Asking for Discounts from Suppliers

The original article, Improving Gross Margins…Without Harassing Your Suppliers, was one of the most well read articles I have produced in my 8 years with the Distribution Team. I have received more emails over the last couple of months concerning this subject. Thank you. Apparently I struck a chord.

Many of the readers loved the ideas, but also asked how to strategically ask for discounts from suppliers. I think there is a balance here. It is really a matter of perception. Asking all the time tends to get annoying. After some time, you will be penalized for it. It won’t be something overt, like lesser discounts; but you will find that you are last to be told about promotions and new product launches. Sales people may quit asking to ride with your team. Sales leads might find their way to your competition. These are subtle penalties to make you less competitive in the market.

If you want to ask for discounts, and I believe that you can, be smart about it. What do most of your competitors ask for? They look for an extra nickel or dime on the high volume attractive products. Let’s be realistic here. What happens to that discount? Does it improve the profitability of the overall line? Of course not, it gets thrown out on the street and we have effectively just dropped the average selling price for everyone. The customer may win, but everyone else loses.

Rather than following the other lemmings off the cliff, differentiate yourself from the pack. Don’t ask for discounts on the super high movers – look for discounts in the next group down the popularity scale. Here is how I would do it.

In the original article, I talked about velocity based pricing based on the popularity of the product within a line. The first 5 – 7% of a line is the most visible and we tend to price to meet or beat competition. The next 10% of the items, based on hits, would be where I start looking for candidates. Scan these items and look for a SKU that doesn’t normally hit the promotional sheet with this manufacturer. In fact, it may be an item that the rep rarely talks about. Ask for a modest discount on this item. Greed is not your friend here. Pick a few strategic items from each of your top suppliers. Pretty soon, you will have a solid list.

If you want to make money with this, and frankly not upset pricing in the marketplace, do not let your salespeople use the additional discount you just negotiated. In fact, they should not even see it reduce the cost of goods sold. The quickest way to get a supplier to nix future discount deals like this is to let it hit the street. Other competitors will get wind of the deal and your supplier will be in hot water. Protect this privilege and keep it tight to the vest.

I would encourage you to sit down with your CFO, controller or spouse (whoever does the financials) and find a way to track the additional margin dollars gained by this strategic request program. If you feel real guilty about keeping these discounts from your sales team, kick them a bonus at the end of the year. I suspect that pool will be large enough to share.

Remember, this is one of those subtle programs that can be ruined by being greedy. Be ready to change out a few items each year. Keep it in perspective and be sure to tell the rep how this program benefits the continued relationship. Sometimes you need to just spell it out. Improved margins in a line will enhance the return on investment. Our company supports those product lines that give us the best return on investment. If you can’t dazzle “˜em with brilliance, baffle “˜em with “¦.

Author
Jason Bader

Jason Bader

Jason Bader is the principal of The Distribution Team. He is a holistic distribution advisor who is passionate about helping business owners solve challenges, generate wealth and achieve personal goals. He can be found speaking at several industry events throughout the year, providing executive coaching services to private clients and letting his thoughts be known in an industry publication or two. Last year, he launched his first podcast, Distribution Talk. Episodes can be found at www.distributiontalk.com and most podcast applications. He can be reached at (503) 282-2333 or via email at jason@distributionteam.com. You can find additional resources on his website: www.thewww.distributionteam.com

Newsletter

Subscribe to the Distribution Team Newsletter!

  • Receive new articles first
  • Stay up to date with news and events

Suggested Reading

I have been a subscriber to GetAbstracts.com for the past two years. Like many, I struggle to read all the business book recommendations that people share with me. Truth be told, I am not patient enough to slog through a 300 page tome to get to the good stuff. A couple of years ago, my brother turned me on to GetAbstracts.com. Essentially, the service is like the “Cliff Notes” for business books. I look up a book, download the 5-7 page abstract, and get to the meat and potatoes. If I really like the book, I might go buy it for my shelf. One of my clients has used these short abstracts as the basis for a monthly discussion with his executive team. The possibilities are endless. Going forward, I plan to share some recommendations for subscribers to download. Check out the free trial and start “sharpening the saw” today.

Enjoy 10% off annual subscription with this link: