Too often, distributors will offer the end user every service they have: a practice that ends up costing them a lot of money to provide. What we as distributors try to do is qualify the customer's needs and provide services that will help actually reduce their cost and ours.

The customer benefits because we're providing services that solve problems and reduce their cost. If they have a bunch of obsolete inventory that we assist them in eliminating, it allows them to purchase critical spares for the equipment they now have. It's a joint effort between us and the customer.

By knowing what our customers truly value, we can make recommendations, and the customer, the manufacturer, and our company are positively affected. For example, if the customer currently uses the same type of product from three different manufacturers, and we know what that customer's needs are, we can choose the best manufacturer to provide that entire product. The economies of scale work in our favor as far as pricing, and we've decreased the customer's cost of inventory management.

We assess the customer's needs by starting at the maintenance level, to see what kind of maintenance is performed. Next, we'll review how they manage their storeroom inventory. Then we'll access their procurement practices and the amount of human intervention that's involved to see if there are processes that don't add value to the equation. We'll meet with the chief financial officer to discuss what's driving up cost of procurement and operation, then recommend ways to minimize those costs.

With our key accounts, we go over our menu of services, and what the cost to provide services is as a percent of the sale. Based on what the customer feels they need, we add up the price of the services and negotiate the margin.

With this process, the customer understands the value of the services being provided, and the costs associated with each service. If they feel the margin is excessive, we'll discuss what services they might not need. Customers perceive that these candid discussions bring value, and foster a more open and honest relationship.

During a recent contract negotiation, we took our menu of services and sat down with a chief financial officer and vice president. We let them select the services they need to run their operation, and determined a margin based upon that. Not only did it give them a better understanding of our value, but once they understood the value we provide, they were more willing to pay for it.

Know your costs and understand what your customer truly needs. Being able to offer services that add real value is lucrative for both the customer and you. Providing unnecessary services helps no one.