Shonuff
Mr. Poopybutthole
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We moved after 2005 all around the country, before moving closer to her family in the Midwest.
Adventures with Lyrical: Buying a Business (REPOST)
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Guest, it's time once again for the massively important and exciting FoH Asshat Tournament!
Go here and give us your nominations!Who's been the biggest Asshat in the last year? Give us your worst ones!
Shonuff
Mr. Poopybutthole
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I moved to the midwest when I bought the business in 2008. I did graduate from Texas in 2005, with my MBA.
Shonuff
Mr. Poopybutthole
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Shonuff
Mr. Poopybutthole
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One of my biggest customers keeps pushing me for price concessions below my marginal cost. I'd fire them, but they send a lot of referral business to me. This customer also demands a higher service level than my other customers. Pretty much, it's the big guy pushing the little guy around.
Today, we did an analysis of all of the jobs I did for them last year, and showed them where I lost money. They still tell me they are going to price shop me.
I've done my best to show them what's going on, but apparently they want me to pay for their business. We'll see how it shakes out. If they didn't send me a lot of referral business, I'd tell them to fuck off.
Today, we did an analysis of all of the jobs I did for them last year, and showed them where I lost money. They still tell me they are going to price shop me.
I've done my best to show them what's going on, but apparently they want me to pay for their business. We'll see how it shakes out. If they didn't send me a lot of referral business, I'd tell them to fuck off.
Tarrant
<Prior Amod>
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If they truly send you that many referrals where you are second guessing how you would normally treat them, what's the problem with taking a small loss and looking at it as just taking a slightly different form and piece out of your advertising budget?
I'd also shoot the idea of being able to put a sign up advertising who does their stuff at the cost of charging them less.
I'd also shoot the idea of being able to put a sign up advertising who does their stuff at the cost of charging them less.
Khane
Got something right about marriage
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It's like blackmail. They never stop once you give in. They just take more and more until you've got nowhere to go!!!
Well maybe it's not that bad, but it certainly does start a cycle of behavior.
Cad
scientia potentia est
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You've basically got 2 options: call their bluff and tell them this is the price, or give in and you'll take another price cut in 3 more months when he realizes you'll work for below your cost.
The question is, does he need you, or can anybody do his work? Your company probably does great work since you keep good guys on staff, does he realize that? Does he think he can just jump ship? If so, then if you call the bluff you'll probably lose the business. Or, is he just pushing you to see how far you'll bend? Only you know this guy well enough to make these choices.
I'd probably tend to call the bluff and just find other work that isn't trying to run you into the ground rather than worry about it. The guy will respect you more knowing you won't bend to pressure either.
Shonuff
Mr. Poopybutthole
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The problem is, it's not a small loss any more. He keeps wearing my Estimators down. He's a great negotiator, he really sells them that half price is OK.
In our peak time, we can't afford to lose money. I think I've said it before, that in the Summertime, we used to lose $25k a month in people that couldn't wait. That was the number a few years ago. It's probably 10k a month now. I've tweaked things to increase productivity (crew mix, equipment, pricing, etc.). It's still not perfect, because I only hire the best. Finding guys with strong work ethic, that have no substance abuse issues and don't steal is tough. He's large enough that he can rent the company out for two to four weeks at a time. So I'm losing $10k a month in sales that was higher priced, so that I can do work at break even, or a small to medium sized loss. In other years, the solution was that we moved his work to offpeak times (Winter), where I'm just trying to keep guys employed and pay off some overhead.
This is a typical B-school problem in analyzing problem customers. He wants my product at a price lower than my marginal cost, he wants higher service levels than everyone else, and he demands to be pushed up in schedule even when we are backlogged a month (and those customers are higher paying).
We've sat around here for years trying to figure out a way to fire him, but it still boils down to referrals. This is for a townhouse association with thousands of households. Any tree work companies must be approved by him first. In the area, we are the only tree service that is pre-approved. Any other tree service has to have paperwork filed on, and it may take a week to get approval.
At the end of the day, I'm letting him stick his dick in me no matter what. But I don't want to give up my ass so much, and I want lube and a reacharound, with a kiss afterwards.
I've tried to be diplomatic, and I think I got his attention when I pulled out every job last year and showed him what I lost on each one. He just sent me an email where he says he wants our relationship to be mutually beneficial.
Every time I want to tell a bigger client to go fuck off, they send me bigger clients that they know. One time, we got screwed hard on a contract by a billion dollar entity. They lawyered up and broke their contract, because they demanded that we double our insurance and buy umbrella policies at our expense. I told my employees we'd never do business with them again. A year later, they referred us to a construction company that sent us 5x what they would have spent in a year.
Bigger clients are fun. With all of the advertising I do, I've tried to build a diverse client base, so that they have less power. When I worked for an automaker, they made small business owners into multi-millionares overnight. If you got appointed a Supplier, you were supposed to be rich, right? That's only for a year or so, when the automakers start demanding price concession of 15% a year for the next five years. You can't reduce price by 15% forever, or you are selling your product for 0. There's a reason why they demanded some suppliers only supply them. If you have only one customer, they have all of the power.
Bigger clients can help you make money, but expect that they are going to start pushing you around. You can't take the money they give you in the first year or two and blow it on luxury items, you need to reinvest it to help you get other customers. The axe is coming, God forbid you went and bought a mansion (with huge payments) on one or a few customers.
I looked it up, and the old owner's client base was about 2,300, and a few companies made up 1/3 of his business. One client who was that Billionaire entity amounted to 10-15% of his annual sales. When they left, we didn't miss a beat, because I'd been working on building up my clientele for a few years. I expected it to happen. I'm at about 4,000 customers myself. They might not be able to rent the company out, but smaller resedential jobs add up to what big clients can do.
Shonuff
Mr. Poopybutthole
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They don't identify themselves. I've told the Townhouse Manager to have them call and flag themselves so I can keep track. A lot of times, we don't find out until later that they were sent by him, if at all. He agreed that this would be a good idea, and he'd start doing this.
Shonuff
Mr. Poopybutthole
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In the last 15 years (even before me), he's used us off and on 75% of the time. The other 25, he doesn't get the quality service he wants. The problem with demanding such a low price is that eventually the vendor doesn't give a shit if it's done right. If I have to lose $500 a day doing work, plus whatever other jobs canceled in that time, why do I want to come back if something isn't done to his liking? He demands a lot and pays a little.
I don't understand how some service companies are difficult. We've been doing a lot of work for a local University, and they are willing to pay more for us, because we are easy to get along with and do what's on the contract. Why is it so hard to do what you've said you'd do? Of course, I've had many a meeting on reducing vagueness in contract language. Each one is different, and misinterpretation can sometimes double the cost. If a guy can't pay attention to his contracts, he's not going to be around long. One time, we had a meeting going over a letter that someone's Lawyer sent. The contract was written so vaguely, that it was interpreted that we were going to do four days' work in six hours! They ended up paying us 90% of what we asked, but it was a teachable moment. It was a misunderstanding with the customer, but it could have been avoided if the contract was written more clearly.
opiate82
Bronze Squire
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I see this happen often with my pizza business as well. The most common occurrence is school carnivals. For the carnivals I've always given pizza to them at-cost plus I'll provide free soda (so they make a little bit of cash on the pizza and keep all the revenue from the soda they sell). I love doing these because they get my name and pizza into the hands of people who might not be normal customers all while looking good for helping out with school fundraisers. Problem is since my pizza is of a higher quality than most, I just can't compete price-wise with the likes of a Little Caesars and their $5 Hot-N-Ready.
To counter the difference I will usually deliver the pizza to them (fresh deliveries throughout the night, this is partly quality assurance, I don't want my pizza sitting in a warmer for hours on end then ending up in the hands of a potential customer), and provide them with an employee or two to help serve the pizza and ensure reorders go smoothly. But every couple of years a new head of the PTA will get the idea they can make some more money if they go with the $5 Hot-N-Readys and still make money off soda by getting it from Costco.
As much as I love the advertising opportunity I simply cannot go that low on my pizza costs so I have to let them walk. It usually only takes one year of them having to run around getting the pizza and pop, running out of one or the other 1/2 way through the event because they have no experience for managing the supplies, and then listening to all the other parents bitch about how the pizza sucks this year and they ran out for an hour while someone had to run pick up more for them to come crawling back to us.
Shonuff
Mr. Poopybutthole
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Shonuff
Mr. Poopybutthole
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My wife looked it up, and we did about $15k in work for them (of which we lost money on) and I think we picked up double that work in referrals (of which we made a little on). If I raise prices by 30% on them, it's still lower than industry standard, for a licensed and fully insured company like mine.
Somehow, my Estimators have let him talk them down 40% from the rate we charged him under the previous owner. My concern is, the previous owner charged industry standard rates on everyone, unless you were a Senior Citizen. If you didn't like your rates, he would tell you he didn't have time to talk to you, and walk away. We need to be more hardnosed on our rates. He did all of the bidding, and knew what it took to make a profit. Estimators like to brag about how they sold $10,000 that day, but never brag about how much money you are going to lose completing that work. I'm doing the bidding, and I see the difference. I'm charging $200 for something that the previous guys charged 35 for. And my time is usually spot on.
I would call his bluff. You said it yourself, he doesn't get the quality he wants with other service providers so why should you price match them? Because he knows you are willing to bend, he will keep 'asking' you for lower prices until you bleed. I've met quite a few of these clients in my (non-related) field and they are window shopping price and quality independently of each other. They need to know the relationship and how it applies to your company. Yes, others are cheaper, but no, they can't be compared with your service/quality.
45k in total service fees also doesn't seem like a lot especially when you're having a backlog (customers who can also potentially bring referrals). Focus on the service/quality and not the price.
Edit:
If he is used to a 40% discount off the normal price I do not suggest to immediately increase his rate to your standard rate, which would be too confrontational, but rather give him a 15-30% discount this year (as the 'valued' customer he is). Apologize for/'blame' your estimators giving more discounts than they were allowed to give (I don't know the whole story). Next year you can consider to decrease it further.
An alternative is to incentivice it, the higher annual service fees he brings in (either directly or through referrals), the higher % discount. Incentives puts the pressure on him, you are willing to give further discounts IF he meets certain sales targets. What you choose depends on what works for you. Ideally you could reduce/remove the discount completely whilst still keeping him as a client and/or increasing sales/referrals.
Shonuff
Mr. Poopybutthole
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According to the satellite logs, the last job we did came in about 15% lower than industry average. I'm OK with that, as long as I'm not paying him to do his work, it's OK. I believe I'm getting a ton of referrals.
He called us yesterday, and signed up for another $4,300. He complimented the Estimator on how smoothly the last job went. We've worked it out. We probably won't have another blow out until next Summer. We have a big blowout argument once a year, where he tries to convince me I should do his work for free. Screw that, every time I have a repair to my equipment, it's $1,000 minimum.
He called us yesterday, and signed up for another $4,300. He complimented the Estimator on how smoothly the last job went. We've worked it out. We probably won't have another blow out until next Summer. We have a big blowout argument once a year, where he tries to convince me I should do his work for free. Screw that, every time I have a repair to my equipment, it's $1,000 minimum.