As a small business owner, sometimes you may wonder if you’re paying your vendors too much. Here’s how to deal with it. In episode 78, hosts Elizabeth Larkin and Gene Marks answer the question:
“I need a vendor for certain specialty items. How do I pick one, and how do I know that they’re charging me a fair price?”
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Elizabeth: Welcome back to the Small Biz Ahead Podcast. So, Gene, you had a book recommendation for listeners, and this is not a business book, this is a reading it for pleasure book.
Gene: Yeah. It’s funny, you talk about reading books… I don’t read business books. I very infrequently read business books. I usually-
Elizabeth: You’ve written some business books, though, haven’t you?
Gene: Yeah, I’ve written six, but I read so much online, and I’m working on a new book right now. But I read so much online that… Business-y stuff that when it comes time to read-
Elizabeth: Can you tell us what your new book is?
Gene: I’m putting the finishing touches on a book about surviving the recession.
Elizabeth: The one that we just had?
Gene: No. The one that’s coming. Eventually, there’s going to be a recession.
Elizabeth: You’re already trying to cash in on the next recession?
Gene: Yes, that’s exactly right. I’ve been thinking ahead, and I’m like, sometime between today and five years from now there’s going to be a recession.
Elizabeth: So, when do you think it’s going to be?
Gene: Oh, I don’t know. I mean, I hope it’s never, but it will happen, and when it happens, I have a book ready to go. The minute the stock market corrects 10% and we have two quarters, I think that’s the technical thing, two quarters of a declining GDP…
Elizabeth: It’s only two quarters?
Gene: I think it’s two quarters of declining GDP is considered to be a recession. I’m going to immediately come out with the book, because it’s really… The book applies recession or non-recession, but it’s geared more towards that.
Elizabeth: Now, let me throw a curveball, though. What if it’s not a recession, what if it’s a depression?
Gene: I’ll just tweak the title a little bit. But we’re all set and ready to go with this book, it’s going to be… And that way, it’ll be a very, very topical thing, and I think a lot of people will be very interested in reading it because it will be high of mind.
Elizabeth: This is a little cynical.
Gene: You think so?
Gene: Okay, so forget about the book recommendation. I’m going to tell you right now, that’s not cynical, that’s realistic. You talk to any business owner, and they know that whenever there are good times, there are always going to be bad times. The smartest people that I meet are always looking at… There will be, Elizabeth, another recession at some point. Hopefully it won’t be as terrible as the great recession that we had in 2009, but I promise you there will be… There always is, and the smartest people I know are thinking about and preparing for it now and then able to operate their way through it.
Elizabeth: So, how are they preparing now?
Gene: Well, the smartest people right now are… They’re conserving cash, right. And I’m not saying people are hunkering down in bunkers, but they’re always-
Elizabeth: Doomsday-prepper style.
Gene: Right, nobody’s dong that. What they’re doing, though, is they are thinking and saying, “If I do see the winds blowing the other way and there’s a recession, am I prepared to weather that storm?” My book will directed towards the people that aren’t doing that right now, the ones that are in the recession and they’re like, “Oh no, I have no idea. What do I do right now to weather this storm now?” That’s what my book is geared at, so that’s a future book recommendation. Very quickly, the one that I wanted to recommend that I’m reading right now is a book called The Time Traveler’s Almanac.
Elizabeth: That sounds good.
Gene: It’s not one author, it’s a huge book a bunch of time traveling short stories, and I love the topic of time travel. I think it’s a fascinating… And the short stories are all the way from the late 19th century all the way through the current day by dozens and dozens of authors, including Ray Bradbury, George… Not George Martin, Martin, the guy from Game of Thrones.
Elizabeth: George R. R. Martin.
Gene: George R. R. Martin, that’s right. Him as well, Ray Bradbury, Isaac Asimov and then a bunch of other science fiction-
Elizabeth: Okay. We’ll put that in the show notes.
Gene: Really cool book.
Elizabeth: What was that called again?
Gene: It’s called The Time Traveler’s Almanac.
Gene: Very cool.
Elizabeth: We’ll be right back with our question.
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QUESTION: How Do I Know When a Vendor is Charging Me Too Much?
Elizabeth: Okay, this question is from Isabella, and she is from Colorado. She’s a landscape designer. That’s a cool job.
Gene: It is a cool job. And it could be a very profitable job. Yep.
Elizabeth: Yeah, because no one wants to design their…
Gene: Well, some people do, but some people are brilliant at it, and it’s a great business. Like any business, if you’re good at it, you can make it into a profitable thing. So, go ahead. What about Isabella?
Elizabeth: She is asking about her vendor situation. She writes:
“I need a vendor for certain specialty items. How do I pick one, and how do I know that they’re charging me a fair price?”
That’s a good question.
Gene: It is. It is a good question. So, let’s address both at the same time, okay. You talk about picking one and doing a fair price. In her situation, I don’t quibble; I don’t beat up vendors. If you’re buying something that’s a commodity and you’re in a flea market or a fruit stand or whatever, okay, fine, you want to haggle and whatever, it’s like the Turkish bazaar thing, people expect that, that’s fine, whatever. But clearly, she’s a designer and she’s hiring somebody to do something somewhat specialized, you know what I mean? It’s like a whatever. I hate it when customers haggle with me on our rates per hour. When somebody says, “How much will this be, Gene?” And I’m like, “Well, we’re $175 per hour.” That’s what it is, I’m not trying to mess around, it is what it is, right.
Elizabeth: Well, maybe she’s picking between a couple different vendors and she’s like, well, this one’s really cheap and this one’s expensive. Is this one just pulling my leg, or is this the real price, and maybe this one isn’t that great? I mean…
Gene: In the end, though, I don’t know if price should play as much importance to you long-term as just your relationship with that vendor. If the price is a little bit more expensive then the assumption is you’re going to get what you’re paying for. You have to give the respect of the vendor and give them the benefit of the doubt that they want a long-term relationship with you as well. She’s a landscape designer. This vendor probably doesn’t want to messing around with her, it’s not some fly-by-night thing. So, the idea is they’re going to be giving you the best price they think that they can and trying to establish a relationship with that person.
So, I just think, if I was Isabella, I’d be looking more at the quality of the work and the quality of the person or the firm that you want to work with, and honestly, I would not… The price is just going to be what it’s going to be, and if you’re doing landscape architecture or landscape design as she does, then she just needs to build that price into her projects and include that in the cost of the customer, and that’s just what it is. If she feels that she’s being uncompetitive because the vendor’s price is bumping up her prices too high, there’s no reason why she can’t go back to that vendor that she likes and say, “Listen, I’m bidding on this job here. Your price is kind of high and it’s going to… Neither of us are going to get this job. So, can you do anything about your price to make it more so we can both benefit from this?”
Elizabeth: Yeah. So, if someone came to you with that, you would-
Gene: Yeah. Oh, I would consider it, sure. Oh, absolutely, but-
Elizabeth: You wouldn’t be offended?
Gene: No, not that, I wouldn’t be offended, especially if it’s just transparent. But when I just know somebody’s just trying to save a buck or just going… And I can’t tell you how often that happens to me. I mean, we’re a service firm. Elizabeth, again, we’re 175 bucks an hour. There will be somebody that comes back to me, big companies, and they’ll be like, “Oh, listen, your rates just seem like a little high,” and I know they’re not high, by the way, they’re right in the middle. “Can we get any break on the price? Maybe 165?” And I’m like, “Really? Really? That $10 an hour is really going… I mean, this little business for this 50-hour job, and you want to take $10 an hour away from me for you?” It drives me nuts. It really does. I usually never cave on something like that, but if somebody were to come to-
Elizabeth: We’ve got to pay people.
Gene: I got to pay people. We’re a small business, and I’m giving you my best, good faith price. I’m not trying to mess you around. Maybe I’m naïve, but I truly believe that the vast majority of business people are like that. They’re giving their best price, and the other thing is, when you’re dealing with vendors and it’s a long-term relationship, if you sit there and you’re nickel-and-diming your vendors, it just annoys them and angers them, and that’s not a very good recipe for a long-term relationship. If I have a customer that comes to me and haggles me down, and then, I don’t know, I’ve got a competing job going, and a couple of the… This guy’s going to get lower priority because I’m like, this guy’s kind of a jerk. He’s $10 an hour, he says to me. This other guy’s paying my rates. So, anyway, I wouldn’t haggle. I would focus more on the relationship than the price.
Elizabeth: All right. Good advice. We’ll be back with Gene’s Word of Brilliance.
WORD OF BRILLIANCE: Profanity
Elizabeth: And we’re back with the Word of Brilliance that might be a little controversial.
Gene: Profanity. That’s the word. Get ready, Hartford legal team. Now, don’t worry, I’m not going to mention any of the profane words, as tempted as I am. Recent news is Samuel Smith’s, which is a large chain of pubs in… Again, we’re in England. Podcast after podcast we keep going back to England and Australia, I know, but it’s fine. Alright, they’re a chain of pubs in England, and they’re about 200 pubs around the country. They just issued a no-profanity rule in their pubs. People are not allowed to swear.
Elizabeth: That’s going to be very hard to enforce in England.
Gene: Right? It’s the pub! I mean, you’re like, how do you… My god, how politically correct do we have to get here?
Elizabeth: Why? What’s the thought behind it?
Gene: Here is the reason why. In England, times have changed, okay. We’re not talking about saloons anymore or these pubs with sawdust on the floor where people chew tobacco and whatever. The world has changed, and most of the pubs in England now are corporate-owned, and they’re not…
Elizabeth: That’s kind of sad.
Gene: It’s changed, what can I tell you. Sad or not, it’s just… That’s what the reality is. Besides them being corporate-owned, they’ve turned into more family-styled restaurants, pubs as well. In fact, you go into certain pubs, they’re all serving food now, and they want to welcome younger people and families into them because that’s where their business is. They believe, Samuel Smith’s does, that patrons coming in there and getting loud and cursing and all that is not acceptable or appropriate in their establishments, and if you’re going to do that, you’re going to be kicked out.
Elizabeth: And how do the British feel about this?
Gene: As you can imagine, there’s been an uproar on social media, and a lot of people are upset about it, and of course, some people kind of get it. The reason why I found that interesting, again, from a small business perspective is a lot of us small businesses, we want to sort of make a stand; we want to have certain rules, we want to have dress codes, we want to tax men for eating in our cafes. You know what I mean? We want to write the man tax woman-
Elizabeth: We discussed that a couple episodes ago.
Gene: Previous podcast. We want to do different things. Fair enough. Most of the time, as a small business person, we do things seat of the pants. Trust me when I tell you … And I don’t know this for sure, but trust me, Samuel Smith’s is a big corporation, a big chain. They did plenty of market research, plenty of it, and invested in a lot of consultants to come back with recommend. They might be wrong, but they came back with a lot of data that basically said if you limit profanity in your restaurants, if you do that, that, based on your demographics of people coming in and the demographics of people you want to attract, you will be able to increase your business this way. So, Samuel Smith’s decided to make that sort of controversial move based on facts and data, the best that they had, in order to grow their business.
Sometimes, we as business owners don’t do that. Actually, not sometimes, most of the time, right. We make decisions based on emotions or on some political beliefs, or on some value system or ethical thing that we’re behind that is not based on any data at all, it’s just based on passion. I think that’s all well and good, but in the end, Samuel Smith’s was doing it not because they wanted to run a cleaner place, they were doing it because they wanted to increase their profits. As business owners, I think we always have to keep that in mind, that if we’re going to institute sort of rules on our customers like that, I’m hoping that we’re going to do that most of the time because we think it will be profitable for our business, not just because-
Elizabeth: Not just because it’s our personal taste.
Gene: Emotions, right, right, or we’re trying to make a point. So, I don’t want to let anybody in my store who’s wearing a flannel shirt, because I hate flannel shirts. Do your research first and think hard before you make a decision like that. Trust me, when big corporations make decisions like this, it’s based on data.
Elizabeth: Alright, that’s going to wrap it up for this episode of the Small Biz Ahead Podcast. We’ll be back in a couple days.
Gene: See you next time.