There’s a saying that “you don’t make money in lighting when you sell… you make money when you buy.” I’ve found that to be true.
Here are two strategies for raising margins by consolidating your purchasing:
1. THE DAZZLING DOZEN
Picked twelve vendors that are willing to give the best deal packages (free shipping, 1:1 exchange each year, inside discount on the entire catalog, online price match policy, etc.) and work to get over 65% of your sales from those 12 vendors. Push to sell those vendors as hard as possible over all others by displaying their products prominently, putting them to the top of all searches on your website, incentivizing your sales staff to sell from those lines, etc..
2. THE DIRTY THIRTY
Pick 30 items from each of your 12 core vendors. These are your Dirty Thirty items that you know you can sell a lot if given premium price support by the vendor.
Go to each vendor and negotiate an aggressive price specifically for those 30 items. I usually ask for two things on our Dirty Thirty items:
A) If possible, around a 25-30% below D/N price. Now we don’t always get that deep of a discount, but we ask boldly for what’s possible from the vendor that still let’s them win if we raise our volume dramatically.
(Note: vendors take a LOT more risk than most of us showrooms know, and reps need to have room for a worthwhile commission in it too, so work as partners to find the happy balance where increased volume means everyone makes more money).
B) Quote exclusivity for our sales area. The vendor doesn’t have to offer exclusivity to us for their entire catalog or even on those 30 items, but they agree NOT to give anyone else in our sales area quotes on any of our Dirty Thirty items. This gives you 360 items that you KNOW you’ve got the major upper-hand on against any competitor and that you can make tremendous margins with.
Together, these two strategies help raise margins big time. It’s good for your core vendors too because it gives them better inventory prediction while getting buyers into their catalogs. Next week’s post will give ways to motivate your sales staff to sell a ton of Dirty Thirty items and also to stay in the right vendors’ catalogs.
IMPORTANT PERSONAL NOTE FROM JASON:
We win big ONLY if we win together. If a vendor gives great support (like described above) roll up those sleeves and work like crazy to show you appreciate it! We do that by sell, sell, selling their products. It’s paramount to reward a vendor’s trust in us – and their rep’s trust (remember that reps take a commission hit on discounted items) – by hitting a big volume increase. That’s how we showrooms keep trust and keep quotes and programs like these coming from our great vendors!
Jason Petersen owns Hansen Lighting Inc. a lighting company with multiple showrooms in Utah.
Jason acquired Hansen Lighting out of near-bankruptcy in 2004 and turned the company around by implementing outside-the-box systems and ideas. The company is now one of the fastest growing companies in America (#3087 on the Inc. 5000 Fastest Growing Companies list) and has been recognized as one of the most profitable privately-owned retailers in North America.
Jason is also the co-founder of XOLogic and Lit Living Inc.