Redefining Your Strategic Alliances (part 2)
Last week I explained what our company did to ensure that we would be every subcontractor’s favorite remodeling contractor to work for.
I also listed the actions we took at our subcontractors’ requests to ensure we attained and maintained a strong relationship.
If you missed the article, you can read it here.
In the past, I’ve received several comments about how crazy we were for “giving up” so much. But what they failed to realize was that I never gave something for nothing.
Whenever I agreed to their dozens of suggestions and requests, I always asked for a few things in return.
Here is what I requested of those subcontractors from part 1:
- If you no longer have to go walk jobs and give an estimate on your costs and thus let me assume all estimating responsibility, I want a 1.5% reduction in your cost to me. In addition, I expect you to agree to annual contracts based on fixed-unit price costs, adjustable only at six-month intervals. Those adjustments must be in writing.
- If I assume responsibility for direct payment to each of your suppliers by wire transfer before a job starts, then I want a 1% reduction in your cost to me. (When I did this, I also negotiated a couple points from each supplier. That still allowed our sub to make their margin on products within their scope of work.)
- If I provide you with accurate scopes and plans and prove we can schedule projects ahead of time — so that you can count on our schedules every time — I want to know that every employee you send to our job has had an orientation on our company core values. We also pick which of your crews we want because I want to know you will never disappoint me in not making our schedule.
- In protecting you from the homeowner, we expect that you will never voluntarily engage with that homeowner, issue opinions on design or other trades’ work, or issue opinions on protocol. Those issues that come to your attention bring them immediately to our project manager on the job.
- If I assume the greater part of your paperwork and supply you with pre-printed invoices to submit on certain dates, and if I also guarantee payment in 15 days or less, I want a 2.5% reduction in your costs to me. (We had two monthly pay dates for subcontractors, the 1st and 15th of every month: invoice in by 1st, paid by 15th, in by 15th paid by 1st. )
- If I can show you we will never call you to a job that isn’t clean and prepared for you, so you can get in and out at the highest level of craftsmanship in the most efficient manner, I want a 0.5 % reduction in your cost to me.
- If I allow you to review my team’s performance regularly, hold best practices round-tables with you regularly and invite you to job completion celebrations with owners and their friends, you will refer me and only me to every homeowner you contact in conducting your business outside your work for me.
In negotiating with the subs, I learned early on it was much easier to define each thing we would do for them and then ask for a little in return each step of the way, rather than listing it all and asking for a 5.5% across-the-board reduction.
At our markup, that 5.5% reduction in costs would have meant nearly a 10% reduction in sales price!
Without touching our margins we speeded up our jobs; we cleaned up our jobs; we drove customer satisfaction through the roof, and we developed the most efficient and predictable production department I’ve ever experienced.
In our negotiation with each sub, we also made them aware that if they broke any of our mutually agreed upon criteria, we had another qualified sub on our list of preferred subcontractors waiting to take their place as our #1 sub in their trade at a minute’s notice.
What about you?
Are you leveraging the potential benefits of a strong strategic alliance? What steps have you taken to facilitate a win-win-win relationship with your subs? Please share in the discussion thread below!