Every couple years, I try to do a column that you can use to remind your team about some of the business basics of wholesaling. These basic concepts are important for all of the newer members of your team to learn as they are assimilated into your business. You can also use it to remind the more senior members of your team who may suffer the horrible burden of knowing everything. (Sadly, few suffer this burden in silence.) While it is impossible to provide all the details in a single column, the points can provide you with an outline for your ongoing “broken record* reminders” about these important topics for wholesalers. (*For those of you who have never seen a record, they looked like a large cd** made of black vinyl, with a very narrow groove that spiralled from the outside in. A needle, usually made from a small diamond, was able to read grooves and bumps that were stamped into the record to reproduce sound. When they broke or got a large scratch in them, the needle would jump back on the record, causing the same part of the record to be repeated over and over…hence the phrase “like a broken record.” **For those of you who use MP3 or streaming audio and have never seen a CD…never mind.)
I know about broken records reminders, because I am guilty of offering them. Continuously reminding, cajoling, nagging your team about the basics of your business is annoying to some, maybe all, of the listeners and tiring to you. But you must still do it because people forget, people get lazy, people get a false sense of what is important to the business. In the absence of ongoing guidance about what is important, your team will just “wing it.” The old saying still applies, “People respect what you inspect.”
These are not things to store up for a performance review, but reminders to be given while running a busy, sometimes chaotic business.
Don’t forget to walk the talk
This reinforces the reminders, sets a good example and demonstrated that you are serious about your reminders. People also copy what they see their supervisors and managers doing…both good and bad.
1. This is a great industry, with opportunities for people of all backgrounds and experience. Many senior managers started in our industry working in the warehouse or driving a delivery truck. We need to continue to tell our story in order to attract the people we will need as the recovery evolves. Networking with your friends, relatives and acquaintances can help to get people thinking about a career in our industry.
2. Customers are the heart of the business. They may not always be right, be in a good mood, smell good or have their work organized but they are always the customer, which means they ultimately pay all the bills and salaries. Contractors are sometimes a pain — sometimes a real pain — but I think your company has to approach the customer relationship with a foundation of respect for the customer. At the heart of that is a culture that does not disrespect customers to their face or after they have left. Most of the people in your business and in your customers’ businesses get up every day and go to work trying to do a good job. As I mentioned last month, there are knuckleheads; but the vast majority of folks in our industry are just good people. When your team complains about a customer or, even worse, makes fun of a customer, it builds a culture of disrespect that often drives how customers are treated.
3. Not all contractors tell the truth, especially when it comes to prices. Some contractors view their relationship with their wholesaler as a lifetime of ongoing negotiation. Some may feel that the truth is optional whenever it helps in that negotiation. Others may be no darn good. The challenge is always to sort out the good guys from the rascals. But as the saying goes, trust but verify. When they tell you that your price is outrageous, you would be well-advised to verify that by asking more questions and, ideally, by getting a second, third and fourth set of pricing data points.
4. Employees serve two masters:
• Providing service to the customer
• Helping the company to make a profit. Over time, some of your team may start to neglect one or the other — or both — of these masters and may need to be reminded.
It’s lots of little things like:
• Asking the customer if he needs help loading his truck.
•Thanking the customer for his business.
• Answering the phone promptly and in a friendly tone of voice.
• Keeping the counter, warehouse, trucks and inventory in good order.
• Taking the extra time and energy to not just drop the price and margin when a customer talks about the price.
• Asking for the order when someone calls to ask about a product.
• Working to remind the customer about associated products they may need when completing a job.
This is certainly just the start of your list but reminding your team does matter.
5. Your goal is fair pricing. You should not aim to be lowest but fair and competitive. Many wholesalers do not put in the time to create thoughtful, market-based pricing and so their pricing is mostly ad hoc responses to contractors’ ever-present, pricing complaints, that may or may not, be based in fact.
6. Gross margin is never the same as markup on cost. Well, this is not precisely true since zero gross margin is the same as zero markup but for all practical purposes, they are not the same. They cannot be used interchangeably. Margin relates directly to the income statements of the company so accurate discussions of expenses, gross margin and other numbers there in are possible. As that car maker says, “there is no substitute.”
7. Insist that your team always use gross margin. The consistent, unfailing use of gross margin for all pricing and profit discussions will, over time, make your company more money.
For every table showing gross margin to markup conversion, I will show you a Band-Aid that will not resolve the confusion. In our 35 years of pricing work we have found that use of a single metric (GROSS MARGIN) is the only successful solution. It is the only approach that produces acceptable results. For a reprint on gross margin, email: firstname.lastname@example.org
8. Make sure your people understand gross margin. We have also found that most managers in our industry do not know how to calculate gross margin. We have a simple, five-question gross margin test that we have given to more than 10,000 people. We are surprised when more than 5% of managers and sales people get all five questions right. For a copy of the test, email me: email@example.com
9. You need everyone on your team to learn how your webstore works, how to demonstrate it and how to promote it. The web will be some part of your company’s future. The exact amount is anyone’s guess but your team should be fully conversant in the features and use of your website and webstore. I have heard stories wherein a wholesaler’s sales people, feeling threatened by the webstore, have actually suggested that customers not use it! When that happens there are typically two causes:
• The individual is threatened or cannot competently discuss the offering
• The store/website sucks! In either case, you need to get it fixed.
Your team’s support for your web activities has a dramatic impact on the success of your web store and website. One of our webstore wholesalers put up a great store but didn’t do anything to train their team or customers in its use and the adoption has been predictably slow. Another wholesaler promoted a very similar web store, trained its people and promoted the store to their customers. After three months, they were doing over $50,000 per month in sales through their store.
10. Wholesalers are not rolling in dough. Some of the people that work in your company think your company has a lot of money. They lose all enthusiasm for helping the company take more money from contractor customers. It may feel immoral to them since many contractors struggle to make ends meet and wholesalers seem to be so big and successful.
Make sure they very clearly understand that wholesalers (and your company) struggle to make a fair return for the owners and that a point or two of margin makes a huge difference in the success or failure of the company. Then also remind them that, in this battle of a point or two, whenever they offer a 10% discount on an item, they just gave away 10 points of margin. There is no behind-the-scenes, accounting magic to overcome this huge margin loss. Yet people in our industry casually give 5%, 105,15% and 20% discounts without the proper consideration before they do it and, afterwards, the appropriate guilt for what they have done. As part of proper price control, management should review and discuss discounting philosophy with people who can offer discounts so discounts are granted properly. Management should also do post mortems to discuss discounts that were granted and to understand whether the system price is flawed or the salesperson wimped-out —with appropriate medication applied to the inflamed area as needed.
This was not intended to be an exhaustive list, but rather a thought-starter. Build your own list that is appropriate for your company, and then start walking the talk, setting expectations and reminding your team over and over and over again.
Rich Schmitt is president of Schmitt Consulting Group Inc., a management consulting firm focused on distribution and manufacturing clients for pricing, consulting seminars and profit improvement. He is also the co-owner of Schmitt ProfiTools Inc. (SPI), which provides web storefronts and handheld tools, print catalog software, content creation and services, and pricing management and analysis. Visit his company websites at www.go-scg.com and www.go-spi.com. Schmitt can be reached directly at firstname.lastname@example.org