Quoting is the way many North American building material salespeople initiate sales calls, and it is a detriment to their gross margin. Pricing is one of the most complicated aspects of doing business in all parts of the world. In fact, there was a time when it was popular for merchants not to price their merchandise. Rather, they would place a sticker on the back of the item with the merchant’s cost encoded so they could use their judgment as to what price they thought the potential customer would pay. Contrast this strategy with a sales approach that is not uncommon in our industry that goes something like this:
Walking into a builder’s office, a salesperson introduces himself. “Good morning, Mr. Smyth. My name is Jim Hartwell. Thank you for making time for me this morning,” he says as he hands his business card to the builder.
“You’re welcome, Jim. Would you like a cup of coffee?” Mr. Smyth asks as he hands Jim one of his business cards.
“No thanks, I’ve had my quota for the morning.” “What can I do for you, Jim?” Mr. Smyth asks.
“Well, as you can see, I represent Great Falls Lumber here in town and I am new to this mar- ket. I was working a job out in Asher Hills yesterday and stopped by one of your jobs. There was no one on the jobsite, so I took the liberty to do a walk through. You are the kind of builder I like to do business with. If you don’t mind my asking, who are you doing business with now?”
“We do a little business with most of the dealers in town from time to time,” Mr. Smyth says. “Price is important to us, so we generally buy from the one that has the most advantageous pricing.”
“As I said, I’m new to this market,” says Jim. “I’m trying to make inroads with some medium- size builders, and I’m here to ask if you have any jobs you’re getting ready to start that you’d let me bid on.”
“Sure, Jim,” replies Mr. Smyth. “I’ll be glad to take a look at your prices, and if you can save me some money, I’ll be more than happy to give you some of our business.”
“If you have an extra set of prints you can let me have, I’ll get back to you with some attractive pricing by the end of the week,” Jim responds.
Is it possible that Jim could be one of your salespeople? It takes Jim a little while to get around to the point, but it sounds to me as if he sells on price. And it sounds as if Mr. Smyth buys on price, so they may be just about perfect for each other.
I’m not suggesting Jim won’t get an order, but my guess is that his gross margin is pitiful. There are a lot of salespeople like Jim who have always sold on price. That is all they know.
“Quoting is not selling” is one of my favorite sayings. Similarly, “Give me a set of prints and let me help you save some money” is not a very profitable approach to a salesperson’s first call on a prospect. Jim can’t possibly know what price to quote a builder he has met for the first time and has “walked through” only one of his jobs. There are at least a dozen questions he should ask to determine if he wants to do business with this builder and how he should price the material.
I believe the quality of the relationship a salesperson has with the builder, combined with the value the builder perceives the salesperson is worth to his business, is probably the best indicator of the gross margin the salesperson can earn.
Bill Lee is a respected sales and business consultant in the LBM industry. For more information, contact Bill at email@example.com