Realty Income Case Study
How Pavecon negotiated and rolled out a national paving plan with Realty Income.
At the Pavement Network, we actively look for opportunities that can benefit our members across the board. We refer each other for jobs out of our own service areas, but last year, member Pavecon had the unique opportunity to take things a step further and negotiate a discount model with national company Realty Income in an effort we hope will pay off for our Pavement Network members in the near future.
Realty Income has between 6,000 and 7,000 sites across the country with pavement needs from reactive maintenance, property assessments, and on-going care. They approached Pavecon about forming a national plan that would cover all of their sites. Thomas Olmsted, VP of National Accounts at Pavecon, took the lead on this endeavor. Olmsted wanted to create a plan that would both offer a discount to Realty Income and still benefit Pavecon and Pavement Network members.
Olmsted began by looking at national averages for all paving efforts. Once he had those numbers, he translated those figures from revenue to margins. Olmsted already had the margins for all Pavecon services from the last three years. By switching to margins over revenue, it was easier to simplify the price structure and find an accurate figure for what each job would ultimately net Pavecon, or a fellow Pavement Network member.
From these margins, Olmsted created a discount model—a tiered price structure for Realty Income reflecting the savings on each service. Since Realty Income is a publicly traded company, they were able to take the discount model to their board and present the savings.
“If we hit these numbers, they’ll save 63.84% on average per job compared to the national average,” Olmsted said. “For (jobs with) Pavecon, the national savings is closer to 40%, but that’s still huge savings.” Realty Income was also transparent about the fact that Pavecon (and other Pavement Network members) needed to make a profit when working with the discount model. Olmsted predicts average profit margins will run 5% to 11% for work done for Realty Income.
The next step after establishing the discount model was to take it to the other Pavement Network members. Now all members have access to the same model developed for Realty Income. It’s a little early for Olmsted to see how well other companies are integrating the discount model, but he’s hopeful that next year PN members will see more fruit from their efforts.
The discount model was a challenge for Olmsted, but now that it’s been rolled out, he feels it can be replicated with similar clients. It’s a win-win model that benefits Realty Income and future clients with exclusive savings and access to a national network, while it guarantees Pavement Network members certain margins on every job. Pavement Network members can look forward to more jobs from clients using the new discount model.