An industrial buyer asks a distributor CEO a question.
BUYER: “Can you beat my last year spend on 20 MRO SKUs? The grand total was $35K.”
CEO: “Well, it depends upon the average dollar size of your orders. We can do simulations with my OptiQuote calculator. The general rule is that prices drop with fewer, bigger orders. We pass the reduction in our line and order fulfillment activity costs on to you. And, on any given order prices will drop at both the line-item level and order-total level as the dollar totals increase. As a best-theoretical case, we could enter the annual SKU totals on one big order.”
BUYER: “Let’s try that!”
A few minutes later, the buyer presents price savings for one 20-line annual order was $27,800 for a 20% (or $7.2K) year-over-year savings.
BUYER: “You’ve got a deal. We have extra space to store the stuff. This will consolidate my paperwork, and I won’t have any urgent out-ot-stock orders to appease panicked employees.”
Here’s the backstory to this scenario, why it’s so successful, and how you can replicate it with your own customers
The distributor subscribes to Waypoint Analytics cloud service for customer and SKU profitability analytics, and the OptiQuote calculator uses cost-to-serve inputs from Waypoint to produce the dynamic quoting.
The calculator software has additional settings for targeted net-profit on an order and other unbundled cost options. For instance, does the order involve outside and/or inside activity costs or not? What trade credit option? Delivery or pick-up?
The calculator’s settings vary by user and include house bids, rep quotes, website quotes.
The game is like judo. If a customer wants price savings, you throw them where they want to go by running them through scenarios on the calculator.
Pricing and margin percentages are incomplete information. You also need to know total volume, average gross-profit dollars (not GP%) per line and per order, and the cost-to-serve dollars per line and per order.
Every buyer gets to self-select their own level of sophistication, and they will tilt the terms towards how they are measured and what reduces their personal peeves. The buyer in this case got judged on price savings. And, he was personally keen on reducing his paperwork and expediting stress. Another buyer might trade off some price savings for less average investment in inventory dollars and/or using less storage space.
For More Information
To learn more about the OptiQuote Calculator, visit the OptiQuote website. Contact both the inventor and the hero of the story: Jay Lindley at firstname.lastname@example.org.