No matter what you call it, it all comes down to cost
Someone asked me this question at a recent seminar: "Marketing or selling - so what's the difference?"
It concerned the responsibility for developing leads or new prospects for outside salespeople. The group was a mix of contractors from companies having several salespeople to small companies with one or two salespeople.
It became apparent that there are many misconceptions concerning the responsibilities of these two distinct groups.
Let's look at the definition of both terms.
Marketing is any business activity necessary to move goods or services from the producer to the consumer, including, but not limited, to purchasing, shipping, storing, advertising and selling.
Selling is the transfer of title or possession of goods from a vendor to a buyer.
When you look at the definitions, you can easily see the differences and the reason why there is so much confusion. Selling is part of the marketing function of a company. However, in many companies the marketing functions are listed under the sales department, which causes a blending, rather than a clear separation, of duties.
When discussing marketing, most owners begin to talk about advertising and the development of new prospects. It is assumed that most of the other duties and responsibilities involved in marketing are under control. Purchasing, shipping and storing amount to a large portion of some contractors' overhead expenses.
During my years as a wholesaler, I saw companies buying and stocking early-order plans that were not to the contractors' advantage. Yet year after year, the early-order system continued without much thought given to the total cost involved. In its defense, the reasoning was that at least the units would be available when needed.
That may be a reason to have a safety stock, but certainly not the reason to tie up the capital needed to maintain your own stock. Of course, the equipment producers need to have the stock in the field, not in their warehouses. The early-order plans also allow the manufacturers to level out their production schedule in the off-season.
Not all stocking plans are bad for contractors, but you must be aware of what is involved and how much it's going to cost to have the stock available as a convenience.
Assume your stocking costs are 2 percent to 3 percent of your monthly dollar volume, based on cost of the inventory, financing, the price of the space needed, insurance, etc. Let's say you are offered an early-order plan for 10 percent off your best price. How good is the deal if your cost of stocking is 3 percent per month?
It's a good deal if all you ordered was sold in three months. Your added cost was 9 percent, leaving you a 1 percent additional profit, plus, hopefully, added sales by having it in stock.
Purchasing in quantities where you can receive the maximum price break is an area everyone should spend time looking at to increase profits. It is a win-win situation for you and the supplier. You begin to buy better and make bigger profit margins when you sell and the supplier is happier because their price breaks allow them to supply you at a slightly lower cost.