Two key factors that affect your gross margin

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I believe it is the job of a building supply business’ sales team to sell the operational capacity of the company they represent. When they are successful, the company needs more load pullers, drivers, administrative personnel, and managers. Sales and marketing success is the engine that drives job security for everyone in the organization.

In the majority of building supply businesses in North America, salespeople also have perhaps more influence over the company’s gross margin than any of the other members of the business team. Because so many salespeople are assigned some degree of pricing authority, they frequently negotiate with builders who can prove to be highly aggressive buyers. And salespeople almost always price special order sales that represent anywhere from 20% to 40% of total sales.

As much responsibility as salespeople carry on their shoulders, they need to be frequently reminded of costly mistakes they must avoid. When they fail to educate themselves on the principles of negotiating, the results can be costly.

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Leading with price (negative affect)

Price should be the last thing a seller mentions, certainly not the first. Rarely is price the dominant buying criterion for a contractor. The level of and the consistency of a supplier’s service level can be and is quite often far more critical to a smooth-running job that comes in at or below budget than the price the contractor pays for material.

It’s one thing to respond when contractors ask to see some prices, but from a negotiating and gross margin perspective, it’s almost unforgivable  to  initiate an offer  to quote. When someone volunteers an offer to rattle off a handful of prices, it is tantamount to saying “we have the lowest prices in town…here, let me show you…now, go back to your office and compare our prices to the prices you’re now paying.”

The premature quoting of prices  is  seen  by  buyers  as an invitation on the part of the person  doing  the quoting for price haggling to begin. Does premature price quoting occur in your business?

Quid pro quo (positive affect)

The origin of quid pro quo is from the Latin, meaning quite literally, “something for something.” I’ll do this for you if you’ll do that for me. I’ll give you this if you’ll give me that.

One could say, “…I’ll give you these building materials and you will give me a check.” Yes, this would be quid pro quo in the strictest sense of the expression, but from a negotiating point of view, the dealer is called upon to build a war chest of value that the buyer perceives to be so valuable that he or she will do business with the dealer just to have unhindered access to that value.

Here’s an example: Back in the day before truck-mounted forklifts became available, all suppliers were pretty much the same; they would dump the contractor’s load of material on the jobsite and drive back to the store to get their next load.

When the first dealer in the community invested in a truck-mounted forklift, that dealer was all of a sudden able to have a new quid pro quo to offer customers and prospects: Give your business to me and we will load the material on our truck in the order your framers will use it and then place the material around the jobsite. The benefit to you is that you will be able to eliminate the labor hours of having to remove the bands from the load, sort through the material until you find everything you ordered, determine where it is to be installed, and hand-carry the material to the correct part of the house.

The “benefit” was the added value the dealer with the piggyback delivery equipment had that no one else in the community had invested in.

What added value do you currently offer to your customers that your competitors do not?