7 Ways Contractors Can Reduce Materials Costs
Earning more money by adding services and growing your company can be fun and impressive. But growth usually comes at a cost. To get more volume for your business, you'll probably need to spend more money on things like advertising, new equipment or more materials. Adding staff brings additional costs and administrative requirements like insurance.
Reducing expenses, on the other hand, is usually less exciting than focusing on growth. But when a business saves money by cutting waste and inefficiency, those savings go straight to the bottom line.
One of the easiest ways to reduce your expenses is to focus on materials costs. If it's been awhile since you looked at how much your business is spending on materials, I highly recommend that you dig in to see where you can save. Here are some tips on how to do that.
1. Swap pricing info with other contractors
Many materials vendors will raise prices each year but you don't have to passively accept those increases. With a little research, you can find out where you're overpaying and negotiate with your vendors to lower those costs.
One way to figure out where you're overpaying is to find other contractors who are not in your service area and offer to exchange pricing info with them. We did this with another HVAC company and we discovered we were hugely overpaying for our sheetmetal. We went back to our vendor and told them they could either match the price or we would find another vendor. Needless to say, our vendor very quickly agreed to lower their price to match the competition.
A good place to begin this exercise is with the materials that cost your company the most.
As an HVAC contractor, there can be dozens of parts needed for a single install. Most of the time, however, the same parts are needed on almost every job. Try to minimize having multiple types of similar materials. By getting your crew to find creative solutions to use the same parts rather than buying custom parts with each install you can save a lot of money.
3. Get rid of one-offs
Reduce your inventory by getting rid of parts that you will probably never use.
I know how tempting it can be to keep a perfectly good piece of material around just in case you need it for that one special job. You might keep one-off materials in a lesser accessed part of the warehouse in the hopes that one day you might use them. But more likely that material will take up precious space and no one will know it's there.
Every minute your crew wastes digging through disorganized materials full of unused and unneeded parts costs you money. Instead, avoid the shuffle game, bite the bullet and have a guy go through your inventory once a year to dispose of any one-off parts.
4. Track your materials
Figure out a system for tracking materials. If you already have a good system setup for this, good for you! You're in the minority.
In our company, we used to let the guys load up their own materials. We impressed upon them the importance of not damaging materials and putting things back in the correct place. It simply did not work that way. I once personally cleaned out one of our vans and I couldn't believe how many pairs of brand-new face masks, gloves, respirators, and other personal protection gear and materials had been stuffed into corners of the vehicle. I probably threw out $300 of new materials.
If this sound familiar, you're not alone. Just keep in mind that with each piece of wasted material, you're losing money.
The way to deal with this is to set up a system to track inventory. It doesn't have to be super-complicated. Just something simple that provides some accountability for the guys to not waste materials.
(Needless to say, tracking and standardizing your business across the board makes great business sense).
5. Minimize your stock
Try to keep your stock at a minimum. Whenever I suggested this to our construction manager he responded that we shouldn't waste labor time on the guys running to Home Depot for one small screw that we don't have in stock. There’s some merit to that argument, but it’s only half of the story. The other half is that you may be paying a lot of money to store materials that can get abused, lost or stolen.
As I said before, if you have standard materials, then your team doesn't need dozens of parts. If they're on the job and need a one-off piece of material, then they should know that after day one and can pick it up the next day.
The key to this step is to train and educate your crew about how and when to buy materials so that you can avoid both times wasted on trips to the hardware store and the disorganization and bloat of having too much material on hand.
6. Get a warehouse guy
If your volume is large enough, get a warehouse guy sooner rather than later. With the right person, the position will pay for itself quickly. It is very difficult for someone who is in another position to take on the responsibility of organizing warehouse systems. Many contractors will try to avoid the cost of hiring a warehouse guy by delegating the job to an existing staff member. That’s not setting your staff up for success, people with other primary responsibilities simply don't have the time to do the job right. Warehouse managers don't have to be extremely expensive, just competent, and they are usually worth the investment.
7. Get a discount by paying quickly
Most materials vendors will offer a 3 percent discount if you pay within 10 days. If your vendors offer that, then pay their bills first and on time. If they haven't mentioned it, ask them if they will offer a discount for early payment. If possible, pay with a credit card and collect miles or points that can be put toward other expenses.
Don't be afraid to talk to your vendor to get the best deal. A lot of these points mentioned are negotiable if you just ask.
Streamlining your materials acquisitions not only reduces costs but can improve the overall efficiency of your business. This will contribute to your bottom line immediately and put you in a better position for future growth.
Image from iStockphoto
About the Author
Hello, everybody, my name is Ori Skloot, the president of Advanced Home Energy and a Board Member at Efficiency First California. I've been in the home performance industry for about 10 years. Recently, though, at Advanced Home Energy, we chose to transition away from single-family home performance work. It was a bittersweet decision but it doesn't mean my time selling and completing those upgrades wasn't time well spent. I have learned a lot over the years and I want to share some of my knowledge and experience with the EFCA community.
I graduated with an undergraduate degree from UC Berkeley Haas School of Business. But, my passion has always been in social and environmental justice.
Right out of college I cofounded a nonprofit called Rising Sun Energy Center which trained and employed high school and college students to do energy efficiency weatherization in their communities. It started in my small apartment and eventually grew to a staff of hundreds during the summer throughout the Bay Area.
In 2006, I partnered with my cousin Dvir Brakha to start Advanced Home Energy in Berkeley, CA. I was in charge of the business backend and he was in charge of operations and running crews. Originally it was just us, two other guys, and an insulation truck.
Sometime around 2007 we took a California Building Performance Contractors Association (CBPCA), now Efficiency First California, 10-day course with home performance guru Rick Chitwood. It was an eye-opening experience. Because of it, we decided it was time to shift our services. We slowly built up our company offerings beyond insulation to include full-service home performance.
Soliciting All Contractors
Let us know if you'd like to share your experiences with the greater EFCA community. Contact us and pitch your blog post.