Pricing

[Bobjob]

Hello everyone. Short time lurker, first time poster.

A question that has had me for years is.

If I get an order for ten units I consider that a good order. Every blue moon an end user will ask for a quote for 100. When they do this they will also ask a middle man (e.g. motion industries, bearing distributors) to quote. When I quote I give everyone the same price, knowing there is no way the middleman is going to get the sale. In my mind if anyone should get the better pricing it should be the end user, the one I do the most business with. What are your thoughts? Thanks.


PS I tried posting this yesterday but I didn't find it anywhere so I apologize if it posts twice.

[Freelancier]

I wouldn't quote the same price for 10 units as I would for 100. Basically, you are taking a small hit on margin to make more dollars overall for the same exact sales process.

[vangogh]

Welcome to the forum Bobjob. I'd probably offer a better price for 100 units than I would 10. I wouldn't mind losing a little on the margin per unit to be able to sell so many units at once. I agree you want to treat your customers best, which in this case I would think means giving a price break for more units, though overall I think it means providing the best value you can at whatever price you set.


PS I tried posting this yesterday but I didn't find it anywhere so I apologize if it posts twice.

I don't see another post or thread by you. Something must have happened when you tried to post. Sorry about that. It was probably on our end and not yours.

[Bobjob]

Thank you for responding. I caused confusion with my 10 / 100 information. My question is, am I correct quoting everybody the same price or should I be giving the middleman a better price so they have a chance to get the order?

[Fulcrum]

Thank you for responding. I caused confusion with my 10 / 100 information. My question is, am I correct quoting everybody the same price or should I be giving the middleman a better price so they have a chance to get the order?

I require that they hit the same volumes of an end user.

[Freelancier]

I don't think that what the person doing with it is so important here; what's important is the volume they are purchasing. If an end user buys 10 or a middleman buys 10, that should be the same price. But if someone is buying 10x that volume in one order and is willing to pay on your terms, that's when you can discount a bit and lose a little margin to make the bigger sale.

[MarketingMasterSystem]

I would keep an eye on the overall volume (long term) before I started cutting the legs off of the middleman. Having said that, it's important to develop the relationship with (and get the contact information from) the end user no matter who makes the sale. You don't want to lose your end user if the middleman ends up flaking on you or switching to a competing product.

[Harold Mansfield]

Thank you for responding. I caused confusion with my 10 / 100 information. My question is, am I correct quoting everybody the same price or should I be giving the middleman a better price so they have a chance to get the order?
Are these middle men that you have an agreement with, or self created middle men who just approach you out of the blue and want a better price?
It's all about the approach and who you want to do business with on those terms. I get approached by middle men all of the time who claim to be developers, want to use my services, but want me to work for them for a cheaper rate in exchange for what they promise is more volume.

For me it's not worth it because most middle men are usually full of crap, don't bring a lot of volume, and just want to make a commission on your services. Which basically means I'm just doing the same work for cheaper and more headache. Especially when they don't bring anything to the table that I can't do myself, or I'm doing 100% of the work on the projects.

Is it worth it for you? Do you care if the middle man gets the sale, or would you rather consumers come directly to you and are you set up to deal directly with consumers?

[billbenson]

I don't price based on volume, I base it on profit. In general I start giving discounts for orders over $1k depending on the product. In your case, I would base discounting on your profit, not quantity.

[turboguy]

We have a few items we discount a bit on quantity but most things we don't usually discount on quantity unless that quantity saves us enough money to cover the discount. There is one item we will discount on a truckload because we can have the truck take it right from the factory to the customer and don't have to handle it our load and unload it. We do have a discount for dealers (middlemen( so that they can match our prices and have a profit. Some actually undercut us but that is their choice. Some go way over our prices too.

[Bobjob]

Are these middle men that you have an agreement with, or self created middle men who just approach you out of the blue and want a better price?

Is it worth it for you? Do you care if the middle man gets the sale, or would you rather consumers come directly to you and are you set up to deal directly with consumers?

I do not have agreements with the middle men. I do business with them regularly for parts and complete units. The end user asks the middle men for a quote for my product, so I provide them a quote. Unfortunately for them it's the same price I offer the end user. The only way the middle man has a chance is if the end user doesn't ask me directly for a quote.

I don't know if it's worth it to me. I don't know how much of a relationship the middle men have with the end user, it would be interesting to know. I don't care if they get the sale. I want to be fair, shouldn't the middle man and the end user be quoted the same price?

[tallen]

If your business model and pricing model is built around direct sales to end-users, then there is no reason to give a middle man any better pricing.

Really, I think the only reasons to give a middleman better pricing would be if you are going to establish a longer-term relationship with the middle man that is going to reduce your costs and/or enhance your business, as in the middle-man assumes some of the costs of marketing, sales, distribution, and/or customer service (relieving you of those costs), or the middle-man is going to be able to bring you business that you would not otherwise get, on an on-going basis.

If this is a one-time or very rare event, and you don't normally deal with middle men, then I would just quote the same price for the middleman as for the end-user.

The end-user may be asking the middle man for a quote (as well as you) because the end-user's purchasing policy requires them to seek multiple competitive bids for purchases over a certain size, and doing it this way is easier for them than going through whatever vetting process they might have for a sole-source vendor...

[Fulcrum]

In my experience the biggest problem with the middle men and distributors is that they cause prices to be increased to the end user while forcing the manufacturer to take a reduced margin. Many also want big discounts, you to store their product and ship on demand (poor version of JIT/Lean), as well as pay when they feel like it.

When I have a distributor that wants to come on board, they need to satisfy a few points in order to receive any preferential treatment:
1) Minimum order size
2) Pay on time
3) Minimum rolling 12 month average volume
4) Pay on time
5) Stock their own shelves, emergency situations not withstanding
6) Pay on time
7) Understand that pricing is based on quality, service, then price (in that order)
8) Pay on time
9) Realize that a failure to plan on their end does not constitute an emergency on my end
10) Pay on time

I've also started seeing a shift to direct sales from global manufactures. For as long as I can remember, they would only sell through authorized agents with set distributorship territories unless the end user was buying huge volumes at a time ($100,000+ per order many times per year).

[Harold Mansfield]

It's hard for me to say since my situation is different. For me it's not worth giving the middle man a lower price because I still have to do the same amount of work. I'm just working for less so that they can make something. I stopped doing that years ago and actually get more sub contracting work than ever.

In the bar business, of course people can buy bottles at cost and drink at home.

In selling products, if you're a supplier selling parts to middle men like plumbers or carpenters doing the installation or builds, I see no reason to sell to them cheaper. Their profit model is usually based on labor.

Or if your sole business model is as a supplier, then it makes sense to deal solely with middle men and distributors.
Also, what's the competition like? Are you the only game in town, or are you competing for business?

If in your situation it's just middle men selling the same product as you and they add nothing to the sale on their end, AND you don't have a relationship with them as distributors or representatives, then I would only give them a deal for volume sales. Over time as you get to know them individually and some bring more business than others, you may want to cut them a special deal to keep them as customers. Other than that, you haven't really made a good case for selling cheaper to anyone for any good reason.

JMO of course.

[Bobjob]

I don't price based on volume, I base it on profit. In general I start giving discounts for orders over $1k depending on the product. In your case, I would base discounting on your profit, not quantity.

I have never tried this because I pay my supplier in Germany with Euros and I'm concerned about the rate of exchange.

[Bobjob]

Good information everyone. Thank you for responding.

The major middleman player I do a decent amount of business with has one (and only one) of my competition as the only manufacturer of my type product listed on their website. I attempted to contact the middle man last year 12 times. Through phone calls (leaving messages) and the the b2b on their website. They never responded. I have to admit it's one thing to ben told no, but another to be ignored. I scornfully want to raise my price to them 10%, but I cannot.

[Fulcrum]

Good information everyone. Thank you for responding.

The major middleman player I do a decent amount of business with has one (and only one) of my competition as the only manufacturer of my type product listed on their website. I attempted to contact the middle man last year 12 times. Through phone calls (leaving messages) and the the b2b on their website. They never responded. I have to admit it's one thing to ben told no, but another to be ignored. I scornfully want to raise my price to them 10%, but I cannot.

What's preventing you from increasing your price to them? Most contracts allow for inflation.

As to being ignored, I've got 2 competitors that refuse to talk to me. One went so far as to say, and I quote, "Why the **** did you get into this business. There ain't no money in it!!" (this was after I stayed late as a favor for him). Get over it and start going after their customers. If you have better service with approximately the same price you will get their better customers.