The last few weeks have seen a flurry of new tariffs launched that are sure to compress margins, wreak havoc on our ability to honor long-term pricing commitments, and anger our customers. The world is experiencing fear, uncertainty, and disillusionment (FUD). Sounds daunting, yes? It could be if we worry about it and yearn for a return to “normalcy.” What if this is the new normal? How much control do you have over manufacturer pricing or U.S. foreign policy? Probably not much. Instead of fretting and kvetching over FUD, why not lean into it and mine the chaos for profit opportunities?
If we can all agree to a few core elements beyond our control, they quickly reveal profit-oriented antidotes to calm our nerves:
Uncertain pricing — While we can’t control tariffs, we can continue to communicate with our vendors as manufacturing costs escalate. Relationships are key here, as well as being more important to fewer partners. Having greater buying power with individual suppliers or buying group membership alignment will lead to more creative thinking on the vendor side as higher order minimums might yield free freight, longer payment terms, volume incentive rebates (VIR), or demo product credit.
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Supply shortages — I fondly recall 2021-2022 fighting what I called “The Battle Of Next Week.” Higher prices and compressed margins may lead to supply shortages or gluts depending on the product line. If the game is to buy low and sell high, this might be a great time to buy up more inventory than needed if you’re sure it’ll sell. Resist the urge to overspend on products that might not move as quickly as you think (AV receivers, I’m looking at you).
Compressed margins — If a vendor raises their costs, it stands to reason the accompanying sell price should also rise. Make sure to coach this important behavior throughout your organization. You might find overfocus by employees on cost or revenue only depending on their role. I can recall an accounting person proudly telling me how accurately she updated our purchase orders to match manufacturer invoices. I asked her if she also updated the customer facing estimate to make up the margin squeeze. “No,” she said. There we were, rearranging deck furniture on the Titanic. Coaching the marriage of revenue and costs together in P&L literacy is incredibly important as you shift into a “protect this house” mindset. If you send out a purchase order, make sure it includes a disclaimer that manufacturer acceptance of the order commits them to the price stated on the purchase order and don’t tolerate any variances. Can you imagine trying that with one of your builder customers? I didn’t think so.
Human error — No matter how much coaching you do, your business is only as strong as the ones doing the work. Implement healthy checks and balances on your purchasing activities and consider giving your purchasing person complete control of the buying and updating customer estimates on the fly so that cost increases can immediately generate change orders for customers to approve.
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COVID-19 conditioned us all to expect higher prices, supply shortages, and uncertainty around quoted prices being good for long. Our own proposals state that pricing is subject to change until 90% of the total has been paid. This gives the customer an element of control and also puts pressure on our personnel to watch pricing in a way they might not be used to. If you work with a vendor like D-Tools or Portal, make sure your pricing is configured to live update as much as possible.
FUD is here to stay for the foreseeable future. What will you do to profit from it?
