I deal with purchasers a lot. It's probably one of the bigger tasks of my job and certainly one of the least enjoyable. I just lost an order that truthfully wasn't worth doing. Like, the total value was about half of our "day" goal and the work involved was more in the "definitely more than a day" category. What am I supposed to do? Accept a job knowing that our cost outweighs the profit? I have another guy, begged him to order 2 frames so that we wouldn't hit the minimum charges (also, because he'll need the next one in another month or so) and he wouldn't do it. BUT one day after we negotiated a price and terms....he's asking to have a month long lead time reduced to one day. Like, for a blank check...it may be possible to finish this one frame in a week. 5 business days. Not even for all of Joel Osteen's money could we have done it in one day. But that's what this guy is doing, trying to bully us into doing something before the agreed due date but not being willing to pay expediting fees. And lastly, my least favorite purchaser...this lady's company has been bought out 10x over, just got bought out by 3M but if we raise the TOTAL PRICE by $25 bucks she acts like we've taken literal food off her plate. Because 3M can afford entire companies but can't handle that tariff that raised the price of metal across the board. I didn't just come here to vent, although I do thank you for the outlet and will take any advice from people farther along than I under consideration. I need help understanding business, man. I pretty much rebuilt the system after Harvey...I have a lot more to do with the business today than I did this day last year.... Like, we work in oil and gas, we've been fabricating sheet metal for almost 50 years and this business is struggling. Despite the blood, sweat and tears we've put into the ground...despite what would seem like successful numbers for a 2 man operation...we're killing ourselves to break even and really we should have people lined up trying to get our services. We tell purchasers $25 per part on parts that should cost $50 and they b**** about it. On the outside, it would seem like some of these companies are soooooo awfully run, so illogical and yet they are rolling in money. We are killing ourselves and trying to make decent livings. How do we flip that script? Because I don't mind hard work but I want my dad to enjoy a retirement. I would like to as well.
But seriously, you could call Marcus Lemonis and possibly be on "The Profit." Sounds right up his alley.
[Educational Post] Overall order of priorities for your business: 1) Get the right people; 2) Develop the right strategy; and 3) Allocate resources accordingly You must examine how you make money. There are many aspects to this. What do you do or provide to others that solves a need of theirs? How can you do it better or cheaper? How can you do more of it? What are you not doing today that your competitors are doing? How are you differentiating yourself versus the marketplace and your competition? All of these things contribute to your pricing power, which ultimately drives your bottom line. According to Michael Porter, who literally 'wrote the book' on strategy, there are three ways to develop a long term competitive advantage: COST - DIFFERENTIATION - FOCUS. Pick one or more of these three to develop a strategy. GOOD DAY
Are you dealing with a lot of competition in your field? Are there significant barriers to entry that are keeping competitors out, or is it pretty easy to start XYZ company in your industry? Perhaps you could try and shift your focus on a niche in the market that's significantly harder to compete against, and become the go-to company in that niche?
^^ the proper uses of Porter's theories is when you have an assignment topic of "how to sell Barbie dolls to China",and since everyone in business know it already ,it became just some power points filling materials. your clients did their work, sensed they could get the lowest cost possible during negotiations. Best advice: cut your time of negotiations, focus on your edge and stay firm. Break the price down to them: materials( which should be passed to them), labor ( which won't come free) CNC can help you,but a part time job like with Ubers, can keep you afloat during downtimes
This, and the invisible hand of the market. Don't think FOR your customers. Put your price out there and the sales will tell you if it's right or not. Adjust accordingly. Also, be mindful of cultural influences in negotiations.
For a small company, lowering prices is just a death spiral because you'll never be able to compete against larger companies. Innovation is where you can strengthen your company.
We could but the cost to do that is insane. Completely different level than what we are on and to be perfectly honest, the big shops that pop up and try to undercut everyone always seem to run themselves out of business after a year or two. We are exclusively non-CNC machines, although we do have our eye on a plasma table. So, while I know it would probably help us....it's an absurdly expensive dice roll. Like...absurdly expensive. I honestly don't think I could get the bank loan if I had the idea to replace our current machinery with CNC equivalents. Millions of dollars. Our machines...They're old, they're slow, I have to operate them but they work and they're still capable of a great many things. Thank you. To be honest, I've seen this place boom. I'm not sure what the difference is other than people would order 10 of something rather than 1. Now it's like people order 1 ten times. It's ten times the work. Cost- I mean it's not some secret equation. It's material costs, our shop's time by the hour and a 5-10% profit markup. Dividing that by 10 instead of 1 makes all the difference. I'm not sure how they manage it but I've seen big companies come and go trying to live off of undercutting everyone and it never pans out. Differentiation I guess we could work on. Focus, oil and gas runs the show but it’s not like other industries don’t need metal brackets. Maybe that’s something we should look at... No, I’d say it’s pretty crazy expensive to start a shop. I’m pretty sure my grandfather bought out guys back in the 60s and 70s and we’re still rolling with the same gear for the most part.
Yeah, I’d say there were a fair number of jobs we were doing that weren’t really getting the ball past the line of scrimmage. I do wish we could impose a few more requirements on customers though. Like a material stipend at least. I couldn’t make this up- we got a letter from a company we did little odd jobs for 10 years ago. Some while ago they demanded to be at NET90 terms or else! We opted for the latter, anyway this company just demanded to be NET120 or else! It was worth a good laugh before it hit the shredder. I’ll tell you what’s truly crazy. Taxes.
Doesn't sound like you are charging them 10x the price though. Possible keeping their own inventory low is worth not buying in bulk even at a small surcharge. Small shops on thin margins will always get screwed over by any large customer. Would diversifying your client base help?
It isn't as absurdly expensive as you might think. I worked for a digital fab startup my last few years in Texas and I put more than a few machines in local shops, but they were mostly wood-workers. My company was selling 6" x 12" CNCs for less than $7000 and even these cheap machines could handle some metal work with the proper bits and technique. But I know of a guy who does custom industrial grade CNCs and you could probably land one for south of 100k.
Not 10 but I can’t imagine it’s cheaper this way. The difference of ordering 10 rails a week or 40 every month is we all get to do 4x less paperwork. Especially when we’re not getting some of their bigger jobs now, for whatever reason. Company politics, I guess. Yes to your question. we’ve been doing different things to stay alive lately. I even made a few metal chess sets a few years ago for some cash. Metal is just an expensive material and the labor is laborious.
You have to figure out where you are on the pricing spectrum. If you are on the low end - you are going to attract the cheapo customers who are always going to want a better price and not value the quality you provide. If you are providing a quality service, and offering prices at half what they should be, then you are not a very good businessman and you are squeezing yourself to unprofitability. You either need to lower your production costs, labor, etc or raise your prices (or both). Which one depends on where you are going to differentiate yourself and where you see the market opportunity. Businesses success by either fulfilling an unmet need or by out-doing a competitor in some sort of capacity.
