Oops, your margin is showing!

-- Industrial Distribution, 5/1/2001

Other articles from this Fastener Report:  
Profile: Hub Construction Specialties of San Bernardino, Calif.
Application profile: Partners reduce costs
Manufacturers &  trade groups provide more training
Rep's perspective: Achieving a comfort level
News: expect slow, steady growth


By Bill Howard

Is your profit margin the same today as it was 10 years ago? Probably not. It's probably lower by several points or more. Your company is doing more today for the customer and receiving less for your services.
Why is this?

One reason your profit margin has decreased is these long laborious lists of fasteners that salesmen pick up for quotations without qualifying the prospect. How many times have you or your salesmen picked up a fastener list from a prospect for 100, 300, 500 or 1,000 items for quotation? The salesman is excited about the potential of this account; dollar signs are dancing in his head. Then he conveys the bad news to the company. The purchasing agent needs the quote back in one or two weeks.

It's really an unreasonable amount of time for all the work that will need to go into this quotation. But since the account is worth $100,000 in nuts and bolts, the salesman and supporting inside sales departments work many extra hours to deliver the quote on time.

Qualify the quote upfront and get a commitment from the purchasing agent that if you show his company a better deal you are going to get the business.

A month goes by, and finally the salesman and purchasing agent meet to talk. First, the bad news: "Thanks for quoting but your competition lowered his prices to meet yours and we are going to stick with him."

Ouch! All that extra work for nothing. What happened? Might you have just been used by that purchasing agent?

You didn't do your homework by asking the right questions and getting a commitment. You have forced your competition to lower its margin. That's OK, since your competition is doing the same thing to you at accounts where you are the incumbent.

Who is the winner in this scenario? The purchasing agent! He just reduced his fastener costs by eight percent. Your competition had to lower its prices and your company did hours of work gratis! (Remember, I am not talking about a situation where you are bidding against several competitors for an inventory management program; winner take all! That’s a horse of a different color.)

So what does all this lower margin business mean to the company anyway? It could very well mean labor turnover, which is very costly for your company and your good customers. Your inside sales or customer service people worked so hard to meet the rigid deadlines and get yours and other salesmen’s quotes back just to lose bonus money and/or perks.

Those people may then begin to question whether or not the company appreciated their loyalty and hard work. The inside people put out some feelers, and before you know it your company just lost a good 10-year employee, an inside salesperson with all that fastener knowledge, gone! The new rookie your company hires may take up to six months to a year to be a productive member of your inside team.

How could you do things differently? Qualify the quote up front and get a commitment from the purchasing agent that if you show his company a better deal you are going to get the business.

Don't put your inside overworked sales team through an exercise in futility. They probably don't need the exercise. They know how to quote fasteners. They've been doing it for years!

Bill Howard is vice president of Revcar Fasteners, a member of the Würth Group. He can be reached at bhoward@revcar.com