Kevin Gurski of SGI shares negotiating strategies you can utilize to drive your costs down every single year to maximize your profit.

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Every year you got to find your 3% caper. And I remember sitting there, I go, Paul, what do you mean by this 3% caper? He goes, you got to find a way to reduce your expenses by 3%. And, uh, and, and what was What's interesting with him is it's a novel concept. The first year or 2 that you try this 3% caper, it's easy. It's easy to find a 1% here or a 2% there chunk that you could be able to get, but it makes a big impact to your business. As you start doing this and implementing that 3% caper into your business, it gets more challenging 5 years, 10 years down the road, but you can do it. Now, what you have to do is take a more surgical approach, and instead of maybe finding that 1% Right. You might have to find a 10th, a quarter of a percent here. You might have to find, um, you know, 30 basis points. But I always recommend every single year you should task your team to find a 3% reduction in, um, your expenses out there. And it could be across the board.

Yeah.

But if you're able to do that and then continue to grow the top line, it can do some great things for your business.

Welcome to the Successful Contractor Podcast, powered by Success Group International, a show for residential contractors about residential contractors. We chronicle business journeys, share insights, and celebrate successes in this wonderful industry. I'm your host, Bob Houchin. Today you're going to listen to a conversation I had with longtime SGI team member and a good friend of mine, Kevin Gursky. As he'll share with you, Kevin's been with the SGI family in one position or another for 15 years, and now He's a director of SGI's Partner Network. In Kevin's role, he negotiates pricing with the vendors, suppliers, and manufacturers SGI members utilize every day in their businesses. I sat down with Kevin to talk about the strategy behind negotiating pricing. Every percent or 2 or 3 you can save is money you can obviously put on your bottom line. I hope you enjoy our conversation.

Well, Kevin Gursky, thank you so much for, for taking some time with me and the audience. We're looking forward to hearing your insight on a very important topic. But before we dig into it, for those who haven't had the opportunity to meet you yet, could you please share with everyone your name and your role with Success Group International?

Certainly, Bob. Certainly appreciate the opportunity to be here with you on the Successful Contractor Podcast. My name is Kevin Gerzke, and I am the Director of the SGI Partner Network and have been with SGI— actually this year, Bob, it will be 15 years. I've actually done a lot of different roles within our organization. Been on the ops team. I helped launch and then support the, the Roofers Success International division. I then was also the director at BIMAX, so I managed that buying group. And then when I transitioned over to SGI, I helped create a new sales channel. And, and then once we decided we were going to launch our own buying group, Rebecca gave me the opportunity to create it, launch it, and then grow it.

Very good. And for any contractors that are not affiliated to SGI, can you kind of explain what a buying group is, what the partner network is exactly?

Oh, certainly, Bob. So what we do is we're a membership organization. So we have over 900 contractors that are part of our organization. So what we're able to do is leverage our spend and present the opportunity to gain share with our members to partners out there. Now the thing that's very interesting is I don't control one single dollar. It is and influence spend. I can't guarantee any of our partners are going to be able to get any sales or purchase— additional purchases from our membership, but the exciting thing is we do that. Because of the success and the growth that our members have using our tools and systems, our partners have seen tremendous growth with our membership, and they love aligning with us. In fact, many of our partners send recommendations or contractors our way that they're already doing business with because they see that our tools, systems, and processes help turbocharge their growth. In essence, what we then do is offer discount savings or rebates that our members as an individual company would not be able to get because we leverage the size and the scope of the 900 contractors that we work with today. Right, right.

Very good. How many— I mean, I'm putting you on the spot here now, but how many partners do we have roughly under the Partner Network umbrella?

So we work with about 120 different brands, and the reason why I say brands is we have certain agreements with manufacturer or parent companies that encompass multiple divisions. So a great example, we've had a long-standing relationship with Amana, Goodman, and Daikin. The agreement is with Goodman, but our members earn rebates on their Goodman purchases, their Amana purchases, and their Daikin purchases.

Right, and we have all sorts of stuff too. It's not just equipment. I mean, there's things like, uh, Basic business expenses, like with staples. I mean, it really runs the gamut.

It does. We work with almost anything that is on a P&L that a contractor can have. Of course, we like to get the big-ticket items, the equipment. We also get the parts and supplies. We do uniforms. We have rebates on third-party financing, vehicles, office supplies. We have partnerships with almost anything that is on your P&L, credit card processing. If you are spending on it, we've probably looked at it, and if it's not, a partner that we have, it's probably because it's not worth the squeeze in generating a rebate program with them.

Right. All right. Well, for SGA members that know all this, they're probably rolling their eyes. But for the audience that we get that's outside the group, I just wanted to explain to them— well, through you, explain to them that these types of organizations exist. But yeah, this wasn't meant to be an advertisement for Partner Network. Instead, I wanted to leverage your insight because you've been in the space. for so long, to talk to members and other contractors about the value of always reviewing your equipment and materials prices. Because, you know, as an organization, we talk so much about how to increase top line and bottom line in terms of increasing efficiency and stuff. But the one thing I think often gets overlooked is, hey, if you manage your materials and that stuff, you know, there's profit margin to be made there. First question in this space here, Kevin, is how often should contractors be reviewing their pricing?

Well, at a bare minimum, Bob, I think everyone should be reviewing their discounts, rebates, pricing, additional services every year. I think it's really important that they take a look at it at an annual level because as you grow, you're going to be taking on more products, more people, and your purchasing power is going to grow. So I think at a bare minimum, every single Every single year, you should review this with— and what I often recommend doing is start off small. Let's identify the top 10 largest expenses that you have on your financials.

Okay.

Find out what those biggest expenses are, and then start talking to the supplier, the distributor, or the manufacturer that goes in there. Typically, what I find, the biggest expenses are, of course, equipment. If you're an HVAC contractor, it's going to be AC or furnace, plumber, water heater, electrician, it's going to be panels, and roofers, it's going to be shingles out there. Then another one is the parts and supplies that help make that equipment run, and also the stuff that's on your truck each and every day. Another big one that people forget about, employees. Employees are a very costly expense on your P&L. Also, marketing is a big one. Everyone wants to get that phone ringing, and now aggressive companies are spending 10% of their budget on marketing out there. So if you could shave a couple points there, it could be huge. Vehicles are also very important. You want to make sure that your vehicles are out there running. If they're not running, it's costing you money. Fuel, of course, is very— well, I should say fuel at times can be very expensive. Gas is dirt cheap now, but I can remember a time when it was, you know, almost $4 a gallon out there. And then another one that really adds up that people forget about is financing and credit card fees. We actually have some members that have been able to save almost a quarter of a million dollars by tweaking and doing some different approaches on credit card financing and also third-party financing. Very interesting.

Very interesting. So if I'm a contractor, I'm looking at these top 10 vendors I'm doing business with, and I go, okay, I want to approach them about seeing how I can lower my costs. What does that negotiation strategy look like? How should that conversation go with my rep? Can you kind of walk us through how we can maybe make that less uncomfortable?

Certainly. Well, the thing I think is really important is when you take a look at negotiations, negotiations can save you A ton of money each and every year, but people are afraid of it. You know, they, they, they feel that I'm not a good negotiator or I don't want to look silly. I'm afraid of losing what I have. So they get very nervous. I think what you need to do is really pick a negotiation strategy. And I believe this, it really comes down to that there's 2 negotiation strategies. The first one, and it's one that I believe in, is creating a win-win situation where both you as the contractor win and then your partner wins. There's also this win-lose strategy. Unfortunately, I think that's a little bit more old school where if you enter into a negotiation, you expect to win and the other person loses. You can make that work every once in a while, but eventually you build a reputation of being— looking out only for yourself. So I first off recommend identify what kind of strategy you do want to have. Do you want to be in that win-win category or do you want to be in that win-lose category? By making that decision, it'll make life so much easier, and it'll help you guys out. Once you decide that, identify those big expenses out there. Then what I recommend, notify the partner that you'd like to do an annual price interview, and explain to them, hey, this is what I'm looking to do. I'm looking to lower some costs. I'm also looking for service. Explain the factors that you're really looking into. There is nothing wrong once you get into these discussions and sharing that You're going to be doing this, that you start researching some of your competitors. Because I think a lot of times people get complacent. They get real excited, or I should say they get— they say, hey, you know what, this guy's been my buddy for years. He's given me tickets. He's taken me fishing. He's taken me golfing. And they sometimes don't realize that there's better opportunities out there, especially as you've been growing and you've been adding more trucks on the road, your volume is going up, and you've had more efficiencies out there.

Yeah.

So once you get that all figured out, go out, talk to your current suppliers out there, but then also research and go talk to some other folks out there. And don't be afraid to tell them exactly what you're looking for, you know, and don't be afraid to ask some of those questions out there. You know, there is a big difference between being aggressive and being assertive. And I want you to be very assertive, explain the needs that you have, explain what you're looking for in a partner so that those partners know exactly where you stand. Right.

You mentioned this win-win philosophy. I'm kind of intrigued by that. How do you position it, the conversation with your supplier and how they can win? I mean, is it just saying, hey, if you can work with us a little bit on this, I can assure you we're going to do X amount in— we're going to buy this amount from you, or we see we're going to grow in this category and so we'll buy even more than we have been buying, or how do you make them feel good about coming halfway?

Well, I think it's really important to take a look at the negotiation from both sides of the table. It's really important to understand what you want to accomplish, but then you also have to understand what you— or what the person across the table is hoping to accomplish from you.

Right.

And that's where I think sometimes people get one-sided. They don't think, what's in it for my supplier or my manufacturer out there? And I think one of the things that really has helped me With my negotiations is early in my career, I was a manufacturer's rep. And so I understand the challenges that, that these manufacturers have. And also I've worked with a lot of wholesale distributors. I understand what they're doing. And just as much as we want to grow our business each and every year, we want to grow 15 to 20%. Well, guess what? Your manufacturer, your distributor, your service provider has those same goals. And that's where I recommend asking the questions. Find out what their goals are. Find out what the initiatives are within Their organization. And then the cool thing is they might be similar goals that you have that you're going to be able to help grow. Like, a great example for our HVAC members out there, imagine if you really want to focus on high-efficiency equipment. Well, guess what? I bet you the manufacturer has incentives and really wants to push more high-efficiency equipment out there.

Mm-hmm.

And so that's where it's important to say, hey, well, what are you guys looking to do? Well, if they tell you they want to sell high-efficiency equipment, that's a goal of yours. Well, you have that in your back pocket, and so you could leverage that to maybe see if you get a little bit better discount, rebate, or incentive to move it. And it also shows that you care and listen. I mean, at the end of the day, you're selling yourself to the, the, the person that you're speaking to. And we learn real quickly and early on in sales, you got to get folks to like and trust you. And it's very similar to Sales 101. You got to build rapport, understand what the what's going on with them, make them like and trust you. And you get that by asking a lot of questions. Right.

So let's say you go out and whatever product we're talking about, you get 2 or 3 or 4, you talk to 2 or 3 or 4 suppliers and you get various prices and commitments. What do you do? Do you approach your current supplier and say, hey, this is what these other companies are Can you match it? Or is that the approach you take? Or do you, you know, how do you move forward once you get all that other information?

Well, you know, what I ideally like to do is let everyone know I'm out there looking to understand what the pricing and terms that are going to be available to me. So I kind of throw it all out there at once and then I review it. And I always like to recommend giving your current provider the last say because, you know, they've worked with you, you trust them, you like them. And also sometimes, you know, People will say things to earn your business. And so I often recommend getting it all at once, sit down, review it, and then if you narrow it down to 2 or 3 folks, then go back to your current provider and say, this is where we are.

Yeah.

And see what they have to say, because there are gonna be times, Bob, where they might not be able to match something, or it's not a true apples-to-apples comparison.

Yeah.

And that's then when you could start taking a look and saying, okay, well, I was hoping for this. Could I maybe get extended payment terms? Will you give me Will you give me truckload discounts? Will you give me co-op advertising? Will you give me maybe warranty labor allowances out there, price protection, training allowances? And so that's where you might be able to— if they're not truly an apples-to-apples comparison, you could then bring in other factors that are important to you. Or on the flip side, say folks aren't willing to maybe go exactly where you need to be. Well, perhaps you haven't shared everything. Maybe you could offer them more volume. Perhaps you can pay faster and speed up the payment to the person that you're talking to. Perhaps you could give a larger share of account. Maybe right now they're only getting about 50% of your business. Maybe you could up it to 75% of your business. You could enter into a multi-year agreement. What's really important in these negotiations and discussions is, first off, not one is ever going to be the same. And then 2, you have to be flexible and you have to be willing to listen to the person across the table from you. Yeah.

That's interesting. I remember I had a discussion with Jimmy Dale, who obviously you know well, but for those listening, is an investor in SGI and is a very large contractor. His mindset was, he's had people within his organization say, I think we can get a better price on water heaters. He'll go, well, it has to really move the needle because at the end of the day, he goes, I have good relationships with the people I'm working with. And, you know, to save a couple pennies or so, it's not worth it because it just— because I appreciate the service I get and the people that are willing to work with us and they know how we do business. And it's just, you know, things are run far more efficiently when you're working with someone that knows how you expect things to be done. So it has to be kind of substantial. But anyway, I just thought that was kind of an interesting tidbit he had mentioned to me. When you prepare In doing these negotiations with anyone, any other tools or things that people, that contractors should be doing to better prepare for them and able to really maximize these conversations?

Oh yeah, well, there's a lot of different things. First off, go in with an open mind and understand that you might have this vision of how the discussion's going to go, and then as you start talking and you're asking questions, you might find out that something out of left field is coming from the person that you're talking to that you might not have been aware of. They might have to sell X amount of units or widgets that is maybe not super important to you, but it could be a good opportunity for you. So keep your eyes and ears open. You know, it's such a cliché, but they always say God gave us 2 eyes, 2 ears, and 1 mouth for a reason. And you really should listen and then also watch. the body reaction of the person that you're talking to. I also, you know, I like to prepare, and so I always create like a one-page reference sheet prior to every negotiation to help me make sure first I know what I'm doing. Because a lot of times negotiations will first start over the phone, so you could kind of have this cheat sheet that you could walk you through. And really what I like to have on that is, why are we here? What are we hoping to accomplish today?

Right.

I also want to share what do I want And then I also make it a point to understand what they want. And then from there, you're able to find out, is this a good fit for us?

Mm-hmm.

And then I'm a big believer in always envision the best case scenario out there. Picture the best situation that could come out of this negotiation. A lot of times people immediately go to what's the bare minimum that they'll take. Know what is the bare minimum, but always shoot for the stars. And you might be surprised sometimes how often you're able to do that.

Mm-hmm.

Another thing that's really important that could be a deal killer for a negotiation is you and I might be negotiating and we come to terms, but then we then pass on what has to happen to some other folks within our businesses to accomplish what we just discussed. And we got to make sure that the folks that are going to implement it and make it happen have buy-in to it.

Mm-hmm.

It's really important that we get the teams that support the programs that we're putting buying into it. And so that's a big thing to ask is, you know, are there anyone else here that should have a say in this discussion? And always make sure you have the final decision maker in on the negotiation because trust me, nothing will derail a negotiation faster than you get to terms and then you're like, oh, I got to make sure my boss or my regional manager approves that.

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Welcome back to the show.

We talked with Kevin how frequently you should be reviewing pricing and what kind of mindset you have to have when you enter negotiations. Now Kevin will share some additional strategies you can utilize when talking to vendors to help drive down those costs just a little bit more. Let's jump back into the conversation.

We speak to it operationally with members all the time about the value of knowing your numbers and tracking what you're doing in terms of sales and being able to show sustained growth over years. I mean, how much does that play into it with these suppliers, especially if you're going into a supplier that doesn't know you at all? I mean, do you just recommend contractors show people, this is what we've been doing in sales and we expect to do this much more? I think we would be a great— this is all the more reason why you should work with us. Is that something you talk to people about?

Absolutely, Bob. Knowing your numbers is absolutely key. I do that every single time I go talk to members. I think sometimes people think what we do is real easy, that people are lining up to enter into programs for them, but they've got to remember what we're asking companies to do is to pay rebates on products and services that that customers are already buying from them. And so what I go in and share with all the partners that I talk to is one, here's our current member count. By the way, we've been able to add X amount of members over the last 4 years.

Yeah.

I then talk about the growth trajectory that our members are having. So if I'm a contractor, I would go into every single one of these discussions saying, okay, here are the parts and supplies that I bought each and every year, and show the growth that you've had. And then I'd even understand what percentage that you're giving to different partners or manufacturers or distributors out there so that you could say currently, you know, I have— let's just say I have $100,000 worth of spend right now and I'm giving 50% to one manufacturer, 50% to another manufacturer. Well, guess what? I'm willing to go up to 75% with one manufacturer. That impresses and shows your growth. And then I would also make sure that you talk about what your strategy is with your organization.

Right.

I think a lot of contractors don't do that. One of the things that impressed me with Success Group when I first joined the organization was when I sat down and interviewed, I was showed the current organization chart for SGI. Then I was shown a 5-year organizational chart with all these opportunities for growth for me.

Right.

That really excited me. I would do the exact same thing with the partners that you're talking to. Say, this is what our growth plan is. Today, I'm a one-man truck. And you know what, I just joined Success Group International and I plan on having 3 trucks next year, 5 trucks the year after that, 10 trucks, and show them the growth so that they can see that you're serious and that you want to take your business to a whole other level.

Any other little tidbits like that? So you can talk to them about— show them your sales growth in the space that affects them. You can show them your vision, your org chart. Any other things that can make you, even as a small guy, feel more enticing to work with?

Well, I think club memberships are important. Everything that— the little things that you do differently, offering third-party financing, offering club memberships out there, and even if you're a member of our organization, a lot of the manufacturers and distributors know that we help contractors grow. with them what you're doing to educate yourself, and more importantly, educating your employees so that they're selling. And I think a big thing is also training, especially if you're doing product training. That could be huge, especially if you're looking at indoor air quality, water filtration, surge protection. Educating the distributor or manufacturer that, hey, look, twice a week we're doing technical training to help increase our closing percentage is huge. And you know what? That's another thing I think would help impress manufacturers and distributors. If you come in there and say, hey, by the way, our closing percentage is XYZ, just the fact that you're showing them these numbers, you're tracking them, that'll impress them. Then I think the other thing is start talking about terms. If you're willing to take advantage of that 2% cash discount because you pay within either the manufacturer's or distributor's terms, that can be huge.

Mm-hmm.

I'm always amazed at the amount of contractors that do not take advantage of that. That's one of the easiest 2% cash discounts. reductions that you could get. I know Patty Myers always recommends it, and Patty is our accounting and finance guru. She always stresses, take advantage of that 2% discount if you can.

Absolutely. 2%, it adds up big time. That's great. Any other just last kind of tips that you would think we haven't covered or you haven't mentioned at this point?

I'm going to share with you one of the tips that one of my mentors gave me, Paul Riddle. He was a vice president within our organization. Great guy. I know you knew Paul really well. Unfortunately, we lost him way too early. He used to say, every year you got to find your 3% caper. And I remember sitting there and I go, Paul, what do you mean by this 3% caper? He goes, you got to find a way to reduce your expenses by 3%.

Right.

And, uh, and, and what was interesting with him is it's a novel concept. And the first year or two that you try this 3% caper, It's easy. It's easy to find a 1% here or a 2% there chunk that you could be able to get, but it makes a big impact to your business. As you start doing this and implementing that 3% caper into your business, it gets more challenging 5 years, 10 years down the road, but you can do it. Now, what you have to do is take a more surgical approach, and instead of maybe finding that 1% chunk—

Right.

A quarter of a percent here. You might have to find, um, you know, 30 basis points. But I always recommend every single year you should task your team to find a 3% reduction in, um, your expenses out there. And it could be across the board. But if you're able to do that and then continue to grow the top line—

Any, any other things that we didn't cover that we should have covered that you think would benefit, uh, those listening?

You know, what I recommend is just every once in a while take a time— take the time to review your P&L, see if there's opportunities. Always focus— I should say focus on that win-win situation, because at the end of the day, your manufacturers, distributors, service providers, they actually want to see you be successful. Because if you're successful, your business is growing, you're adding technicians, you're You're adding installers, you're adding office folks, and that means you're going to be purchasing more. So they are pulling for you. They want you to win. So don't think that negotiations have to be adversarial. Take the approach of saying, I want to grow, I want to win with you, but I need some concessions.

Yeah, I love that. That's a great way, great way to approach it. Kevin, thank you so much for your time. I know you got lots going on, so thank you, sir, and we'll have to have you on sometime soon again.

Oh, thank you, Bob. I appreciate it, and you have yourself a great day.

You too, buddy. Take care.

That's Kevin Gursky, Director of the Partner Network, part of the SGI family. Thanks for listening to the show. If you feel like you have a great story worth sharing that would also help other contractors, email me at bhouchin@yoursgi.com. Also, if you enjoyed today's episode, Please give us a rating. Remember, friends give fives. You've been listening to the Successful Contractor Podcast, powered by Success Group International.

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