Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
22 Aug 2025 · 5 min
0:00
In this episode of Double Your Profit, the host explains how vendor negotiations can be the quickest way to boost profit margins by at least 10%. He outlines a systematic approach: regularly review cost structures by category (HVAC, generators, water heaters, pipe and fittings) every 3‑6 months; assess delivery models such as vendor‑managed inventory (VMI) or multiple daily deliveries; scrutinize payment terms and push for prepaid discounts. He advises that the regular buyer should not be the negotiator; instead, use a designated “bad‑guy” who can demand better terms. When renegotiating, collect 3‑4 competitive bids, set hard deadlines, and create urgency. Benchmark prices by asking peers and even using AI tools like ChatGPT to uncover market rates, which can reveal dramatic gaps (e.g., 18 ¢ vs. 50 ¢ per shirt). Finally, promise volume to vendors to increase leverage. The host emphasizes that these tactics improve the P&L without altering operations, making vendor negotiations the easiest profit lever.
Chapters
Welcome back to Double Your Profit. I hope you're enjoying our series so far. Today, what we're talking about is vendor negotiations. If you absolutely had to, gun to your head, save 10%, what is the easiest place to find 10%? Probably from the title, should be vendors. Vendors are going to be the simplest way to save money. And I've talked to people that are big businesses that don't negotiate purchasing nearly as often as they should. We have great relationships with our vendors, but we do regularly bid accounts and we do hold them accountable to what we're looking for in a partner, just like they hold us accountable to the same. Are we paying on time? Are we buying the volume that we said we would buy? And for them, same back. And then are we getting the prices that make sense for us? You are in the business of profit, and in order to do that, you need cost-efficient materials delivered on time with terms that make sense. So let's hit those 3. Cost-efficient materials. Every 3 to 6 months, depending on the item, we are reviewing the cost structure for categories. So what's our HVAC equipment? What's our generators, water heaters, pipe and fittings? And we're reviewing this by category to make sure that they are in line with what we expect. Now, this does help when you start moving a lot of volume, but even smaller businesses can have a lot of sway. Small businesses become big businesses. So what you're looking for is a partner, but you need to know what you're looking for on the way. You walk in and you look for what you want. I need deliveries on time, or I need vendor managed, or I need consignment inside my warehouse so that way it's easier for us to get parts. A lot of our vendors have turned into VMI, which means that they have a location inside our warehouse, or they offer 1, 2, or 3 times a day deliveries in order to keep us stocked and moving. The final thing that's pretty helpful here is terms. What terms means is what do the payment terms look like? How many days do I have to pay? What do I get if I pay early and how can I pay? We also push hard on prepaid discounts. Just because you have 60 days doesn't mean you need to pay in 60 days. You could pay at earlier frequencies and get a hold of those discounts. Now, some tips on negotiation with suppliers. Whoever's regularly doing the buying should not be the one negotiating because the reality is you need a bad guy. You need someone who's going to come in and ask for what you want. Regardless of current relationship. When you decide you're gonna bid an account, you want to collect 3 to 4 different vendors, decide on what you want out of that relationship, set meetings, and set hard deadlines. Time kills deals, and if there's no urgency, you are not going to receive urgency from the person you're negotiating with. One of the most important things that I have found inside negotiation is understanding what is possible. You wanna find out what is the lowest that someone can offer this thing. Uniforms for us is about a $150,000 a year line item, so we are looking for ways to make that better. But I didn't really have a good sense of what shirts cost, so what I did was I called a couple friends. I said, hey, what are you paying for your shirts? Then I went to ChatGPT and I asked the same thing. Hey, what is the lowest recorded price for a Cintas shirt rental? And they told me it was like 18 cents or 15 cents or 20 cents. It was, it was something like that. The first quote we got was 50 cents. I mean, that's a big difference. Like, I don't know if ChatGPT is lying or whatever, but like, that's a really big difference. So I walked in and I told them that I wanted to see 18 cents, and we got 18 cents. So we got a 60% price reduction because I benchmarked it against what other people were getting, asked ChatGPT, and I tried to understand the dynamic of the level of account that we were bringing to them. And then I just asked for it and we got it. My final note on vendor negotiations is volume is key. When you're working through these conversations, you want to be able to promise volume because that's going to drive some of the additional urgency. I don't know if I'm going to buy $50,000 of parts for this department or $100,000 of parts for this department in any given month, but on average, $70,000 to $80,000 just between the two of them is where I'm going to land. But you want to be able to promise volume because that's going to get them more excited to work with you deeper. So vendor negotiations are extremely powerful. They're an incredible way to drive profit to your P&L without impacting anything else inside the business. You are already paying these suppliers and you are already buying these things and you're just saying, hey, I want better for the exact things I'm already doing. And that's what makes this the easiest way to drive additional profit to your bottom line. Make sure you like and sub.
