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Old 08-20-2015, 11:25 PM
INTEGRA Bespoke Lighting's Avatar
INTEGRA Bespoke Lighting INTEGRA Bespoke Lighting is offline
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Join Date: Jun 2007
Location: Muskoka, Ontario, Canada
Posts: 4,107
Time for some basic math. Which type of operator are you?

Lots has been said here about using lower cost components and reaping higher profits by doing so. I am certainly not one to cower away from making a healthy profit, but I do think there that needs to be some level of integrity built into every good, honest and fair transaction. So I think its time to do some math.

First lets make some assumptions:
1: Both lighting guys in the example below operate similarly in that they both markup the cost of their materials used by 100% (Relax, there is a difference between markup and margin. In this case, A 100% markup results in a 50% margin) Both feel that a 50% gross margin is sufficient to cover all of their 'soft costs' of operation and provide them with an adequate net profit at the end of the day. Margin = [(Sale Price - Cost)/sale price] x 100%

2: The components we are considering in the example below are essentially the same; a standard 'bullet' uplight fixture. ABC Lighting buys them 'Factory Direct' for $30 each. 123 Lighting buys a different brand from a distributor and pays $87 each.

3: Both ABC and 123 are going to be installing some additional fixtures into an existing job at trusted and loyal clients' homes. The additions amount to 10 new fixtures to be installed.

4: Both ABC and 123 charge the same labour rate for their services, making a discussion on labour rates for this specific example moot.

Who makes more money at the end of the day?

ABC:
Component costs: 10 x $30 = $300
Component Sale Price: 10 x $60 = $600
Gross Profit: $300

123:
Component costs: 10 x $87 = $870
Component Sale Price: 10 x $174 = $1740
Gross Profit: $870

It is pretty easy to see, in this scenario above, who is making more money at the end of the day. 123 Lighting is making $570 more, or 190% more to be precise and yet they share the same business policy in terms of Markup and Margin rates.

But wait you say... why not just buy those cheaper fixtures and sell them for the same price as the more expensive ones? Then you would really be making a ton of profit! Well yes you would.... lets see just how that would play out:

Component Costs: 10 x $30 = $300
Component Sale Price: 10 x $174 = $1740
Gross Profit: $1440.

Wow, that is a lot of money... now what does that look like in terms of markup and margin:

Markup: 480% [(Sale Price - Cost)/Cost] x 100%
Margin: 82.76% [(Sale Price - Cost)/sale price] x 100%

Impressive? Perhaps to some, but will your client's be impressed? I always like to think about my business practices from the point of view of my client and I do this by putting myself in their shoes. How would you feel if the next time you purchased some services around your home you found out that your contractor was marking up the materials used by 480%? Would you feel ripped off? taken advantage of? Would you refer that contractor to your friends and family, so that they could get equally fleeced? Seriously think about it. Is that the type of operator you want to be? Is that the type of reputation you want in your marketplace?

Don't think that type of information will get out? Think again. I know of a situation where the owners of a large, poorly performing lighting system asked for a review of what they had at their home. They were provided with a comprehensive assessment of the work performed and the materials installed. They also got a 'quote' for what that system should have cost along with a proposal to redo the system properly. Their response? A substantial lawsuit was filed against the original contractor.

I am a small business owner, small 'c' capitalist and a consumer. I believe in making a fair and decent profit for an honest day's work. I believe in giving people value for money and I believe in doing the best job I possibly can, using the best materials possible that do the job and fit into the client's budget. What I don't believe in is buying el-cheapo, low cost components and then marking them up by sensational rates.

I have said it before. If you want to make more money in this business you do so by being remarkable, exceeding your client's expectations, being creative and innovative, and charging appropriately for your talents and services. Sell the sizzle, and back it up with a great steak at a fair price.

500% Markups might look sexy, but they are not sustainable.
__________________
James Solecki
INTEGRA ~ Bespoke Lighting Systems ®
JSLDesign Inc.


www.integralighting.com

www.facebook.com/INTEGRA.Lighting

Affiliations: IESNA, IALD, IDA LO, MBA
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  #2  
Old 08-21-2015, 07:35 AM
Alan B Alan B is offline
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Join Date: Jan 2008
Location: tampa, fl
Posts: 381
James I respect you as a lighting designer, but I wholeheartedly disagree with you on your ideas of what is best for the majority of contractors in the USA. Perhaps where you are in Canada things are different.

1. Where I live (and it is similar in the majority of areas in the USA), there is a limit on what you can charge a customer. If you charge more than $300 per fixture it is hard to get business in a lot of areas. Paying more for a fixture so you can charge more is not an option. There are high-end clients where money is not an issue and they can afford to pay for top lighting designers and expensive products. However these markets are limited and for my customers it is an issue.

2. Having margins that are "too high" for the customer to stomach is not the roadblock issue when selling landscape lighting systems. Your premise of paying more for a fixture so you can lower your profit margin is bizarre. The real problem is contractors are not making enough money and the reason more customers are not buying landscape lighting systems is because most people can't afford them. VOLT helps improve both of these problems.

3. Contractors don't make near the profit or margin you use in your example and they don't make as much as they deserve. If a fixture cost $50 (hypothetically) and the contractor is selling it for $200 installed (hypothetically) he is not charging 4X as much as his cost. When you add in transformers, LED lamps, cable, connectors, extension risers, surface mounts, tree clips, conduit, timers, hubs, photocells, etc. the real cost of materials is probably closer to $100. By the time the contractor pays for labor, truck, tools, advertising, doing estimates, and everything involved with installing a landscape lighting system, they are not making much at all.

4. As a contractor, if you have a choice of buying a UL Listed, solid cast brass, fixture through distribution, or pay half of that for a UL Listed, solid cast brass fixture with a lifetime warranty from VOLT, which do you think most contractors would choose? It makes a lot more sense and the contractor will make a lot more money buying the VOLT fixture, hands down. Getting high quality products for less because a company has a better model and is more efficient is a win-win for both the contractor and homeowner.

You have never bought a VOLT or AMP product. You should give us a try and it will change your business for the better. Go VOLT!
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Alan
President/CEO
VOLT® Lighting
(813) 978-3700
alanb@voltlighting.com
www.voltlighting.com


Factory Direct Outdoor Lighting
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  #3  
Old 08-21-2015, 10:08 AM
Alan B Alan B is offline
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Join Date: Jan 2008
Location: tampa, fl
Posts: 381
Let me double down on a couple other points:

1. Thank you for pointing out how much more a contractor can make by using VOLT® products! The biggest expense with installing landscape lighting is the cost of materials and by cutting those costs contractors make more profit and make their business sustainable.

2. You miss another critical point-- the overwhelming majority of landscape lighting fixtures installed (even by professionals) are aluminum. This is fact. VOLT® cast brass, lifetime warranty fixtures are a substantial improvement in quality compared to what most contractors are installing. You try an imply that VOLT® products are low cost el-cheapo products, that they could be poor performing and/or imply that they could lead to lawsuits:

Quote:
Originally Posted by INTEGRA Bespoke Lighting View Post
I know of a situation where the owners of a large, poorly performing lighting system asked for a review of what they had at their home. They were provided with a comprehensive assessment of the work performed and the materials installed. They also got a 'quote' for what that system should have cost along with a proposal to redo the system properly. Their response? A substantial lawsuit was filed against the original contractor.
.
Quote:
Originally Posted by INTEGRA Bespoke Lighting View Post
What I don't believe in is buying el-cheapo, low cost components and then marking them up by sensational rates.
.

Reality--VOLT® products are an increase in quality for the overwhelming majority of customers.



You say that you are more concerned with providing the best quality and value that the customer can afford:

Quote:
Originally Posted by INTEGRA Bespoke Lighting View Post
I believe in giving people value for money and I believe in doing the best job I possibly can, using the best materials possible that do the job and fit into the client's budget.
.
We agree That is exactly why people buy VOLT® products! Solid cast brass, high quality fixtures, that are UL Listed, have a lifetime warranty, great performance, that are shipped same day and backed by a stand-up company with impeccable service... and don't forget your main point... for less than can be had through distribution for comparable quality.

You personally told me on the telephone many years ago how you were disappointed with the aluminum Hadco fixtures you had used and how ridiculously priced they were for the crap that you got.

We both know the only issue with VOLT is our model, plain and simple. Let's get past that because it has been beaten to death. I'd rather focus on being positive and helpful to my customers.
__________________
Alan
President/CEO
VOLT® Lighting
(813) 978-3700
alanb@voltlighting.com
www.voltlighting.com


Factory Direct Outdoor Lighting
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  #4  
Old 08-22-2015, 12:05 AM
Chris J Chris J is offline
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Join Date: Sep 2006
Location: Maldive Islands
Posts: 2,500
James, I'll have to say that I'm impressed with your slick analogy and calculations. I'm sure that there are a few who will be dumbfounded by this explanation and might even agree with you just because it sounds good even though you confused the crap out of them. And Alan, I like your response..... I couldn't have explained it any better.

Now, I'd like to offer a more simplistic form of math that might be more understandable to those readers who can't follow your confusing logic (just like me).

Potential customer gets 4 bids: .... 10 light job; contractor A uses Kichler aluminum Gen 2 LED fixtures and bids $2500. Contractor B uses FX aluminum and bids $2700. Contractor C uses some kind of cheap home depot crap because he's not a pro, doesn't do more than 10 jobs per year and bids materials cost + $500. This guy is going to be the cheapest, by far, but we deal with high end homeowners who are not stupid and can see right through this guy while labeling him a clown.

Contractor D uses a brass product that he has proven to himself to be far superior because of enormous experience and is backed by a lifetime warranty. His price for the same job is $2600, but his cost on materials is half, which results in an average net in the end of $1000 above and beyond the others.

Now, the potential client has a choice... doesn't he/she? Aluminum with a 5 year warranty or brass with a lifetime warranty for just about the same price. What would you do as a consumer? Some might try to investigate pricing on the internet to see if they can get quality materials cheaper..... and that's fine with me. Now let's assume that they find pricing online and baulk at your proposal...... and this is the moment that separates the seasoned pro from the hack with access to a distributor (middle man) who gets a piece of the pie at the end users expense....... My response to the potential client? Sir/Ma'am, you have 3 other bids. I've given you my resume and 30 references within a 2 mile radius of your home and I have 16 years of experience as one of the top contractors, arguably the top contractor, in this region of the state. You don't have to hire my company but this is our price and we would love to have you as our client. It's your money.

I did 4 proposals today, by the way, with 100% closure. One of which that told me I wasn't the cheapest but they liked our reputation and the more significant warranty...... All 4 were very small jobs, however, but true story or lightning can hit me now.
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