Passing Costs To Customer Like Everyone Else

[AJT]

I may be in a bubble, but at my current shop it is like pulling teeth to get the owner to pass part of the current economic burden onto customers. He is paranoid about losing customers (ones with deep pockets, not small penny pinchers), repeatedly undercuts my quotes as he is the only one that is allowed to talk to customers.

What has been y'alls recent experience passing on costs to customers? Have you burned relationships, are they understanding? Ways to help customers specifically understand that our industry margins are razor thin and that its just the cost of business now.

This is starting to affect morale of the guys on the floor as they are starting to feel that their work is not being valued and I'm afraid some people are going to start jumping ship.

 

[TDegenhart]

Who owns the business, your boss? So long as you and the guys in the shop are getting a paycheck it is really none of your business what the boss does with the business. He may have information that you do not have.

Tom

 

[BoxcarPete]

As the engineer at our company, I'm trying to avoid getting swamped by VA/VE requests that are "totally not related" to recent price increases we have passed along. There have also been some customers that have gotten pissy, competitively quoted elsewhere, and sheepishly came back to accept the increase when they found out that what we're passing along so as to not fall behind is less than taking the full brunt of uncertainty of the market with a fresh quote. Mostly things have been OK, some salesmen here have been dragging their feet on increases but mostly customers have gotten used to the idea that everything is getting more expensive and rubber is no exception.

 

[AJT]

So long as you and the guys in the shop are getting a paycheck it is really none of your business what the boss does with the business.
Tom

The words of someone who does not have employees, or ones that have ever stayed beyond the very next job opportunity. Have your pay froze over the past 3 years and see if you'd be "happy". Tone deaf is an understatement.

 

[AJT]

There have also been some customers that have gotten pissy, competitively quoted elsewhere, and sheepishly came back to accept the increase when they found out that what we're passing along so as to not fall behind is less than taking the full brunt of uncertainty of the market with a fresh quote.

That's good to hear, our owner is denying our request to even begin the process of this, afraid of having them quote elsewhere and not returning. Such is the nature of business. Unfortunately I believe he is the "clingy girlfriend" that once we have a customer, he will do anything to not lose them, despite us being overrun with work. This would be a totally different situation if we we're looking for work.

 

[triumph406]

The words of someone who does not have employees, or ones that have ever stayed beyond the very next job opportunity. Have your pay froze over the past 3 years and see if you'd be "happy". Tone deaf is an understatement.

Want some cheese with your whine?

You know the old adage? If you don't like it, leave.

 

[CITIZEN F16]

The words of someone who does not have employees, or ones that have ever stayed beyond the very next job opportunity. Have your pay froze over the past 3 years and see if you'd be "happy". Tone deaf is an understatement.

You should have included the no raise in 3 year part in the first post, you made it sound like his policy of not raising prices has no effect on the employees. Do you guys run a lot of repeat jobs and if so have you got the set-up
and cycle down as low as possible? I have repeat jobs I haven't raised prices on in quite a long time, but increased efficiency has made them more profitable per hour than they were 10 years ago, even though material, tooling, and general shop supplies are way up.

I had an owner who would knock my quotes down, then complain the cycle times were too long and the parts were running the cycle time I used on the spread sheet. We used to go at it constantly over that, I was always waiting to get fired, but never did. The thing is the owner was a great salesman with zero machining knowledge.

 

[AJT]

Most of it is custom one-offs or short runs (1-10 units) from small machined brackets to large weldments with an avg of 1 week turnaround. We are starting to put documents together so we can get past the "he said/she said" aspect, much like your spreadsheets. We have the opposite problem of the owner being a great machinist and fabricator but an insecure salesman, always worried of being told no.

 

[yoke]

Are the employees getting raises to counter the very real and obvious inflation? They probably are not and to see prices held doesn't leave room in the budget.

Our price increases are being passed on to the customer as are rising shop rate to allow for our employees to be paid more.

Your boss should be aware that employees are going to jump ship for greener pastures eventually.

 

[CITIZEN F16]

Most of it is custom one-offs or short runs (1-10 units) from small machined brackets to large weldments with an avg of 1 week turnaround. We are starting to put documents together so we can get past the "he said/she said" aspect, much like your spreadsheets. We have the opposite problem of the owner being a great machinist and fabricator but an insecure salesman, always worried of being told no.

Should be as easy as taking candy from a baby to increase prices doing that kind of work. I get a lot of repeat orders for the same items in the same quantities. So a price increase is obvious. I did an across the board price increase on repeats two years ago. I am getting close to doing it again, but trying to hold off. Of course your boss is passing on increased material costs, but what about the rising costs of general shop supplies? I don't know what isn't way up. I want to sign up for that 8% inflation. On a lot of those repeats I will just duplicate the last supply order for material and tooling. So I look at this P.O. and from memory figure that will cost me $1,000.

So I place an order from the steel yard and McMaster Carr that totals $1400. Figuring my memory is off, no way did prices go up 40% in 6 months. I looked up my old receipts, sure enough they totaled like $975.

As far as those spreadsheets that was over 25 years ago, my last job working for someone else. The owner actually thought I was dumb enough to trust him. I always kept a copy, I only had to produce one.

I think you need to come up with a plan, we all know our trade has suffered horrible wage stagnation. That last job I made $28 an hour over 25 years ago. That was pretty much non union top pay for that area. Put that in an inflation calculator and that is $52.

You and your fellow employees have to hatch a plan. Is there anything where you can improve processes to work more efficiently? I used to get my guys raises by telling the owner what it will cost to replace them if they walk, I had been around and had plenty of friends in other shops. That was the guy cutting my quotes, but we were doing a lot of difficult medical work so there was plenty of money to spend. Doubt that ploy would work with your owner.
You will have to give him something and definitely don't tell him everyone will work harder, that would get him to think you weren't giving him 100% effort.

Without knowing all the details I would just sit down with him and ask what can everyone do help the bottom line so there is money available for pay increases. Pay freezes combined with this runaway inflation are making it tough to get by month to month. Tell him everyone is on board to work together. If that is met with any resistance
it is time to update your resume.

 

[mhajicek]

8% is optimistic. The money supply has literally doubled in two years. If not for inertia, everyone should be charging and paying double what they were two years ago.

 

[CITIZEN F16]

8% is optimistic. The money supply has literally doubled in two years. If not for inertia, everyone should be charging and paying double what they were two years ago.

I think 8% is flat out BS. I am shocked when something didn't go way up. Lumber started going down, but is back to all time highs.

 

[CarbideBob]

What has been y'alls recent experience passing on costs to customers? Have you burned relationships, are they understanding? Ways to help customers specifically understand that our industry margins are razor thin and that its just the cost of business now.

Can depend on the customer and what other vendors are doing.
if you do not have a special niche there may be others in the wings just waiting for a chance to quote on your work,
Or it maybe that you can do it. Only the person with direct customer contact knows how far to push this game of chicken.
I have seen vendors stand on a price increase and loose millions of dollars in sales. Then the employees do not have to question jumping ship because it sinks.
Other times they need your services and you can push a bit.
Many factors and one has to know the customer's policies and the mood of the PA and those above him/her and who and where the competition is and doing.

Yes, I have burnt some bridges here and getting back in is just about impossible.
Right now I have a tool family that I have held price on for 5 years. Just quoted a 4 percent increase.
Word from my contacts inside is that the big boss pissed and sending out quotes. I think I will still be low bid. We shall see.

At least you do not have one of the old contracts where you had to give a price reduction every year that you held onto the work.

Perhaps your boss is the sissy girl or perhaps knows the politics of these things.
We would all like to get paid more for the work we do and services we provide as our costs climb.
Bob

 

[standardparts]

In the last couple days tariff on some China produced goods were removed. Commentary I heard today was one component, a computer video card I think, will be reduced in price by 25%.

If there is a possibility that some U.S. based company producing product had been sheltered by the tariff wonder what kind of change this coming week develops? Or if what they were producing used that component do they adjust prices?

 

[standardparts]

I'd fire that customer in a heartbeat.

A hummingbird's heartbeat, at that...

Ah...but it depends who "the big boss" is. Tied to say a GM Tier 1 supplier makes that 4% pretty huge.

 

[standardparts]

Can depend on the customer and what other vendors are doing.
if you do not have a special niche there may be others in the wings just waiting for a chance to quote on your work,
Or it maybe that you can do it. Only the person with direct customer contact knows how far to push this game of chicken.
I have seen vendors stand on a price increase and loose millions of dollars in sales. Then the employees do not have to question jumping ship because it sinks.
Other times they need your services and you can push a bit.
Many factors and one has to know the customer's policies and the mood of the PA and those above him/her and who and where the competition is and doing.

Yes, I have burnt some bridges here and getting back in is just about impossible.
Right now I have a tool family that I have held price on for 5 years. Just quoted a 4 percent increase.
Word from my contacts inside is that the big boss pissed and sending out quotes. I think I will still be low bid. We shall see.

At least you do not have one of the old contracts where you had to give a price reduction every year that you held onto the work.

Perhaps your boss is the sissy girl or perhaps knows the politics of these things.
We would all like to get paid more for the work we do and services we provide as our costs climb.
Bob

"At least you do not have one of the old contracts where you had to give a price reduction every year that you held onto the work."

Yeah--my favorite cousin followed the trucks carrying the customer supplied machines and tooling each time the company ran out of money and the customer moved the stuff to a different vendor....which after the bankruptcy got sorted out usually was the same player originally...just restructured with new loans and such. At least you can pick and choose when you re-hire some of the old staff.

 

[pgmrmike]

I started raising prices in the last few months. My costs have gone up, and I had been told I was low, repeatedly. Last week one of my two largest customers ( we do the majority of their parts ) questioned a price and told me another vendor quoted lower. Not sure if they are playing me, or it was real, but I gave in and did it for the competitors price. Was wondering if they were playing me. Either way will still do ok on them.

Then today they questioned a job I quoted because I had gone up $25ea ( $149ea vs $174ea ) last month vs the previous month. I told them I realized they took longer than I had estimated and changed the factor I use to quote them to reflect actual time. Basically that I was too low previously.

Then I pulled a PO for the same parts from last June and showed that I was within $5ea of that PO....

Havent heard back....might have pissed them off.

 

[Mcgyver]

this is a bit like a Quora question "how do I get my BF to like me better"

Really hard to know why your boss does what he does or how to change behaviour as we don't know him. For all we know, he might be a brilliant strategist and correctly calling this for reasons you haven't noticed, or maybe he has no business sense, is as dumb as a bag of hammers and his head is planted firmly in the sand.

As a general comment on pricing however, you are always suppose to price at what the market will bear, i.e. your price should be as high as it can be, regardless of cost, without losing the work to a competitor. If only your costs go up (and no one else's), you have no ability to "pass the cost along" as you are already at the max you can be before losing the business. If everyone's costs go up, the competitive landscape has changed and you can raise your price because you are confident your competitor will have to as well.

That's the theory, and it works, but as input costs are pretty similar for all, we sometimes lose sight of it. As pgmrmike described, if you have any elasticity with your price, it's because of what the competition is doing, not what your costs are or your desire to pass them along.

Your choices are 1) talk to him, 2) move on or 3) just do your job until the pay cheque bounces. I always like 1), make things better over suffering in silence...but there are lots A holes who's egos get bent out of shape on being questioned. If you're not being paid enough and 1) fails, 2) is the obvious choice

 

[david n]

I have had across the board price increases for all of my customers. I let them all know it was coming so they could evaluate and adjust accordingly. Not one batted an eye...............said they were expecting it and just kept ordering parts. My hope was some would pull back a little to ease my workload. None did............Business as usual..................

I refuse to subsidize others' inflation...................I have my own to deal with.............

 

[Mcgyver]

8% is optimistic. The money supply has literally doubled in two years. If not for inertia, everyone should be charging and paying double what they were two years ago.

you are right, but its a small percentage that understand how monetary policy works or the main cause of (overall) inflation.

For a real eyeopener, divide any stock market index by the money supply, M1. There haven't been any stock market gains, its just a great hedge against the inflation that hasn't happened yet lol