Price Versus Service

Bob Earl, CGR, CR, is the president of Casa Linda Remodeling, a high-end design/build remodeler in San Antonio, Texas, with annual revenue of $3 million. He has 22 employees. Clete Reinhart owns Reinhart Construction Company, a full line remodeling firm in Louisville, Ky., that also employs two lead carpenters and an office person.

February 28, 2005

 

 

Tom Swartz, CGR

Photo: Jack Grossman

Bob Earl, CGR, CR, is the president of Casa Linda Remodeling, a high-end design/build remodeler in San Antonio, Texas, with annual revenue of $3 million. He has 22 employees. Clete Reinhart owns Reinhart Construction Company, a full line remodeling firm in Louisville, Ky., that also employs two lead carpenters and an office person. Annual business averages between $500,000 and $750,000. This month Tom Swartz asks them which matters most: price or service?

Tom: What's an important factor in why you buy from a certain supplier of products or services?

Bob: One is the old saying, "Remember who brought you to the dance." A lot of old suppliers have been with us for years, and we still buy from them. They're still fairly competitive. They may not have the lowest price, but they always have very dependable service. It's going to get there when they say it's going to get there. They remember you in the good times and the bad. If you have a cash flow situation, you can just pick up the phone and say, "Hey Joe, it's going to be a couple of weeks," and you're good to go.

It's not the same with big corporate entities that are just looking at policy or the bottom line. If you haven't made that payment loop you're on a drop list, or a lien letter or something may go out. That doesn't happen often but when it does, it's a very sticky situation, and it doesn't matter how good a company you are.

Tom: So you stay with some of the mom-and-pop trade contractors and suppliers because of the relationships?

 

 

Bob Earl

Photo: Liz Garza-Williams

Bob: Yes. They've helped you out when things were tough, and when things are good you want to pay them back for the service that they've done in years past. Also, they're dependable. You can count on the quality always being there, and they're very consistent. In our business, being consistent is very important. If you can't count on it being done the same way that you need it done every time, then you have to retrain a new crew or a new trade contractor or whatever it may be.

Tom: Do you give the two or three places where you can buy the same products an opportunity to submit a quote?

Bob: Yes, we usually get two or three prices from our vendors. In all trades, there are some craftsmen who do an excellent job, some who do a pretty good job, and some who do a moderate job. The price is usually going to be reflected in how the finished product looks. Consumers today are pretty demanding and pretty knowledgeable, so when I'm getting a couple of prices, price is not always my final factor.

I try to marry the client with the supplier or the vendor or the fabricator. If it means paying more for the product because I know in this situation it's going to be a very important sticking point that it happens on time and it's exactly a certain way, the price won't even be a factor in the decision.

Tom: Sometimes price is a factor. Are your customers price conscious?

 

 

Clete Reinhart

Photo: O'Neil Arnold

Clete: Yes they are. My general clientele is middle to upper-middle class. We do a few high-end jobs, but for the most part we're in the middle. A lot of our work comes from referrals, so maybe if we go over their budget a small percentage they are willing to accept that. But I think that everyone has a number in mind.

Bob: I would say that all customers are price conscious to some degree. Even at the very high end. Whether you're a multimillionaire or a blue-collar worker, we all have our budgets, whether it's a budget we've set ourselves in our own minds or it's a budget we've been allotted from an architect.

Tom: At what point does price play a part in the relationship with service that you are going to get from a supplier or trade contractor?

Clete: Even if the price is lower, I'm still going to demand the same quality. It's what we've based our business on: value for the dollar and the quality that comes from that. We're not going to do a lesser job just to get the job.

Tom: Where do you buy your products from and why?

Bob: We are a dealer for KraftMaid Cabinetry, so that I buy wholesale or factory direct. Our lumber can come anywhere from Home Depot to a local lumber company. Two things make the determination: One is price. The second is availability. Sometimes it takes two to three weeks to get stuff in. If I need a package delivered soon so I can keep on schedule, I may pay $200 more. Rather than mixing and matching, I like to have one person responsible for one thing, and have structural members, trusses, specialty items included with the lumber packages. If it's a huge package and there's a vast difference in price, then I may break up the package.

Clete: I buy our lumber products from two regional distributors. It's a situation where we've built up a relationship over the years. I can get things done quicker and know who to call.

Tom: Do the distributors give you a break in price compared to somebody doing their own remodeling job?

Clete: We do get trade discounts, primarily in cabinetry and plumbing fixtures. We changed plumbing suppliers mainly because we were on a long delay getting parts and pieces, so we switched to a company that has regional distribution centers. We can easily get parts within three or four days. Price wasn't all that great a deal.

Tom: We used to buy direct from manufacturers. Is there a trend away from this? What can be saved? What services are lost?

Bob: It's diminished significantly. You have to buy doors through the lumber company or the mill shop — whoever is actually taking that particular slab and putting it together in the framework with the threshold and delivering it to your site. You're paying a little more for the product rather than assembling it yourself. You still could do that, but would probably not want to for liability and warranty issues. If you get it from the distributor on the track and it doesn't fit in the jamb right, you can send it back and there's usually no questions asked. That's a savings.

Tom: Talk to me about the differences in services that you might get from a locally owned lumberyard versus a box store.

Bob: Usually delivery is an extra at the box stores. It's not on your invoice, you have to ask if it includes delivery. I think some local managers through their contractor desk have the authority, at a certain price range, to deliver for free. At the lumberyard, it's already assumed and in the price of the package. The other service is what I call the take-back. If I have a leftover package whereby all the 2×4s or 2×6s or whatever weren't used, and we didn't cut them or nail them, I can call the lumberyard up, they come back out, they pick up the material, haul it back, and give me credit on it.

Clete: But don't you get a handling charge? Or restock charge?

Bob: Not here in San Antonio we don't. I don't know if the box stores would actually come back and pick up any lumber. I have not ever called them. Maybe it's just a false assumption I've made or maybe one of my superintendents informed me that they wouldn't pick it up so I just assumed that's the way it always is.

Clete: I feel more comfortable working with the local people. Again, the relationship that we've built up over the years, I know who to call to get what done and can push things a little greater. At the box stores, the guy may have just walked in the door and not have a good feel or the authority to do things that I can get done at the local store. The box stores will take materials back with no handling charge or penalty, whereas the local lumberyards, particularly if they have to come out and pick it up, will do a 10 or 15 percent restock charge.

Bob: One of the other different services from the local lumberyard is that sometimes they do their own shelf culling before you get the material. That doesn't mean you don't have to cull some of it, but I don't think it's to the same degree as you do with some of the box stores. You're going to get a better product versus the box store where they take a forklift and lift up 300 two-bys and off they come.

Tom: We are always challenged to maintain the best value for the money. Clients are more cost conscious, and if we are high, we better be able to justify by features, benefits, relationships and services why they should deal with us. What advice would you give remodelers when they look at price versus service and the importance of each one?

Clete: They're really almost equal, or they should be equal. Of course, everybody wants value for their dollar. If we have to make a change in a trade contractor, I will call around and find out a history of the person. If their price is lower and if it looks like they do nice work, I'll call several builders or remodelers and ask, "What type of job did they do for you?" The same way with products. We stick with people that we've used for a number of years. There's that comfort level. We extend that to our clients.

Can we sell the job just based on price? I don't think so. We sell our job on the fact that they're going to get a great finished product, that the people will take care of their residence while we're working there, and everyone will be happy when the job's done.

Bob: Our company philosophy is that we're never going to sacrifice quality for price. But we're always looking for new suppliers and new subcontractors. Usually it's to find the best product for the best price so that we can stay competitive and pass that on to the consumer. Because there's a point when you could cost yourself right out of business.

We won't try or use a new product or new service out on a real difficult, complex situation. When something goes awry, it's usually a salesperson missing a budget item or line item or wanted to really sell a job — it's not the client's fault. It was up to the salesperson to make sure the price was adequate so that everybody made money.

Tom: Have you ever had a salesperson make the price lower to sell the job?

Bob: Yes. They put in a hardwood floor of a certain quality but priced a different, lower-quality product nowhere close to what the consumer wanted.

Tom: And what do you do there?

Bob: It comes out of the commission check of the salesman. Our salesmen have ponied up to the plate and said, "Here's the $4,000 I owe the company because this thing lost money."

About the Author


Overlay Init