This is why you ALWAYS get paid upfront for materials...

Discussion in 'Business Operations' started by HOOLIE, Oct 20, 2006.


    HOOLIE LawnSite Gold Member
    Posts: 3,981

    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....
  2. Waterscapes By Design

    Waterscapes By Design LawnSite Member
    Posts: 237

    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....
  3. ACutAbovesiny

    ACutAbovesiny LawnSite Senior Member
    Posts: 590

    1/3 is reasonable for a deposit.
  4. sunray

    sunray LawnSite Member
    Posts: 218

    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.
  5. DBL

    DBL LawnSite Silver Member
    Posts: 2,219

    well not taking money for materials upfront isnt as bad as not having a contract
  6. ACutAbovesiny

    ACutAbovesiny LawnSite Senior Member
    Posts: 590

    Very true.
  7. sheshovel

    sheshovel LawnSite Fanatic
    Posts: 5,112

    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.
  8. paponte

    paponte LawnSite Silver Member
    Posts: 2,366

    Before I start a job, I have 1/2 up front. No ifs and or butts! :nono:
  9. Tharrell

    Tharrell LawnSite Silver Member
    Posts: 2,964

    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.
  10. YardPro

    YardPro LawnSite Gold Member
    Posts: 3,563

    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.

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