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One of our favorite quotations is from Damon Runyon: “The race is not always to the swift nor the battle to the strong but that’s the way to bet.” In wholesaling we think the best performing companies get there mostly through “smart” luck as opposed to “dumb” luck. This smart “luck” is often due to their incredible skill at making good bets where the odds are in their favor. One of the important places to look for the swift and strong is in your customer and prospect lists. There are, of course, ways to identify those “Swift and Strong” customers.
Good Customers — Looking for swift and strong customers
You will remember that our family started in the trades in this industry, a fact that we are very proud of. But many trade folks are fair to poor business people. They came to their vocation based upon their skills with tools, not their business acumen. While trade school and training programs are devoting some time to business training, most of the training is focused on the use of the tools. In fact, many trade folks think of the business side of their activities as a necessary evil to being in business. They do not put in the time to run their business well. Some are saved by their spouse who out of their own business sense, loyalty to their spouse or plain fear of personal bankruptcy, manage the business side of the business.
This lack of business drive is further evidenced by the number of installers who now contract to install for the big box home centers. The home centers’ people sell the job, work with the homeowner through the frustrating product selection process and price the job. The installer gets a contracted amount for the installation, sometimes without even visiting the consumer’s home to estimate the job. We imagine that they eat up some jobs and some jobs eat them but in the end, if they do acceptable work, they have steady work and probably won’t starve.A select few embrace the business side of their companies and seem to end up at a fork in the road. A sign points one way — “Partner with your employees and suppliers to server customers for a win/win/win” — or the other way — “Bully and harass everyone you come in contact with.” he latter type of customer is often a miserable sort and can become a bigger, more demanding, bully as they grow. They expect the best treatment by you and your team while treating you and your team shabbily. They often insist on low, low pricing with terms and conditions that are unfair and unprofitable to their suppliers. To the extent that this description fits some of your customers, they are not the swift and strong that we think you should bet on. The win/win/win customers are harder to find but a lot more fun to work with and the ones you should bet on.
There are no guarantees, but here are some attributes of swift and strong customers. (We think your sales and marketing team or person or whoever does that part-time should track these characteristics of your customers and prospects to determine if, in fact, they do seem to identify stronger and swifter customers. If they do, the next step is to use them as you prospect and manage your existing customer base.)• Customers who flat rate. Rich had an experience with an HVAC contractor recently that illustrates the point. It was a 108+ heat index day in St. Louis and the A/C came to a quiet stop. After calling an HVAC service company the tech arrived within four hours, as scheduled. Rich explained that he was in the industry, then gave him the symptoms and what he had already tried. The tech said, “I think you may just need a capacitor but, being in the industry, you will probably not like what we charge for it.” He looked up the task in his flat rate book using his smart phone and quoted $159, installed. In the course of the diagnostic he found that the capacitor was, in fact, bad and the contactor had corroded connectors. Back to the flat rate book to quote another $139 for the contactor, installed. We guess the parts’ total cost was under $20 and the job total bill was $290 which included a $10 good customer discount. (A “good customer” is anyone with a credit card who doesn’t complain too much about paying the flat rate prices.)
We may be wrong, but we would bet this contractor wasn’t fixated on getting his supplier to a rock-bottom price for those parts. There was some breathing room in the job to allow his supplier to profit also. Non-flat-rate contractors might have charged 100% markup on the parts which is $40 and maybe $80 per hour for the 1.5-hour call for a job total of $160. This lean pricing (we want say stupid pricing but that is not politically correct) generates insufficient profit for the contractor and often causes the contractor to worry and challenge the cost of every item they use.
Most other service industries use some sort of flat rating system to price their work. Our industry has been slow to adopt the idea.
Does your sales team track contractors who use flat rate books? They should. Does your company encourage your customers to consider flat rate books or at least flat rate pricing without the books? Does flat rating ensure the customer will succeed? No, but that’s the way to bet.
• Understands the concept of WIN/WIN. When you identify a “bully” customer, we think you first try to evolve your relationship to a WIN/WIN. Some of these customers respond to a reasoned approach and become solid partners. Frankly, in our experience, most do not. Many bullies simply enjoy being bullies. In the end, you should consciously decide on what terms the relationship is a WIN for your company. If the customer would be more fun at higher prices, consider bumping their prices so they pay you for the disruption and aggravation. We hear lots of stories about these guys like this, “Yes he’s a bully, sure he argues about every price, he doesn’t pay us for months and just crosses the service charge off the statement. He always wants credits for material he says he didn’t receive, even if we have a signature. Whenever we look at his profitability we get sick. But he’s one of our biggest customers and he helps to create sales volume.” The next time you hear this refrain or the next time you say it, take a moment to decide whether you really want this customer. Try to reform him and when it doesn’t work (those are the odds) then consider firing him…by raising his prices. Over the years we have heard many happy stories about firing bad customers and cannot remember any sad stories about allowing those miserable customers to make a competitor’s life more difficult. Don’t do it in a fit of rage, just make a considered, rational business decision.
• Hires good people, trains them and values them. Contractors who carefully select their team, then invest in that team and treat them fairly tend to do better than contractors who do not value their team.
• Spends time marketing themselves. Good contractors generally have three activities: selling, doing the work and managing the business. The proportion of each is up for discussion but the need for all three activities is not in doubt. When a contractor ignores one of the three, trouble is somewhere in his future. As many wholesalers know, contractors seldom share their success with their wholesaler partners but they almost always share their problems with their wholesaler partners…even if unintentionally. Some simple measures that are easily tracked:
• Manages his inventory. Good contractors manage their inventory like it was real money. We recently were showing our TruckStock software to some HVAC contractors and mentioned that a contract we knew had analyzed his inventory losses in detail finding that about 7% of all materials loaded on his trucks was lost. He was not sure where it went but he was certain it wasn’t billed and it wasn’t on the truck. Several contractors surprised us saying that they would be delighted if they could get their inventory losses down to only 7%. When they don’t care about their inventory, the odds are that the ongoing hemorrhaging will eventually drain them dry.
So the assignment is to start grading your customers and your prospects, to invest time and energy in the ones that have better odds of success instead of wasting time betting on the long shots.