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View Full Version : This is why you ALWAYS get paid upfront for materials...


HOOLIE
10-20-2006, 10:29 PM
Don't let this happen to you :nono: A friend of mine owns a small, growing IT company. I've always told him he should get paid upfront for any materials but he insists that to ask for money in advance would "look bad"

So he recently landed a HUGE client...the client has offices here as well as in several countries in Europe. I have no idea of the value of the contract but he said it was huge. Now here's the kicker...the client never signed anything...there was a verbal OK so my friend went out and sunk $30,000 into equipment and server space for this client...

....then...the client lost a huge client of his own, and called my friend and said they would have to put the deal on hold 'indefinitely".

The client has agreed to pay the monthly service fee they had talked about but basically my friend was trying to impress the guy and have everything else ready to go, so now he's out 30k...and you can't return computer stuff so basically he's on the brink of going out of business over this...

So no matter how big or small, make sure you get money upfront to cover material expenses....

Waterscapes By Design
10-20-2006, 10:49 PM
My pricing for a job is 1/3 down, that covers cost of materials and a lil extra to at least pay an employee for the job or myself for a lil while....

ACutAbovesiny
10-20-2006, 10:53 PM
1/3 is reasonable for a deposit.

sunray
10-20-2006, 11:14 PM
So if 1/3 covers material and labor, your profit is 2/3?
Just asking , I'm constantly strugguling with how much too charge for a profit.
And yes I know everyones overhead is different, correct me if I'm wrong but profit covers cost of doing business and what you figure your time and expertise is worth.
I guess to put it simply profit covers day to day expenses and what you want to put in your pocket from each job.
I normally get 50% up front which covers material and hired labor and the balance when the job is complete, that covers the day to day and goes to me.But lately it seems my pricing is to low and I have tried it at 2.5 times the material and labor,and just don't get the business.

DBL
10-20-2006, 11:25 PM
well not taking money for materials upfront isnt as bad as not having a contract

ACutAbovesiny
10-21-2006, 03:34 AM
well not taking money for materials upfront isnt as bad as not having a contract


Very true.

sheshovel
10-21-2006, 04:38 AM
Your friend made bad business decisions there. He was not looking out for himself and not covering his butt first and foremost. He was concentrating on covering the clients butt and got burned. I can't say I feel sorry for him. Huge client, he went out and got into huge debt just on the guys verbal agreement?
I'm sorry but that is just plain stupid.

paponte
10-21-2006, 09:04 AM
Before I start a job, I have 1/2 up front. No ifs and or butts! :nono:

Tharrell
10-21-2006, 09:16 AM
That's a lesson for every newbie for sure. A contract for anything significant is required in business. My grandfathers days of handshake deals are virtually over.

YardPro
10-21-2006, 09:38 AM
So if 1/3 covers material and labor, your profit is 2/3?
Just asking , I'm constantly strugguling with how much too charge for a profit.
And yes I know everyones overhead is different, correct me if I'm wrong but profit covers cost of doing business and what you figure your time and expertise is worth.
I guess to put it simply profit covers day to day expenses and what you want to put in your pocket from each job.
I normally get 50% up front which covers material and hired labor and the balance when the job is complete, that covers the day to day and goes to me.But lately it seems my pricing is to low and I have tried it at 2.5 times the material and labor,and just don't get the business.

not correct...

Profit is what is left AFTER expenses and overhead. Profit does not cover those expenses, it is what is left afterwards...

to figure your profit in a job, you need to know exactly what the job will cost YOU. then add a percentage on top of that... that is profit.

magazined say industry average is 16.6%. We shoot for 25%, but will ony be 18-20% at years end this year.

topsites
10-21-2006, 01:02 PM
I have learned there is a lot more to this that will keep you from going out of business...

The solution in a nutshell is don't bite off more than you can chew.

The problem here isn't getting paid upfront per se, but the sheer amount of money involved. The problem is also excitement, both owners and customers get excited over these BIG things and in said excitement both tend to make mistakes.

Because of this it is never certain whether you have yourself a high roller, or just someone who got a little too excited.
And you can't be too certain how to proceed yourself when appearances might make it look as if all your problems have been fixed for the next 5-10 years lol.

So a good rule of thumb is to split large projects into manageable bits and pieces, and get paid for each and every one.

With a large project like this thread involves, perhaps a $1,000 / week plan would've made it manageable.

It may seem like it takes forever, but I can assure you most folks can't keep up $1,000 / week but for so long and unless they have good reason, and what if it takes a year to complete the project, after all it is big money.

Now it does depend on the size of the job and if they can make a down payment and all that, but the point is to split these projects into manageable bits and pieces.

Don't put all your eggs in one basket.

HOOLIE
10-21-2006, 02:51 PM
I have learned there is a lot more to this that will keep you from going out of business...

The solution in a nutshell is don't bite off more than you can chew.

The problem here isn't getting paid upfront per se, but the sheer amount of money involved. The problem is also excitement, both owners and customers get excited over these BIG things and in said excitement both tend to make mistakes.

Because of this it is never certain whether you have yourself a high roller, or just someone who got a little too excited.
And you can't be too certain how to proceed yourself when appearances might make it look as if all your problems have been fixed for the next 5-10 years lol.

So a good rule of thumb is to split large projects into manageable bits and pieces, and get paid for each and every one.

With a large project like this thread involves, perhaps a $1,000 / week plan would've made it manageable.

It may seem like it takes forever, but I can assure you most folks can't keep up $1,000 / week but for so long and unless they have good reason, and what if it takes a year to complete the project, after all it is big money.

Now it does depend on the size of the job and if they can make a down payment and all that, but the point is to split these projects into manageable bits and pieces.

Don't put all your eggs in one basket.


This wasn't something that could be done in small chunks...maybe several larger chunks are they equipped each office but the issue really was my friend ASSUMING things were a go and failing to work out the financing for this project. He charged everything on Amex and his line of credit now he's screwed... sad he has had this happen in the past but on a much smaller scale...I've tried to explain it to him but don't understand why he would take such a risk...

Waterscapes By Design
10-21-2006, 02:58 PM
well if this is now done and over with...Dont be the friend who constantly brings it up, after awhile he is gonna resent you for that whether he tells ya or not...It was a mess up on his part and one that will eat at him for years to come....And whatever ya do, dont tell him you came to your lawn forum and brought it up and start telling him what all these other people think he should have done....Hes prolly come up with a thousand ways he SHOULD HAVE done it...Dont add fuel to his fire.

sunray
10-21-2006, 09:22 PM
Thank you yardpro