Post Link: Wholesale’s Hidden Costs: Complicated Payment Terms

Wholesale’s Hidden Costs: Complicated Payment Terms

“Everything has a cost,” has rapidly become a favorite expression since I started selling newtechnologies. Costs, however, come in different forms.

The actual cost (effort, money, and time) of buying or doing something is relatively easy tocompute. Going to the movies, for instance, involves spending effort (piling into the car to get tothe theater), money (tickets at $14 a pop and an exorbitant $10 bucket of popcorn), and time(120 minutes in front of the screen).

Less easy to compute however, is the cost associated with not doing or buying something, i.e.not going to the movies at all. Perhaps instead, you could have gone on a hike or had dinnerwith friends.

Better known as opportunity cost, these are the hidden costs associated with the road nottaken. In this series of posts, we’ll review several specific aspects of wholesale that, whetheryou realize it or not, have high and often overlooked opportunity costs.

Hidden Cost #1: Complicated Wholesale Payment Terms

As a former member of a sales team, I remember us spending a lot of time crafting complicatedwholesale payment terms & conditions based on a variety of factors.

In the simplest cases, we would offer discounts (anywhere from 4-10%) just for getting an ordersubmitted prior to the preseason deadline, or 1-3% discounts for placing an order at atradeshow. The goal was to incentivize retailers to place orders earlier, the importance of whichI wrote about here: The 5 Elements of Wholesale’s Virtuous Cycle.

In an effort to incentivize retailers further, pricing terms got even more complicated. We basedthe next level of discounts around order deadline AND unit volume. If a retailer ordered 24 units,for example, they would just get the preseason discount (let’s say 10%). But if they orderedmore, they would get additional discounts as follows:

25-50 units: an additional 1%●

51-100 units: an additional 2%●

101-200 units: an additional 4%●

At the end of the day, an account getting their order submitted in advance of the deadline thatordered 101 units or more would automatically receive a 14% discount.

In talking with sales managers from various companies virtually every day (pun intended), thediscount incentive game has taken on new levels of complexity. In addition to date and volume-based discounts, there are additional order or line item discounts based on ordering multiplecategories from a brand or multiple brands from the same umbrella company.

Perhaps you’re buying footwear and bags from the same brand, and ordering 48+ shoes and10+ bags would qualify for an additional discount. When we created terms that crossed brandswithin the same umbrella company, retailers could get additional discounts by ordering shoes,bags, and a certain amount of apparel from our sister brand as well. Confused yet?

What’s the opportunity cost of these types of programs? For starters, they don’t typically workas intended. While looking at the sales data in post-mortem meetings each season, we foundthat a shockingly high number of retailers missed an extra discount percentage by less than 5units.

For a program that doesn't really affect the buying habits of the majority of your accounts, theopportunity costs are huge.

The Hidden Cost Rundown:

Time:

These complex programs waste the valuable time it takes to explain them and get buy-in fromyour reps, which in turn takes more time for your reps to explain (and sell) to your retailers.

Accurately remembering these pricing terms actually may not be a strain for reps using salesorder management software (where retailer-specific pricing terms can be stored), but for repswithout it, it can be a drain on time and resources to memorize them, check them, or correct anymistakes that may have slipped by.

This time could have been spent deepening the relationships between sales managers andreps and between reps and retailers (e.g. digging into sales goals and planning purchases,respectively). The opportunity cost that results from not getting a better understanding of yourcustomers’ business is huge.

Effort:

These complicated programs are often invoiced incorrectly as well, which means your accounts’credit statuses aren’t up to date, and the AR team needs to spend more effort (and time, for thatmatter) updating internal systems.

Money:

Finally, these programs cost you money. With a series of complex discounts that have ademonstrably minimal effect on what your retailers actually buy, you’re slashing pricesunnecessarily and losing potential profit in the process.

As you’ll see in upcoming posts about wholesale opportunity costs, time will be a commontheme. Keeping things simple and creating efficiencies across your business will not only bekey to your success, these factors are also crucial to the happiness of your employees andcustomers. When making business decisions, keep in mind that time is your most valuableasset and that everything has a cost.

Next up: How customer service time spent on data entry is killing your bottom line.

Post originally locatedat: www.handshake.com/blog/wholesales-hidden-costs-complicated-wholesale-payment-terms

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