During peak construction season, companies offer bid prices that are, at best, combinations of known costs of material, plant operations and capital investment and guesses of traffic patterns, contractor pour rates and weather.
As Bob Barton of Barton Engineering, Needham, Mass., suggests, ready-mixed concrete producers shouldn't have to absorb variable trucking costs, which can lead to "voodoo" pricing policies. Using his 35 years of industry experience, Barton suggests that the industry's basic problem is traditional delivered pricing, for two reasons.
One, producers often lack the financial data showing delivered pricing's profit/loss impact on individual jobs, and two, producers often look to large sales volume to correct losses individual projects may bring.
Barton proposes that producers adopt an FOB plant pricing policy, which requires customers to pay a flat rate for material and transportation to the jobsite and a sliding-scale rate based upon the amount of time the truck is on the site, to avoid the huge daily profit fluctuations created by delivered pricing. Producers who have followed Barton's principles report dramatic profit gains.
The article also reveals how producers can show their customers how to use the profit-sharing pricing policy so both partners are profitable.
keywords: profit-sharing, pricing, cost, FOB