Who’s Driving Your Bus?

It is amazing.  As a supplier I had numerous conversations with distributors about their client’s wants and needs.  We all have them.  But who is in control?  I have had people tell me, “…it must be done this way” or “I get 90-day terms, or we don’t do business…” Guess what, maybe we do not do business.  It is a terrible trickle-down effect when we allow others to drive your businesses and your policies.  During my supplier years I had distributors who did not request but demanded they get the following:

• 60-day plus terms

• Free Unlimited Samples

• EQP (this is the BIGGEST industry misnomer ever; it has been abused)

• Advertising Allowance

• A guarantee you will exhibit at their show.

• Free art, digitizing, screen, set-ups 

• …the list goes on.

Distributors are being hit up in the same manner from their clients.  Now, if your company can support these types of activities, then by all means; if you feel it a differentiator for you, then.  What troubles me is these requests are being made as a condition as to whether they do business with you.  When was the last time you went to a McDonald’s or Target, and told the clerk, “Before I buy a thing from you there are a few conditions, free unlimited samples, oh and if I do buy, I want to pay you in two months”?  What would they say?  Beyond the laughter, most likely a resounding ‘see you later’.

How it breaks down is, too many distributors allow their clients to dictate what the terms and conditions of business operations are and often this gets passed on to the supplier, which is not fair - it is time to take control and start driving your bus!

Several years back when I had my marketing firm (distributorship), I had the pleasure of doing business with my father.  He was the director of purchasing for a major US corporation and luckily for me one of his roles was purchasing nationwide, both apparel and promotional products for every division of his company.  After completing what I would consider a very handsome order, I sent him the invoice.  After several calls to collect, I eventually had to call him to see if he could put a fire under the accounting department.  He did and I got paid, 96 days later.  I reviewed the check and noticed it was shorted by 2%, what is this?  I did not authorize a discount, was there something wrong with the order?  So, I called. “Hey dad, I received the check from the company today and noticed a few things, can you help?  The check was paid in 96 days and there was a 2% discount, what gives? His response was staggering. “Well son, I told them to pay in 90 days and I always take a two percent discount. But don’t worry; just re-invoice me for the two percent and I’ll pay it”. No, I am thinking, ‘why, so you can take 90 days to pay and take 2% off that amount’, what a vicious circle. He further explained his logic, “Just think, I do roughly 100 million dollars in purchases a year, if I take two percent my company gains or saves 2 million dollars, but only 50% of the people bother to invoice back so we are still net-net one million dollars ahead."  I was stunned, and my response was, “Dad, you’re fired, I cannot continue to do business like this, it’s not profitable.”  He too was shocked by my response and thought I was kidding until two weeks later when he tried placing an order and I refused to take it – he got the message.  Lesson learned.

Now, some will say, that is dumb, you just turned your back on a sale, but here is the question, was it a “profitable” sale.  Many companies, BOTH distributors and suppliers, do not run profitable companies they are driven by ‘something is better than nothing” attitude. Several years ago, I worked for a relatively large promotional products distributor – they were, by their numbers, a major player, but the owner’s business model in my opinion was a bit flawed.  We would have conversation after conversation about profit vs. sales with no real resolution; I guess we agreed to disagree.  This individual would always boast about how they did one point two million dollars in volume but never mention the gross profit.  I would say, “…but at what margin where those sales written?”  The response was, “I write bigger business, so I have to write it for less profit.”  But do you?  Her average margin was about 30% not bad by most standards, but mine was 49% but I only sold 780K per year.  So do the math.  

• 1.2 million at 30% profit = $360,000.00

• 780,000.00 at 48% profit = $374,000.00

• Who made more profit? 

• Who exposed the company less?  

The numbers are the numbers. Drive your bus, move, and improve your margins.

Committing yourself too early

Evaluating each sales situation on its own merit is important, I am not suggesting that every sale is going to be super high margins, but you should indeed strive for a reasonable profit, and that number will be different for each company and in many cases, each salesperson.  In my former role as CEO of a Headwear company, I was shocked at how distributors reacted when we I only sent them NET price lists with their catalogs, while we had other lists, I tried to get them to understand that each sales situation is different, in some cases you may have to give a little, you make that determination. You know your client, you know (or should) what margins you need to work at to run your business successfully, so why should I, as the supplier dictate to you what margins you should make?  Suppliers do not have magical powers that gives them the wisdom to dictate YOUR PROFITABILITY.  Take each sale on its own merit, evaluate the situation, and get paid for your time from the client while considering your worth.  Remember it is what you can spend (profit) when the sale is complete, not what you sold.  If you think I am kidding, the next time your car payment or mortgage is due and you are having trouble making the payment, tell the loan officer, “...but I sold one million dollars…” Think profitability!

The Power of NO

A large distributor gave me the song and dance sometime back about being on their VIP preferred vendor list.  We met all the criteria and after about a year, we made the list, we received many nice orders before becoming a preferred vendor and felt that sales would accelerate after becoming preferred.  After about a month a survey from the company was sent and one of the questions was, ‘What amount of rebate do you intend to give our company on our overall sales volume this year?’, my response was zero.  I felt was basically being held hostage, and if I did not comply that I would be removed off the list.  I said, “Take me off” – they were stunned, but that is how we ran OUR business, everyone was treated equally, no one gets special pricing, it is even-handed and fair to everyone.  We never had to wonder what was promised to one that was not promised to another, it was simple, it was clean, and for us (at the time) it made sense.  Furthermore, we had one price for each item, no huge strategic tier structures quite simple, you want one or 643 pieces it is the same price, that made my life simple.  After months of sharing our concept model and after much resistance, distributors began to see the beauty in the simplicity we created.  Often, it is “change” that scares people, not the actual concept. Quite honestly, I was skeptical at first, but it worked.  My advice, stand your ground, take the wheel, and drive your bus.

At the end of the day, it is a trickle-down process that can adversely affect the entire supply chain. Our vendors have vendors, distributors we have our vendors and clients. Clients should get a fair price, they make that determination, but remember, our supplier partners need to make a profit too. And YES, as a distributor, you need to make profit as well. If your clients are constantly beating you up for various concessions, I would say two things:

1. You have the wrong type clients, or

2. You not showing or providing enough value from your company.

I challenge you to go back, analyze your businesses, and more importantly your business practices, do they make sense?  Who is in control?  Are the decisions you are making merely a matter of habit, or are they healthy decisions which will foster profitable growth for your company?  Do you let others dictate your business practices? If you do, rethink your model.

If you are not sure how to do this, hire someone who can help you get a better understanding of what you are doing, your systems and procedures, where you are successful and where you could improve. There is no shame in asking for help, I learned the hard way, you do not need to.  

Now sit down, take the wheel, drive your own bus, and enjoy the ride.

As always, continued good selling.  CQ