Promotional products sales is a margin-driven business. If you provide your clients with the very best in service don’t settle for shortchanging yourself with insignificant profit margins!
Your prospect and client base may be top notch — the best of its kind. You may have a gift for sales, a knack for marketing and an unrivaled approach to customer service. You may be able to set appointments and close sales like the wind. All well and good. But without adequate profit margins, none of it matters. Whenever you’re quoting price to a prospect or client, remember this:
No Margin, No Mission!
Today’s message is very simple. No Margin, no mission. Promotional products sales is a margin-driven business. You can’t afford to lose a dollar on each sale and somehow make up for it with volume.
In most distributor sales, the majority of the actual selling price gets paid to the supplier. The difference — the gross profit on the sale — is the only part of the revenue that the distributor business gets to keep to cover all the overhead: the sales commission, rent or mortgage, taxes, payroll, heat, electric, air conditioning, internet access, automobile expenses, etc.
All of that has to come out of the often razor-thin distributor profit margin.
During one of our Inner Circle calls, a member told me how annoyed he was that he got a $50,000 order — he was awarded a $50,000 bid — but he only made $1,500 on the sale.
Of course, my question was “Why did you take the order?”
Why do you suppose he took the order? Because he wanted the business, right?
But it’s a mistake to quote orders that you’ll be unhappy with if you actually get.
Orders like this fail to take into consideration the risk-to-reward ratio.
If everything goes perfectly, he stands to make $1,500. But if something goes wrong, he stands to lose $48,500 — his actual cost of goods from the supplier. In that scenario, he would have to get 33 more orders just like that to pay for the one that went wrong.
If you’re operating on a 50% gross profit margin on a particular order and something goes wrong, you need just one more order like that to pay for the one that went wrong. So if your risk-to-reward ratio is out of whack, you are treading on some seriously thin ice.
So pay attention to your price codes. Recognize that if you discount your selling price to a client by 10%, you are actually reducing your profit margin by at least twice that amount. For example, if it’s a $1,000 order and you discount it to 900, that’s a ten percent discount to your customer. But even if your cost of goods is $500 — a 50% gross profit margin — that 10% $100 discount you gave to your customer cost you 20% of your gross profit. If your margin is 40%, that 10% discount cut your margin by 25%. And if you’re operating at a typical 35% gross profit margin as many distributors do, then a ten percent discount costs you nearly 30% of your gross profit.
I Have Always Maintained that A+ Service Deserves A+ Margins
If you provide your clients with A+ service, then you should be compensated with A+ margins. So don’t settle for a puny payback! Look for every ethical opportunity to maximize your promotional products profit margins.
In a free market system, no one can force you to work for less than you are worth.
No one, that is, except for you…
Do your research. Determine the options available to your clients and at what price points.
Then, simply… DO NOT SUGGEST or recommend a product that doesn’t provide you with an acceptable profit margin.
If you have questions or comments on this topic, I’d love to continue the discussion with you in the comments below.
If you’re a smart, focused, independent distributor doing a reasonable volume of sales and if you would benefit from end quantity pricing from more than 100 of the top suppliers in the industry, visit smarteqp.com.