The owner-supplied material dilemma:
Make a profit on installation or not?

BY RICHARD P. DiTOMA, L.M.P.

contributing writer

Many years ago before big box DIY stores began popping up all over our nation, the majority of installed plumbing, heating and cooling materials were supplied by the contractor. In those magnificent days of yesteryear, contractors had the opportunity to sell material above their cost. They could earn additional profit dollars above those earned on their labor and overhead costs. I use the word “opportunity” because many contractors, both then and now, refuse to be merchandisers. In turn, big box DIY stores were born and exist today, sometimes selling material to consumers for less than the amount contractors pay to their traditional suppliers.

These diy outlets also pitch the idea to the consumer that the consumer can tackle any home improvement project on their own. Many of the people pitching this advice, and in some instances teaching “how-to” clinics on installation, are probably failed and/or retired contractors.

After buying the materials that the big box diy sales associate persuaded them that they could install themselves, many consumers find themselves in the same predicament as a dog chasing a bus. That is, what does the dog do with the bus when the dog catches up to the bus?

In actuality, there are consumers who are adept at performing their own work. John, with whom I have been best friends for over 40 years, is a professional engineer. This guy can tackle any home improvement project and complete it in a better manner than many contractors. But, John is not the rule. He is the exception to the rule.

Since many consumers cannot, or do not want to, perform their own installations, some DIY stores offer installation of purchased materials. Since these stores usually do not have personnel with the knowledge and ability to correctly install all materials, DIY retailers usually affiliate themselves with contractors who can provide installation.

Unfortunately for the contractors who fall into this trap, the monies paid for the installations are more often than not below contractors’ real costs to perform the installations. That means that in addition to destroying the industry and their own future by helping the DIY stores undercut their customer base, these contractor masterminds without brains also don’t recover their true costs with regard to those installations. Any contractor who supports this practice is on his/her way to becoming a failed and/or prematurely retired contractor/big box DIY sales associate.

Many consumers buy the materials because they want to choose what they want installed in their homes and/or businesses. They don’t realize that contractors can supply the material for their needs since most contractors refuse to be merchandisers.

The dilemma
How does today’s contractor address the problem since the big box DIY stores do exist and sell to the public?

The solution
As with all problems, first you must identify it. Then, you must place yourself in a mindset devoid of negativity and start a positive, intelligent and doable thinking process. Next, avoid haphazard thinking such as:

• Becoming foolish installation puppets of the DIY outlets at prices which are at, or below, the real cost you incur to perform the installation.
• Turning down consumer requests to have their material installed that can help you achieve your business goals of success.

If, years ago, all contractors refused to install owner-supplied materials, the problem would probably not exist today. But, since many did install owner-supplied materials, the dilemma is real, and there is no sense (or cents) in crying over spilt milk. The solution is simple. You must obey the first commandment of business. That is, “Thou shalt identify your true costs of operation and maximize your profits to attain your goals.”

The only goal in business is profit. Webster’s Dictionary defines profit as “an excess of income over expenditure.” Therefore, to attain your goal you must bring in more money than it costs you. Since the owner-supplied material problem exists, you can address it in a positive manner that will solve the problem and help you reach your goal by implementing one of the following options.

Option 1: Install the consumer’s material under the following conditions:

• Check out the material the consumer has purchased to ensure that it can be installed correctly for the intended application.
• Calculate the real costs you will incur to install the consumer’s material.
• Apply the profit margin that will allow you to attain your goal. That is, to receive the reward you deserve for the value you deliver and risk you take in the delivery of the installation. Keep in mind that since you are losing the profit on the material to which you were entitled for the job as a whole, you may want to adjust your profit margin to address the loss of the profit on material.
• Have the consumer sign a notification, which releases you from any problems attributed to the material they supplied:
  • I am aware, agree and accept that my customer supplied material is not guaranteed and/or warranted in any way by [your company name here]. If for any reason my customer-supplied material is defective in any way, the agreed price for the installation is due immediately. Any other work/service will be charged to me, the customer, additionally and payable immediately. I hold [your company name here], its heirs and assigns harmless regarding this matter.
  • Customer signature x_____________________________

Option 2: Offer to supply the material to do the job with the assurance that if there is a problem with the material you will take care of it at no additional charge to the consumer. Keep in mind that in the world of planned obsolescence you can’t afford to warrant items and installations forever. Therefore, put in a time period disclaimer.

You can offer both options to the consumer and let them choose. I know a contractor who offers to take back the material the consumer purchased [with receipts since those stores usually accept everything brought back to them] to the DIY store and get a refund for the consumer. By doing this:

• He gets the total sale at a price that will allow him to recover his costs and earn a profit.
• He doesn’t have to contemplate installing for the DIY outlet at a price that is probably below or at his cost.
• He takes a sale away from his competitor.
• He gives himself an opportunity to succeed.
• He can give the consumer a warranty for the total job that will give the consumer peace of mind.

That’s what I call positive, intelligent and doable thinking. Think intelligently. Don’t act or react foolishly. If you need assistance, give me a call.

Richard P. DiToma is a business consultant and contractor with 36 years of experience in the P-H-C industry. He conducts seminars, evaluates business operations, publishes customized price guides for contractors and offers continuing support.

His book -- “Solutions Management Theories & Methods for the Contracting Business” -- deals with solving pr-oblems contractors face; identifying & calculating costs; developing proper profitable prices; addressing consumer questions; hiring and evaluating technicians; and logical management procedures

It’s also available as a “Workshop On Demand” for individual businesses (from one person to multi-person businesses); contractor groups  (organized or informal); trade associations; and wholesalers to the trade.

Date: Arranged according to your schedule

Location: Wherever you wish. Richard P. DiToma will come to you -- or you can come to him. Contact Richard to find out if there is a workshop coming to your area.

His other book -- “Readily Available Pricing Information Digest 2006” -- for the plumbing-heating-cooling contractor service price reference book is available with plumbing &/or heating &/or cooling section(s). To receive more info about his services, to order his books or to contact Richard at 845-639-5050, by fax at 845-639-6791 or via email at richardditoma@verizon.net