# Customer wants us to cut our rates



## JR Shepstone (Jul 14, 2011)

I'm talking out my ass here, but give it to them this way:

Make a concession. Lower your costs. But watch the oil market. Once cost per barrel starts going up, send them a notice that your costs are going up. It's only good business practice. 

In the meantime, I'd start finding another big company to fill the void.


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## 480sparky (Feb 1, 2009)

bdog1234 said:


> ....... If we tell them no and they go looking for another contractor that would put us in a big bind at least short term because we have been so dependent on their business......


Holy Mother of God.... *do they ever have you by the short hairs*!!!! 

They'll be looking for another contractor when you go belly up. All you're doing is postponing the inevitable.


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## We Fix Houses (Aug 15, 2007)

You're giving them 2% per month right there....

Fax over new terms...1.5% disc 25 days from invoice date. What do you have to loose ?

That's their discount. They understand this stuff.

They pay from an AP aging report. Amount - Discount - Terms. Your invoices end up at the bottom of every AP report. They don't pull invoices to be paid out of a fishbowl..

Don't ask them, inform them....just fax it over, see what happens..you can't do any worse.


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## CompleteW&D (May 28, 2011)

bdog1234 said:


> Good points but they are no where near putting us in bankruptcy. Quite the opposite actually. Last year alone we had a six figure net profit on the work we did for them.
> 
> Yes I know they don't care about me, my business, or employees and the slow pay stinks but we run our business debt free and have ample working capital so it doesn't kill us waiting on the payment. It would be one thing if we were up to our eyeballs in debt paying interest monthly to the bank and waiting on payments but as it is by them slow paying me I am missing out on the 1/2% my bank pays me on our savings account.
> 
> If we were balls to the wall busy I would likely take your stance but our work is fairly slow right now and this sure helps to fill the gap.


Then why even bring it up at all if you're in such good shape and making so much $$$ off of them?!?

Look, I'm not busting your chops, but you need to decide whether you are running a *BUSINESS* or funding and subsidizing a large corporation, just because you care about them. 

Like what's been stated above, do you think their creditors care that oil is $50 per barrel and not $120? Or that they have a complex accounting system with tons of red tape? :no:

If their bill/payment is due in 30 days and they don't pay it.... there is a 1.5% (or more) finance charge tacked on period, end of story. If they continue slow pay, they will be put on COD, period end of story. If they continue to drag their feet, they will be cut off entirely.

That's just the reality of doing business.


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## avenge (Sep 25, 2008)

bdog1234 said:


> No. The work is for our client's own projects. They are a major oil company.
> 
> The work we are doing really has nothing to do with the oil directly but that is the industry they are in.
> 
> ...


So when it was $120 were you charging them over twice what you are charging now? Seems fair to raise your rates each time a barrel goes up in price.


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## CarpenterSFO (Dec 12, 2012)

I can understand that there's a particular reality of doing business, in one industry, in one area, and that if you choose to work in that industry, in that area, you accept that reality.

It's probably worth looking at the details, as they add up, though - We Fix Houses is exactly right about payment. There's not a big, slow, bureaucracy, but an individual analyst in the controller's office who looks at your invoices each month and makes a specific, positive decision not to pay you.


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## Creter (Oct 13, 2009)

bdog1234 said:


> We do with other oil related companies. When times get slow every service company charges less. When it starts booming the service companies all jack their rates up. It is kind of a supply and demand thing. When there is not much activity and crews are sitting idle they lower rates to get work. When things are busy and crews are hard to find you can charge what you want. Most our customers are small mom and pop type places and everything is real casual. This mega corp does things their way and if you don't like it they will find someone that does. There is no changing the way they operate. My invoices are submitted to website and are processed in some foreign country.


If you know the rules to this niche market why raise any questions to us at all? 

Taking the obvious great pay times with eh, it's just ok. You said you are still making money now - just not THAT much money as you were. 

Frankly, I don't see the issue nor does this topic matter to me moving forward. Best wishes


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## 480sparky (Feb 1, 2009)

For some reason, I'm suddenly compelled to wonder how this would play out on_ Shark Tank_?


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## Framer53 (Feb 23, 2008)

Guys I think we are being hard on him.
I used to work for a company that was in danger of not making money and we know where that leads.
The fact is the best answer is the discount if they tighten pay schedule. I work for one of the largest corps in the word also and I never let them go over 45-50 days.

Now what happens if gas and oil prices increase, then don't be shy about raising rates.
There accounting system is set up to take advantage of the people who do not give discounts for paying in shorter pay schedule. This is how you negotiate and they will understand. Not only that but their complicated accounts payable system will suddenly be able to get more prompt payments.

Cash on hand is worth more than the 1/2% interest the banks is paying. You are forgetting opportunity cost of capital.

By allowing them longer terms you are just lending them money and trust me, oil companies are not going broke, just making less currently.

Good luck with whatever you decide. By the way, start with discount of 2% not 5%.


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## AGullion (Apr 19, 2015)

Here's the deal:

Once you start giving, it won't ever stop.

Also, if you could do it cheaper , why haven't you is the next thought they'll have.

Also, will they require less service or quality in exchange ? ie; we ll have material onsite for your people, etc.

Is NOT doing this going to cost you the account, is doing it going to to make you wish it had?

I'm flexible where and when I want to be on prices, and usually it has to be a situation where they are great to work for . 

These are just thoughts that come to mind .


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## pcplumber (Oct 12, 2008)

bdog1234 said:


> We do with other oil related companies. When times get slow every service company charges less. When it starts booming the service companies all jack their rates up. It is kind of a supply and demand thing. When there is not much activity and crews are sitting idle they lower rates to get work. When things are busy and crews are hard to find you can charge what you want. Most our customers are small mom and pop type places and everything is real casual. This mega corp does things their way and if you don't like it they will find someone that does. There is no changing the way they operate. My invoices are submitted to website and are processed in some foreign country.


If it is a mega corporation like you say, then instead of their earning $500 billion a year they are now earning only $250 billion. It is difficult to understand how a company dealing in such huge amounts of money filters their expense cuts down to smaller contractors.

It sounds like you answered your own question when you said they will get someone else if you don't cut your prices. If you are going to consider giving up some of your bread and butter to butter up some bigshots at the oil company then the bigshot should be willing to spend a significant amount of time to discuss what you are giving up and there should be some sort of trade where you receive more work or some sort of guaranteed profit and this should be in writing.

On the other hand, if your profits are already too low then I would still sit with the bigshot and lay my numbers on the table and try to get prices cut a minimum and both sides are still sort of winners.

At the same time, I always look for new customers. Never put all your eggs in one basket.


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## VinylHanger (Jul 14, 2011)

Seeing as how I and most on here don't swim in six figure profit circles I really can't relate. However, I think that a lower rate tied to getting paid sooner is a good compromise. It sounds like a few percent won't break you, and eventually prices will go up.

Just make sure you put in any negotiation that you will renegotiate pricing at a certain interval and tie it to the price of oil going up.

Just my two very small cents worth.


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## Metro M & L (Jun 3, 2009)

Like previously mentioned, offering 5% is too much. I'd start by telling them that 5 percent is your ENTIRE profit margin. Its already razor thin; they are getting the best deal you can give them period. Maybe you could do 1% but that would by far be all you could afford to do. 

I would be very worried that if they're asking for discounts now, will I be stiffed for everything if things get a little bit worse for the oil companies?


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## 480sparky (Feb 1, 2009)

Framer53 said:


> Guys I think we are being hard on him.......



_*We're*_ being hard on him?

What about Big Boo Hoo Corp?


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## asevereid (Jan 30, 2012)

I think the best advice so far has been to offer a discount on invoices paid within a specified time frame, and even then, just a small discount.
To the OP, you gotta do what you gotta do. Hope whatever you choose works for you.


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## Calidecks (Nov 19, 2011)

asevereid said:


> I think the best advice so far has been to offer a discount on invoices paid within a specified time frame, and even then, just a small discount.
> To the OP, you gotta do what you gotta do. Hope whatever you choose works for you.


I agree, don't give anything without at least getting something in return.


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## TaylorMadeAB (Nov 11, 2014)

I don't believe for a second that they aren't making money with oil this low. Sure they are making less that last year, but it's more than any of us will ever see. 
I couldn't imagine asking one of my subs to work for cheaper because I want to make more money. And I sure wouldn't accommodate someone asking me to do it either. 
If they can't afford the work, don't ask for it to be done. End of story.


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## Calidecks (Nov 19, 2011)

TaylorMadeCon said:


> I don't believe for a second that they aren't making money with oil this low. Sure they are making less that last year, but it's more than any of us will ever see.
> I couldn't imagine asking one of my subs to work for cheaper because I want to make more money. And I sure wouldn't accommodate someone asking me to do it either.
> If they can't afford the work, don't ask for it to be done. End of story.


It's one thing if they came to you because they truly were having problems putting food on their families tables, but what they are really trying to do is get that bonus for meeting a target that was proposed.


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## builditguy (Nov 10, 2013)

If you lower your price, when oil goes back up, why would they pay more. They are going to continue to pay you the lower price.

You need to find a compromise. Figure out a way to reduce costs. Just because they are "losing money" doesn't mean you have to loose with them. 

There has to be a way for you to lower the cost to them and still provide almost the same level of service. When people want me to drop my price, I ask them what they want to leave out. During this tough time, what can this company leave out, until they get back on their feet?

They are pushing you way too far out on paying you. When they go belly up, you will be out.

How about you give them a small discount, if they agree to pay their bills within 30 days? This way you are giving up a small amount of money, which you said you can do, and they are saving money, which is what they want to do.


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## MarkJames (Nov 25, 2012)

5% is huge. 

I've been involved in a couple business that had to seek those concessions and reductions from vendors, etc. When they get them, often they feel they were overpaying to begin with and credit themselves for discovering them. I recall our president at a medical company hiring a new purchasing director and his #1 mission was to renegotiate all accounts, pricing and terms. Anybody that gave him grief (he got into this at a visceral level) was replaced as soon as we could. There was ZERO concern for the vendors (or our end users for that matter) as we started going with cheaper goods. Oh, and the purchasing director had incentives & bonuses to do all this.)


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## bdog1234 (Feb 25, 2008)

Quick update. We lowered rates some and have been staying busy. It is not as profitable but we are still making a profit. I know of two competitors that have folded up since the original post. I guess lower paying work is better than no work. We are doing all we can to diversify but for now we are keeping the lights on.


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## Metro M & L (Jun 3, 2009)

Nice job, oil will come back up, I'm guessing in about twenty four months. It'll be your turn to drop the bad news on them.


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## Calidecks (Nov 19, 2011)

Metro M & L said:


> Nice job, oil will come back up, I'm guessing in about twenty four months. It'll be your turn to drop the bad news on them.


Now that oil is what determines the price of his construction services.


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## TNTRenovate (Aug 19, 2010)

bdog1234 said:


> Quick update. We lowered rates some and have been staying busy. It is not as profitable but we are still making a profit. I know of two competitors that have folded up since the original post. I guess lower paying work is better than no work. We are doing all we can to diversify but for now we are keeping the lights on.


I got myself into a pickle during my second year in business. It was a sweet deal. I hooked up with a local plumbing outfit who also specialized in bathroom and kitchen remodels. They had a nice showroom and were busy.

We started handling their bathroom remodels. Before I knew it we were doing three to four a month and it was growing. After a year, I realized that the pricing model I was using was just barely keeping from going in the red. I started slowly raising my rates and padding my estimates for the aspects that were communicated or communicated poorly. After a few months they mentioned that I was getting a bit high, so I backed off a bit. It was late December when we wrapped up a large project and were taking a week off for Christmas.

We were to start three project in January. When we came back from Holiday they told me that the two that we were on the schedule had to be postponed due to customer related issues.

After a week, they told me that they would call when they were ready. I never got the call and they pretty much just left me high and dry. The kicker was I had put all of my eggs into that basket. It took me 6 months to start to recover. My advice is do what ever you can to get out from under that thumb.


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## bdog1234 (Feb 25, 2008)

Californiadecks said:


> Now that oil is what determines the price of his construction services.


I totally get what you are saying but it is a complex situation and hard to explain in a few forum posts. They really like our work and don't want to choose someone else but they are being beat on daily by upper management to reduce costs. My contact (who I trust) told me that they were told to get all vendors to reduce rates and any that would not search out alternative contractors. My guy doesn't want someone else but the reality of it is he would basically be forced to if we didn't make some sort of concession. 

In my area a lot of people are being laid off and many contractors are hungry for work. Like I said this has been an eye opener for me in not putting the eggs in one basket.

The raising the rates when oil goes back up will be interesting but not impossible. The whole reason we got involved in the first place was when things were booming they offered is crazy high rates to come work for them. It really is a boom and bust cycle.


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## META (Apr 9, 2015)

Right, and oil prices might stay below the mid $70s for a few years to come. It's hard to speculate what price range provides the catalyst for price increases, but a %50 rise in oil prices by no means implies a %50 rise in one's service pricing. In other words, the ability to modestly raise service pricing may require a 75-100% price increase in present crude oil pricing (around mid $40s). 

One main reason oil prices decreased was because of the increased production ability of the US sector. I don't see that macro-global fight going away soon being OPEC and other major producers all want market share. It's a battle that favors low cost producers...and the US is not one of those.


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## KAP (Feb 19, 2011)

bdog1234 said:


> I totally get what you are saying but it is a complex situation and hard to explain in a few forum posts. They really like our work and don't want to choose someone else but they are being beat on daily by upper management to reduce costs. My contact (who I trust) told me that they were told to get all vendors to reduce rates and any that would not search out alternative contractors. My guy doesn't want someone else but the reality of it is he would basically be forced to if we didn't make some sort of concession.
> 
> In my area a lot of people are being laid off and many contractors are hungry for work. Like I said this has been an eye opener for me in not putting the eggs in one basket.
> 
> The raising the rates when oil goes back up will be interesting but not impossible. The whole reason we got involved in the first place was when things were booming they offered is crazy high rates to come work for them. It really is a boom and bust cycle.


Any transition time would be better cushioned with 3-6 months capital reserves and emergency fund... TNT's post is an example of why that's so important...

If you don't have them now, hard to see how you're going to get them by lowering your rates to your largest customer without them giving up anything in return...

Hard pill to swallow coming to the realization that they may no longer be a customer that can support your business especially when they make up a large percentage of your business... but hopefully, it's a wake-up call to start the process of replacing them with customers that can support your business and putting in place 3-6 months of capital reserve and emergency funds...

When your margins are that tight, all it takes is one major issue to start the domino's falling...

Best of luck... 8^)

.


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## platinumLLC (Nov 18, 2008)

I didn't read al the replies so I may be repeating other posts. But first thing first, you have to be making money. If you can do the job for a little less and still make profit and have some guaranteed work then it may be worth it. Sometimes if the work is guaranteed even if you aren't making your top dollar it is worth it. This is a fairly common business practice to give a discount to volume work, or give a discount for volume buying. 

Now, I would be figuring out something to try and make it not so one sided. Either tell them you want to be paid in 30 days. Or tell them you want a guarantee of *** days and make it worth it to you. Say you worked 150 days for them last year. Tell them you want a guarantee of 200 paid days this year and you will be able to lower your rate. Depending on your working relationship with them there may be other things that you could ask of them to make it worth your lowering the profit. 

Do you supply material for the work? If so call your suppliers and ask them if they can work with you at all on pricing for this customer's materials. Spread the loss out as much as you can instead of taking the whole hit yourself.


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## chew (Apr 5, 2012)

bdog1234 said:


> I totally get what you are saying but it is a complex situation and hard to explain in a few forum posts. They really like our work and don't want to choose someone else but they are being beat on daily by upper management to reduce costs. My contact (who I trust) told me that they were told to get all vendors to reduce rates and any that would not search out alternative contractors. My guy doesn't want someone else but the reality of it is he would basically be forced to if we didn't make some sort of concession.
> 
> In my area a lot of people are being laid off and many contractors are hungry for work. Like I said this has been an eye opener for me in not putting the eggs in one basket.
> 
> The raising the rates when oil goes back up will be interesting but not impossible. The whole reason we got involved in the first place was when things were booming they offered is crazy high rates to come work for them. It really is a boom and bust cycle.


Congratulations on keeping the customer. Now you must prepare for what will probably happen next. Your contact will loose their job and be replaced by someone less qualified & being paid less. Hopefully you will be able to keep your customer, but be prepared to loose them. Your new contact will probably have no clue how to do their job & will listen to the garbage their bosses are feeding them. They will try to cut costs even more without any care or idea that will have on the tasks they are trying to complete. Hopefully your work has investment in equipment that will keep some of the recently unemployed from starting a company & trying to take your work. You already have one thing in your favor that most new companies can't do & that's to wait for their money.


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