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Component Manufacturing dverti$er
Adverti$er
Don’t Forget! You Saw it in the
June 2017 #10215 Page #24
Three Practical Ideas for Better Margins and Net Profits T
oo often a repeated mantra within our industry is that everyone sells components at too-low margins. The blame is always on the other guy, meaning the competitor, for selling at a lower margin than what should be market pricing. Well, what can your company do to raise margin pricing? During the peak build season, the lead time for order delivery in many markets is at least four weeks out. This long lead time is caused by requests for new projects (demand) exceeding the capacity of manufacturing (supply) in the given market. Often this exceeding of capacity lasts all through the summer’s build season from the month of May to sometime in October. If this happens in your market, why are you not raising your pricing? When I speak to a client, the normal conversation goes something like this. TDC: “Why do you not raise your prices until your lead time drops to about two weeks, and be willing to give up lower margin orders to your competition?” The client: “But we would lose projects and, potentially, customers to our competition.” TDC: “Yes that is the point; you are giving up projects that are not able to fill your shop with higher margin dollars every day. If your production is never without any slowdown, meaning that your manufacturing is always at full capacity, then your company will be earning more margin dollars daily. Therefore, your net profit for the year would be substantially improved.” The client: “Well, Todd, I just do not want the risk of losing potential customers.” TDC: “So what you are telling me is that, with low margin projects, you are willing to purchase their presumed customer loyalty, but at the same time you’re willing to risk losing customers who would be willing to pay higher margins for better services?” The client: “I never thought it about that way, Todd.” TDC, “As long as your production is at full capacity all build season, it is foolish to be beyond a two or three week lead time and not charge a premium for the service that is better than your competition.” If your salespeople are not complaining about your company’s high pricing and you are at full capacity, your company is not charging enough. What is the current complaint from your sales team? Is it the long lead times or high pricing? If you have long lead times and they are stating that you have to add manufacturing capacity, then raise your prices! If they are saying your company’s pricing is too high yet your production is always at max capacity, then your pricing is perfect! Only when you have the spare capacity do you lower your pricing. Sales people are working to earn a commission and cannot garner higher wages without selling more. It is in the company’s interest to maximize the company’s net profit, not to maximize the salesperson’s commission checks. PHONE: 800-289-5627
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