Over the last few years, we have slowly let ourselves lose leverage with our trade partners. We handled everyone with kid gloves out of fear that if we “held the line” they would quit. So, we accepted every price increase. We paid every VPO without dispute. We put up with poor quality work. We put up with no-shows, increased durations, etc. Are you ready for that to change?
Well, the only upside to a down market is that we should now be regaining all the leverage we lost. If it hasn’t already, the tide will slowly begin to turn in your market. Suddenly, trades will be coming to you looking for work. Material shortages will be less of an issue. How do you leverage this shift in your favor? How do we get everyone back in the box?
The first thing we must do is tackle our mindset, our beliefs. We have had three years of being beat down. If your Purchasing department and/or superintendents are relatively inexperienced and all they know is the “COVID market,” then this will be an even tougher obstacle, and your trades will take advantage of this. Your team will not believe that they can ask for a price decrease. Your superintendents won’t believe they can hold a trade to his Scope of Work. You must help them change their beliefs.
How do we change beliefs?
First, you start with low-hanging fruit. You start with what will be easy “wins.” Do you have a framer asking for more starts? Do you have a lumber company offering you more slots? Start there. If someone is asking for more work, then you automatically have the leverage. Negotiate a higher percentage of starts if they will lower their price by X amount.
Secondly, don’t let your team get discouraged. TD Jakes is credited with saying “you get what you expect.” If your team goes into negotiations with a trade expecting them to say no, they probably will. Not because of some magic at work, but because they won’t be approaching the conversation with confidence and authority. They will approach it already defeated and hating that they even have to ask. Your trade will pick up on that, and suddenly, they have the power to say no. Educate your team on why it’s acceptable and necessary to renegotiate and get their buy-in. If they believe in what they are doing, they will have more confidence. Train them on how to overcome objections. Help them learn from failed renegotiations. Encourage them to be resourceful and think outside the box to find new trades and suppliers. As they get more and more wins, their confidence will increase and they will find themselves loving the challenge of asking for price decreases, higher quality work, more crews, etc.
Lastly, celebrate EVERY win, no matter how small it may seem. Did someone negotiate a decrease? Celebrate it! Did a superintendent push back on a VPO and hold the trade accountable to his Scope of Work? Celebrate it! Why? Not because everyone needs a pat on the back, but to encourage everyone else to believe that it’s possible. USE EVERY WIN TO CHANGE PEOPLE’S BELIEFS!
The market is changing. Now is the time to start renegotiating to lower your costs. Our team at Shinn Consulting is here to help. We encourage you to register your purchasing team for our next Negotiating to Win Workshop where they will learn practical negotiating skills and how to leverage the market to cut costs.
Shinn Consulting is committed to helping home builders thrive in times of growth and survive in times of crisis. Contact us today at firstname.lastname@example.org
or 303-972-7666 and discover how we can help you position your business for success in any market conditions.
Kim Dickson is a consultant at Shinn Consulting. She is passionate about people and processes. Her areas of expertise include purchasing, negotiations, processes, scheduling, and quality control.