there are likely completely new options for getting everything from fasteners to work gloves. Shopping around could save you 10 or 20 percent, especially if you find companies that prefer to work with small-scale contractors. Look for suppliers that offer more competitive pricing across the board instead of only providing discounts for the high volume accounts.
Ask For Extra Services
When you want to stick with your supplier due to proximity or great delivery savings, try asking if they can provide you with extra services in exchange for your continued support. Many companies now automate contract outlines for their contractors. Imagine just copying and pasting a complete rundown of every material cost, adjusted for your pricing scheme and expenses buffer, into the bid you're preparing instead of painstakingly outlining each row yourself. Other suppliers
Hire a Construction Accountant
Not really sure where some of your material costs are going? Tighten up before approaching your supplier and you may find that making more accurate estimates saves you enough that you no longer need a discount. Don't just settle for any accountant, only hire a firm or individual specializing in handling the books for contractors and construction companies. Let the accountant handle tasks like
Tracking fluctuations in material prices on the fly and adjusting your own personal price chart
Direct negotiation with suppliers to develop a discount plan based on a tighter payment schedule
Recording losses and waste so you can tighten up your workflow and site management for instant profit boosts.
As a small-scale contractor, you likely don't work with a bonding company or take out large-scale financing for inventory purchasing. If you're working on a cash accounting method instead, use your flexibility to arrange to pay early for each delivery instead of waiting the usual net 60 or 90 plan. Most companies already offer discounts of up to 10% just for receiving payment on time, so try talking them into doubling that discount when you're paying within a week or two of delivery instead.
Work With Other Artisans
Don't forget about the smaller suppliers too. When your customers demand unique or high-end materials, working with an individual craftsman can pay off, especially if they're not well-known yet. A potter without a reputation can create hand-painted tiles to take a bathroom project to the next level, but you're likely only going to pay a little more than you would for mass-produced products. Don't let a large supplier set an inflated price on natural stone counter tops or hand-carved mantels when you can search for them yourself and find a better price.
Form a Buying Group
No matter the industry, buying supplies in bulk is always a good way to negotiate a discount. Are you unable to rent a warehouse just to store enough lumber and roof shingles for the next three years? Find other contractors in your area that use the same materials and form a buying group with them. By placing large orders together and sub-dividing the drop-off with your own trucks and equipment, you can get the same pricing the big construction groups enjoying without having to ramp up your business. If you aren't fond of working with competitors, focus on contractors in different specialities like tile and concrete that still need the same lumber and plywood from your supplier.