Special orders have been a pet peeve of mine for most of my career in our industry. I have done research on special orders for a good 40-plus years and the results don’t improve much. Owners, managers, and salespeople simply neglect this opportunity to improve on their company’s gross margin.
Here’s why I become so worked up when the subject of special order sales comes up. First of all, special orders are one of the largest product categories in almost every building supply business. My research shows that special orders account for anywhere from 21% to 39% of sales, depending on which products you consider to be special orders. For example, some dealers classify trusses as special orders and others don’t classify windows as special orders.
The pricing of special orders is one of the biggest opportunities virtually every dealer has to boost the company’s gross margin. Here is a piece of evidence I have collected: In both sales and gross margin seminars, I ask the audience this question, “If I were to walk into your store and ask every inside and outside salesperson the price they charge for the same special order item, what do you believe the odds would be that I would receive the same price from any two salespeople?”
The answer I hear from just about every salesperson is “slim to none.”
Salespeople must remember that they are pricing a product that most builders are going to take back to the job and put anywhere from a 50% to a 75% markup on it. The fact is: the builder doesn’t really care what the S.O. product is costing him.
Granted, some special-order sales can be extremely price sensitive, i.e. trusses and premium windows, but there are hundreds of other products your company sells every day as “special orders” that are not at all price sensitive.
Try this: Advertise your company’s willingness to help customers find products you don’t carry in stock. Make sure your customers and prospects are aware that special order sales are an integral part of your company’s service offering.
Also try: Set up a category for special order sales and track this category every month. You may also want to consider rewarding your salespeople each month who generate both the highest special order sales and the highest gross margin on the special order sales they process.
Even if you don’t reward your high achievers, it’s a good idea to rank your salespeople by both the special order sales they generate each month and the gross margin they achieve. I have found that this practice helps bring out their competitive spirit.
Because many of the individual products that make up your company’s special order sales are relatively “small ticket” sales, I have found that many owners and managers fail to realize how much additional profit can drop to the bottom line as a result of installing an incentive plan for your inside and outside salespeople. Consider this realistic scenario: Imagine that special-order sales make up 25% of your company’s business. Next, imagine that as a result of your new incentive plan, you are able to raise the average gross margin you earn on these sales by four percentage points.
If this were the case in your business, 100% of this gross margin improvement (on approximately 25% of your sales) would fall directly to the pretax line, resulting in one full additional point of pretax margin.
I have observed many cases when one additional point of pretax margin can improve pretax profits by 20% to 25%.
There is very little left that a business can do to have this degree of impact on the bottom line. There is no doubt in my mind that there are thousands of businesses in our industry that are leaving substantial pretax income on the table by not installing an incentive plan on special order sales.
