As a producer of 3D Laminate components, when should you bring in a new color?
First let me say that I'm clearly bias because I promote 3D Laminates, secondly its almost impossible to speak of pricing and have it pertain to everyone.... I hope that as you read this article that you are able to pull out some ideas or perspective regarding the importance of new colors while not focusing too much on the specific numbers I use for the sake of this discussion.
Let's begin.
I'd like to address the following issues in this article:
1. COST CALCULATIONS OF MATERIAL: Here I'll calculate the average costs of material.
2. CUSTOMERS WHO ARE WILLING TO PAY MORE: Here I'll examine who is wiling to pay more and why.
3. SMALL ROLLS: Bringing in colors in 50LY quantity that are being promoted widely. Analyzing the cost and break-even point.
4. CUSTOM RUNS: Bringing in custom colors in 600LY quantity (from Dackor) that no other companies have yet. Analyzing the cost and break-even point and lag time before the color is wide spread.
COST CALCULATIONS OF MATERIAL: Lets say that the average cost of a woodgrain is $0.55 per square foot. Lets calculate a 50% scrap rate of material around each component to increase the cost to $1.10 for 3D Laminate material per square foot. For the sake of this article lets say that with board, glue and some other costs the total cost is $2.50 per square of material. This amount needs to be doubled to $5.00 per square to cover labor, rent and other costs of doing business. So $5 per square foot may actually be the true cost of manufacturing these doors if you take into account the true hidden costs.
According to the 80/20 rule, 80% of your business will come from 20% of your customers. Assuming that you have large customers or project that require an aggressive price that would mean that a big portion of your business is at a lower price point (for many of you). If we use the base cost of $5 per square foot as an average then you can account part of this at $4 for white and $6 for woodgrains in some instances and then average them with the custom parts sold at $8 to $20 per square foot to come up with an "average price per square foot". Assuming that you are above 70% production capacity and averaging $5 per square foot then you are getting by but if you are averaging above this you are most likely making a sustainable profit to grow the business.
So the goal is to build a customer base with customers who are willing to "pay more".
CUSTOMERS WHO ARE WILLING TO PAY MORE: With the above in mind, who are the customers that are willing to pay more? There are two types of scenarios in which there exists a premium market. Lets assume that there are multiple companies who give great service and have great quality for the sake of this article. What else can separate you from the rest? Colors.
If you think about it, there are only three ways to make an obvious change to a 3D Laminate component.
A. Having matching backs
B. Having unique profiles
C. The color of the door. Having colors nobody else has or few competitors have.
Stocking matching backs is absolutely necessary if you are targeting closet producers so this is something required by most of that industry. Having unique profiles is a very difficult way to separate your doors. Surely a new profile can excite your customers but is it enough to attract new ones? I think most would agree that the color of the 3D Laminate is the most obvious way to offer something new.
Below I will discuss the dollars and cents of bringing in new colors....
SMALL ROLLS: In the market, most 3D Laminate manufacturers offer "cut to size" or 50LY rolls. After cutting fees lets assume that the average cost of this material is $500. In a 50LY roll there is approximately 700 square feet of material. For this calculation we'll use a 50% scrap rate so that would mean that there are 350 square feet of usable material. This can bump up the cost per square foot by a little however it really does not change the base cost of the door in such small volume. The biggest thing to consider is the amount of money being tied up.
Since the overhead is fixed at $2.50 by my calculations that would be that $2.50 for variable material costs should be used for this calculation. Lets assume that an average order for a Kitchen is 50 square feet of doors. If the order was sold at $7.50 per square foot then this leaves $5 per square feet or $250 for doors. That would mean that you would have to sell two small jobs to break even on the foil however this would only use approximate 20 of the 50LY on hand. A 50LY roll should yield an average of 5 jobs with each job grossing $250 per job or $1250. So we have the break-even at two jobs or 40% of the roll usage.
I should mention, however, that the barrier of entry to the 50LY order is low. Should you present your client with a new color that everyone knew about then you are not really providing a solution to a long term problem. The way to create a solution to a long term color problem would require bringing in a custom run color.
CUSTOM RUNS: Next I'd like to calculate the break-even on a 600LY custom order from Dackor. Yes you read that correctly.... 600LY for a custom order. How do we do it and make a profit? Quite simply we produce 3,000 LY but only require you to take 600LY of it. Essentially we're working with you to build our color offering.
Lets use the base cost of $5,000 for this 600LY order. According to our above calculations you'd need to sell 1,000 square feet of this new color to pay for the material cost. This would equate to 20 Kitchens. So does that mean that you'd have to sell 20 Kitchens to break even? Not necessarily and I'd like to explain... What if this color was your lost leader?
Imagine that there is a key customer that you are trying to land and they've been buying their doors from your competitor (be it a direct or indirect competitor). If you did a survey of this customer and found that they needed a color that matched their TFM supplier but that no other door supplier offered then this could be your loss leader. Essentially you'd negotiate with that client and say that you'd be willing to bring in that color but that you'd expect all of their business. A typical scenario would be that you would start producing their orders that they have now and then wait the 8 to 12 weeks it would take to develop and bring in their new color.
The above scenario would add value by solving a critical issue that the client had BUT, how can you afford to bring in that new color? Quite simply you would need to divide the entire business gained by the $5K. Remember that the $2.50 is already covering your material cost on the floor of the white and standard colors on a per job basis. So if that closet customer is only ordering 50 square feet a week then it would only take 5 months to break even on your investment with one single account. That's not taking into account the other accounts you may be able to sell this new color to.
I know that there other variables such as stocking new MDF back colors potentially however there are also variables such as cost averaging over multiple clients.
If you are an employee of a component producer I hope that this article has given you some ideas of how to present the idea of a new color of 600LY to your company. If you are an owner or partner in your component business I hope that you will see the possibilities of using new colors as leverage to obtain new clients.
Showing posts with label Management and Motivation. Show all posts
Showing posts with label Management and Motivation. Show all posts
Friday, April 3, 2009
Saturday, August 9, 2008
How to control your 3D Laminate - Thermofoil Inventory
If you produce thermofoil components or Kitchens I am sure that you give careful consideration to your 3D Laminate inventory. You most likely are constantly faced with the dilemma of whether you should stock a new item or not. In this post I'd like to discuss the true costs of inventory, the opportunities that new colors create, and the importance of adding or removing colors in your line.
COST OF INVENTORY: Carrying inventory costs your business money. Not only does it tie up capital, but it takes up space and has tax implications at the end of the year. For foil manufacturers our goal is to maintain an average of three turns on our inventory in a year. Hot selling items may turn five times per year and slow selling items may not turn at all during a year. Having too many colors will give your company undue expense, yet on the flip side not having enough colors will cost your company in the form of lost business.
IMPORTANCE OF FILM RELATIVE TO COST: The average selling price of a custom thermofoil component is reported to be about $7 per square foot. These parts can range from $4 to $20 per square foot based upon the finish, color and design. A lot of costs go into producing a thermofoil component such as glue, board, film, tooling, and labor. Lets assume that you are using a quality board, diamond bit tooling, and a great quality adhesive. Assuming that you make a quality product, there are two ways to add value. One is by the profile and the other is by the design of the film itself. The film is the most obvious way to separate your company from your competitors. Often times manufacturers will price their doors based upon the number of passes on the router. If you are thinking as a plant manager, this makes perfect since because routers are expensive. They are also often the bottleneck in production, as the more passes your router takes increases the time involved to produce the door. But ask yourself this, "Does a buyer care?" Many kitchen producers charge more for a slab door in their modern kitchen line than they do for a multi-pass door in their value line. As a marketer of thermofoil components or kitchens, you can price your doors based upon demand, or just production alone.
If you have a design that nobody else carries why couldn't you charge an additonal $4 per square foot? On an average kitchen, this would cost $200; but, if an individual customer wants that color most would be willing to pay a $200 or even $1,000 premium to his kitchen supplier. Dackor, for example, will often run 3,000LY with only a 600LY commitment. The remaining stock is kept in the US for future orders. For an investment in only 2 rolls you could offer a color that nobody has seen yet in the market.
Basing pricing off of quality of production is another strategy. Consider high gloss doors - some door factories stay away from this all together, whereas other door factories have issues in regards to telegraphing and orange peel. If your company can produce a flawless High Gloss door, wouldn't it be worth $3 more per square foot than your competitor's with orange peel and telegraphing?
HOW MANY COLORS SHOULD YOU STOCK?: Back in the 90s, when I used to work for a competitor, we were the first to introduce small rolls in quantities as little as 10 yards. At the time, no other manufacturer offered small orders. This enabled us to obtain more market share while making it easier for new producers to afford to bring in colors. Nowadays most producers offer small quantities so it is easier to offer a wide color selection. But how many colors should you offer? Some companies carry 20 colors while other carry 50. Certainly if you have a good relationship with your supplier and you trust them to maintain the stock for you it is not necessary to have deep inventory on all colors. If you think about it though, you can break your colors down into market segments. A closet producer who buys from Roseburg may not be interested in your Panolam match. A small Kitchen producer or cabinet refacer who only uses HPL to make his cabinets won't be interested in TFM matches at all. When I visit a component producer I can tell a lot about his company based upon the colors he stocks. If there is only low end films then I know they are selling their components based only upon price but if I see a wide variety of colors and suppliers then I know that the company is trying to market to a wide variety of industries.
Occasionally I see Kitchen Producers with presses who will order a custom color from Germany from us, and they will even pay the air cost. One time I asked a customer if this was for a project, and his reply was that it was for only one kitchen. This Kitchen Producer sold the kitchen for over $30K and the customer loved the idea of bringing something custom into the country for a mere $3K. Now the Kitchen producer has that roll there for future use and it was paid for by one job. Some reading this will find this hard to fathom, but why? If you cannot imagine why consumers would do this, then you are letting your own bias get in the way of business. If you are a component producer and you do not have any Kitchen Producers who can sell a kitchen for $30K, then you might want to start building new relationships with some high end companies. If the Kitchen Producer turns his or her nose up at 3D Laminate components, then give them a little education on the European market from things you've learned from this blog. You can do it in a polite way by saying, "Well as you know, 3D Laminates are widely used in high end Italian and German Kitchens due to their design trends." Mention about DACKOR supplying Louis Vuitton, Gucci and Mercedes. If our product is good enough for a $2K handbag, or a $100K auto, then why is it not good enough for a $30K kitchen? Its all about perception. Visit http://www.dackor.com/ to view some of these kitchens. They may not be your cup of tea but I can tell you that these Kitchens are great for business.
SELLING ME TOO: Do you stock Summer Flame? Candlelight? If you said yes, I don't blame you. Its important to have the everyday colors that are being asked for by the market, but isn't it important to carry the same Summer Flame as your competitor? When a new company sets up, they most often buy the same Summer Flame that they have been buying as a door buyer or the same as their competitor. I think it is far better to have a color that is slightly different. Its easier to carry the same colors and simply beat your competitor's price, but as you build your customers there will be new companies who pop up to beat your pricing. It WILL come back to you. By offering at least some colors that are slightly different, have a unique texture, or are a shade off, you are building up a stronger customer base who must continue to buy from you! My advise would be to mix it up by having some market standards and some market leaders. If nobody is buying a design, but you like it, then the chances are strong that others may like it too. Your tastes are not as different as you think, but often its a matter of time and market exposure. Just remember that when you copy your competitor you are paying them the ultimate compliment. If your color or foil supplier is slightly different, but your service is second to none, it may be difficult from the component producer to switch to you but once he does he'll never want to switch back.
IS THE COLOR TOO CRAZY?: We've all seen new colors introduced to the market that look phenomenal. We have a few colors that look so real that it would fool you into thinking its a real wood door. But why is it that some of these colors aren't selling well? There are various factors that contribute to whether a design will sell. They are:
1. Availability of TFM match in the market to the Closet and Kitchen Producers
2. Availability of HPL to the smaller refacers and smaller cabinet guys
3. Availability of Edgebanding
4. Quality of above matches
5. Number of door producers and end users using the design
6. Popularity of the color and design in the market currently
If you ever hear someone saying they can predict the market colors, they are delusional; however, I have learned that if there is a quality TFM/HPL match that is readily available and if its not too wild it will typically sell. We have refined our design development by speaking directly to kitchen designers, builders and consumers. If people like it and the match is good, then it will sell. We know if we introduce five new colors that two will be good/great, one fair and two bad. Often I hear component producers say "We're not adding new colors." This is a very dangerous position because there will always be competitors who will rise and be aggressive with adding new colors. The established company is sending a message to their clients that product develop is not important or that you no longer believe you can grow your thermofoil component division.
GETTING RID OF DEAD STOCK: If your company has dead stock, one way to get rid of those colors is to offer that color at the price of a low end white for an apartment producer. If you calculate the numbers, you may deduce that you are losing money due to how much you paid initially for the foil; however, it is indeed capital that is tied up. Rather, you should think of dead stock as a fixed cost in introducing new designs. By selling your new designs at a $3 premium, this additional profit will offset the cost of designs that become dead stock. If you offer to one select customer a special offer to get rid of inventory, then you'll free up capital to reinvest into the upcoming designs in the market. There should be a set cost per square foot associated to dead stock built in to your bottom line. If you have no dead stock and have made no mistakes then you are simply playing it too safe.
Another way to reduce your Dead Stock cost is to write it off the books. Ask your CPA about writing Dead Stock off of the books to stop the tax implications associated to the product as an asset.
HOW DACKOR INTRODUCES NEW COLORS: Last month we introduced a brown leather. This design will be able to sell a couple rolls of month (not a lot but still acceptable), even though it doesn't not have any matches. First of all there is an existing demand of leather surfacing, as real leather is expensive. Second, it looks real. Matches do not exist, but in reality they are not needed because it will be used as an accent color on headboards, mouldings, table tops, night stands and other items.
Typically we will bring in new stock items if our customers order 600 yards (2 big rolls). If we like the design, and/or if there is a TFM, HPL or paper match, then we'll produce 2,000 yards and then ship 600 to the customer. This is a very aggressive offering, yet most companies don't take us up on it. I can't be sure if people don't know about it or they are afraid to commit to 600 yards. I know that if I were a component or Kitchen Producer, I'd rather bring in 600 yards of a color I knew I could sell rather than bring in 50 or 100 yards of a crazy color that I was unsure of. As a film producer we make pennies per square foot, but we see new colors as an investment. Many component producers, however, make dollars per square foot and they consider film as a cost. I can't blame them because I'm sure their warehouse is full of non selling colors. Just remember to look at your dead stock and evaluate the match quality available, the quality of the print and marketability of the design. Your past mistakes with taking on colors should not make you afraid of trying new designs; rather, they should be learning experience over the importance of quality colors and quality matches. I am sure that if you never take on any new colors you'll never make a mistake; however, you'll also miss out the respect from your customers of being a pioneer and will miss out on the opportunity to sell NEW colors at a premium.
COST OF INVENTORY: Carrying inventory costs your business money. Not only does it tie up capital, but it takes up space and has tax implications at the end of the year. For foil manufacturers our goal is to maintain an average of three turns on our inventory in a year. Hot selling items may turn five times per year and slow selling items may not turn at all during a year. Having too many colors will give your company undue expense, yet on the flip side not having enough colors will cost your company in the form of lost business.
IMPORTANCE OF FILM RELATIVE TO COST: The average selling price of a custom thermofoil component is reported to be about $7 per square foot. These parts can range from $4 to $20 per square foot based upon the finish, color and design. A lot of costs go into producing a thermofoil component such as glue, board, film, tooling, and labor. Lets assume that you are using a quality board, diamond bit tooling, and a great quality adhesive. Assuming that you make a quality product, there are two ways to add value. One is by the profile and the other is by the design of the film itself. The film is the most obvious way to separate your company from your competitors. Often times manufacturers will price their doors based upon the number of passes on the router. If you are thinking as a plant manager, this makes perfect since because routers are expensive. They are also often the bottleneck in production, as the more passes your router takes increases the time involved to produce the door. But ask yourself this, "Does a buyer care?" Many kitchen producers charge more for a slab door in their modern kitchen line than they do for a multi-pass door in their value line. As a marketer of thermofoil components or kitchens, you can price your doors based upon demand, or just production alone.
If you have a design that nobody else carries why couldn't you charge an additonal $4 per square foot? On an average kitchen, this would cost $200; but, if an individual customer wants that color most would be willing to pay a $200 or even $1,000 premium to his kitchen supplier. Dackor, for example, will often run 3,000LY with only a 600LY commitment. The remaining stock is kept in the US for future orders. For an investment in only 2 rolls you could offer a color that nobody has seen yet in the market.
Basing pricing off of quality of production is another strategy. Consider high gloss doors - some door factories stay away from this all together, whereas other door factories have issues in regards to telegraphing and orange peel. If your company can produce a flawless High Gloss door, wouldn't it be worth $3 more per square foot than your competitor's with orange peel and telegraphing?
HOW MANY COLORS SHOULD YOU STOCK?: Back in the 90s, when I used to work for a competitor, we were the first to introduce small rolls in quantities as little as 10 yards. At the time, no other manufacturer offered small orders. This enabled us to obtain more market share while making it easier for new producers to afford to bring in colors. Nowadays most producers offer small quantities so it is easier to offer a wide color selection. But how many colors should you offer? Some companies carry 20 colors while other carry 50. Certainly if you have a good relationship with your supplier and you trust them to maintain the stock for you it is not necessary to have deep inventory on all colors. If you think about it though, you can break your colors down into market segments. A closet producer who buys from Roseburg may not be interested in your Panolam match. A small Kitchen producer or cabinet refacer who only uses HPL to make his cabinets won't be interested in TFM matches at all. When I visit a component producer I can tell a lot about his company based upon the colors he stocks. If there is only low end films then I know they are selling their components based only upon price but if I see a wide variety of colors and suppliers then I know that the company is trying to market to a wide variety of industries.
Occasionally I see Kitchen Producers with presses who will order a custom color from Germany from us, and they will even pay the air cost. One time I asked a customer if this was for a project, and his reply was that it was for only one kitchen. This Kitchen Producer sold the kitchen for over $30K and the customer loved the idea of bringing something custom into the country for a mere $3K. Now the Kitchen producer has that roll there for future use and it was paid for by one job. Some reading this will find this hard to fathom, but why? If you cannot imagine why consumers would do this, then you are letting your own bias get in the way of business. If you are a component producer and you do not have any Kitchen Producers who can sell a kitchen for $30K, then you might want to start building new relationships with some high end companies. If the Kitchen Producer turns his or her nose up at 3D Laminate components, then give them a little education on the European market from things you've learned from this blog. You can do it in a polite way by saying, "Well as you know, 3D Laminates are widely used in high end Italian and German Kitchens due to their design trends." Mention about DACKOR supplying Louis Vuitton, Gucci and Mercedes. If our product is good enough for a $2K handbag, or a $100K auto, then why is it not good enough for a $30K kitchen? Its all about perception. Visit http://www.dackor.com/ to view some of these kitchens. They may not be your cup of tea but I can tell you that these Kitchens are great for business.
SELLING ME TOO: Do you stock Summer Flame? Candlelight? If you said yes, I don't blame you. Its important to have the everyday colors that are being asked for by the market, but isn't it important to carry the same Summer Flame as your competitor? When a new company sets up, they most often buy the same Summer Flame that they have been buying as a door buyer or the same as their competitor. I think it is far better to have a color that is slightly different. Its easier to carry the same colors and simply beat your competitor's price, but as you build your customers there will be new companies who pop up to beat your pricing. It WILL come back to you. By offering at least some colors that are slightly different, have a unique texture, or are a shade off, you are building up a stronger customer base who must continue to buy from you! My advise would be to mix it up by having some market standards and some market leaders. If nobody is buying a design, but you like it, then the chances are strong that others may like it too. Your tastes are not as different as you think, but often its a matter of time and market exposure. Just remember that when you copy your competitor you are paying them the ultimate compliment. If your color or foil supplier is slightly different, but your service is second to none, it may be difficult from the component producer to switch to you but once he does he'll never want to switch back.
IS THE COLOR TOO CRAZY?: We've all seen new colors introduced to the market that look phenomenal. We have a few colors that look so real that it would fool you into thinking its a real wood door. But why is it that some of these colors aren't selling well? There are various factors that contribute to whether a design will sell. They are:
1. Availability of TFM match in the market to the Closet and Kitchen Producers
2. Availability of HPL to the smaller refacers and smaller cabinet guys
3. Availability of Edgebanding
4. Quality of above matches
5. Number of door producers and end users using the design
6. Popularity of the color and design in the market currently
If you ever hear someone saying they can predict the market colors, they are delusional; however, I have learned that if there is a quality TFM/HPL match that is readily available and if its not too wild it will typically sell. We have refined our design development by speaking directly to kitchen designers, builders and consumers. If people like it and the match is good, then it will sell. We know if we introduce five new colors that two will be good/great, one fair and two bad. Often I hear component producers say "We're not adding new colors." This is a very dangerous position because there will always be competitors who will rise and be aggressive with adding new colors. The established company is sending a message to their clients that product develop is not important or that you no longer believe you can grow your thermofoil component division.
GETTING RID OF DEAD STOCK: If your company has dead stock, one way to get rid of those colors is to offer that color at the price of a low end white for an apartment producer. If you calculate the numbers, you may deduce that you are losing money due to how much you paid initially for the foil; however, it is indeed capital that is tied up. Rather, you should think of dead stock as a fixed cost in introducing new designs. By selling your new designs at a $3 premium, this additional profit will offset the cost of designs that become dead stock. If you offer to one select customer a special offer to get rid of inventory, then you'll free up capital to reinvest into the upcoming designs in the market. There should be a set cost per square foot associated to dead stock built in to your bottom line. If you have no dead stock and have made no mistakes then you are simply playing it too safe.
Another way to reduce your Dead Stock cost is to write it off the books. Ask your CPA about writing Dead Stock off of the books to stop the tax implications associated to the product as an asset.
HOW DACKOR INTRODUCES NEW COLORS: Last month we introduced a brown leather. This design will be able to sell a couple rolls of month (not a lot but still acceptable), even though it doesn't not have any matches. First of all there is an existing demand of leather surfacing, as real leather is expensive. Second, it looks real. Matches do not exist, but in reality they are not needed because it will be used as an accent color on headboards, mouldings, table tops, night stands and other items.
Typically we will bring in new stock items if our customers order 600 yards (2 big rolls). If we like the design, and/or if there is a TFM, HPL or paper match, then we'll produce 2,000 yards and then ship 600 to the customer. This is a very aggressive offering, yet most companies don't take us up on it. I can't be sure if people don't know about it or they are afraid to commit to 600 yards. I know that if I were a component or Kitchen Producer, I'd rather bring in 600 yards of a color I knew I could sell rather than bring in 50 or 100 yards of a crazy color that I was unsure of. As a film producer we make pennies per square foot, but we see new colors as an investment. Many component producers, however, make dollars per square foot and they consider film as a cost. I can't blame them because I'm sure their warehouse is full of non selling colors. Just remember to look at your dead stock and evaluate the match quality available, the quality of the print and marketability of the design. Your past mistakes with taking on colors should not make you afraid of trying new designs; rather, they should be learning experience over the importance of quality colors and quality matches. I am sure that if you never take on any new colors you'll never make a mistake; however, you'll also miss out the respect from your customers of being a pioneer and will miss out on the opportunity to sell NEW colors at a premium.
Wednesday, July 16, 2008
If The Winner Takes All, Why Not Give 110%?
Its July and next month is the IWF show. DACKOR will have a booth there at #1716 where we will show our new Leather Design. This design looks like real leather ! It has a registered emboss to the print to give it a very realistic look. In addition, the design has a special scratch resistance coating that makes it ultra durable. We believe that this design will do outstanding for headboards, desktops, nightstands, and closet parts as well.
This month I'd like to write about "The Winner Takes All" concept. We have all heard the adage "Do What You Love and You'll Be Successful". People make this sound like a mystical concept however in reality it simply means that if you love doing something you'll work so hard at it that and put in the time until you are successful at it. Its interesting how today's popular sayings try to make it look like their are short cuts to success. I kind of prefer the old quote "Early to bed, early to rise, work like heck and advertise." I really don't think that quote would be popular in today's young culture.
Is it important to work hard? I recently read a book called "The Four Hour Workweek" by Timothy Ferriss. This was a very interesting book. Its basically about a guy who stopped reading the news, entrusted his employees to do their jobs and is living off his business while only really working 4 hours a week. I know I couldn't get by with that but its interesting to read about a guy who has. All I could think about while reading the book was that he's a very smart guy who'd probably be even more successful if he worked more than 4 hours a week. But maybe he's hired people who are better than him. I did cut down on reading the news as a result of this book. If you think about it, most US news garbage nowadays. Aside from this guy's story, I think that we live in a world where the Winner Takes All. If you think about it, most people who are at the top of their profession have really worked harder than everyone else.
Some people don't give their all. Do you have co-workers or employees who simply do the least that they can get by with and still keep their job? I'm sure you do. In reality though, they are cheating themselves. If they are there 8 hours of the day and they aren't giving their all then they are really just wasting their time as well as yours. If you have to be at work why not give 110%?
In todays world of "The Winner Takes All" its the person who tries just a little bit harder who wins. Lets use the example of the sports player. Aside from god given talent, lets assume that you have two equal players and one gives 10% more than the other. Most likely the guy giving 10% more will end up with the big contract. The same can be said for sales as well. If one person works harder they will get more business under equal situations.
In sales and in business the person who gives a little more often ends up with five times more business than the other. If you think about it, by giving 110% you actually get a better return on your time investment. And in the end, time is the most valuable thing we have.
This month I'd like to write about "The Winner Takes All" concept. We have all heard the adage "Do What You Love and You'll Be Successful". People make this sound like a mystical concept however in reality it simply means that if you love doing something you'll work so hard at it that and put in the time until you are successful at it. Its interesting how today's popular sayings try to make it look like their are short cuts to success. I kind of prefer the old quote "Early to bed, early to rise, work like heck and advertise." I really don't think that quote would be popular in today's young culture.
Is it important to work hard? I recently read a book called "The Four Hour Workweek" by Timothy Ferriss. This was a very interesting book. Its basically about a guy who stopped reading the news, entrusted his employees to do their jobs and is living off his business while only really working 4 hours a week. I know I couldn't get by with that but its interesting to read about a guy who has. All I could think about while reading the book was that he's a very smart guy who'd probably be even more successful if he worked more than 4 hours a week. But maybe he's hired people who are better than him. I did cut down on reading the news as a result of this book. If you think about it, most US news garbage nowadays. Aside from this guy's story, I think that we live in a world where the Winner Takes All. If you think about it, most people who are at the top of their profession have really worked harder than everyone else.
Some people don't give their all. Do you have co-workers or employees who simply do the least that they can get by with and still keep their job? I'm sure you do. In reality though, they are cheating themselves. If they are there 8 hours of the day and they aren't giving their all then they are really just wasting their time as well as yours. If you have to be at work why not give 110%?
In todays world of "The Winner Takes All" its the person who tries just a little bit harder who wins. Lets use the example of the sports player. Aside from god given talent, lets assume that you have two equal players and one gives 10% more than the other. Most likely the guy giving 10% more will end up with the big contract. The same can be said for sales as well. If one person works harder they will get more business under equal situations.
In sales and in business the person who gives a little more often ends up with five times more business than the other. If you think about it, by giving 110% you actually get a better return on your time investment. And in the end, time is the most valuable thing we have.
Friday, May 2, 2008
Hiring Independent Reps vs Salaried Reps to Sell Doors
As a manufacturer of Cabinet Doors you have probably faced the challenge of figuring out how to get those doors sold. This article will outline the pros and cons of the various ways of getting your doors to market. Although this article can apply to Kitchens or other products I will give more specific information here about 3D Laminate doors.
Some popular options are:
I. Selling yourself
II. No selling but focus on word of mouth
III. Using Distributors
IV. Hiring a salaried Rep
V. Hiring an Independent Rep
Before I begin, I'd like to outline that I have had previous experience in each area I am speaking about. I have experienced being an Independent Rep, as well as a salaried rep and then the business owner trying to decide which path to ultimately use to go to market.
I. SELLING YOURSELF: Many small door manufacturers opt to sell their doors themselves. This can be a great option, however there are many things to consider. Did you start your door business because you are skilled at selling doors, great at manufacturing, or because you enjoy all the aspects? No matter how good of a sales person you are, it is impossible to run a company and to still affectively perform the sales job properly. Assuming that you wish to continue to grow your business, it may be imperative to get assistance in selling.
II. WORD OF MOUTH: There are many door producers that really just rely on word of mouth and their past business dealings to drive the business to their door. When any downturn comes in the market, you will notice that those who are aggressive in going out to get the business will be the ones to maintain it.
III. USING DISTRIBUTORS: We all know that there are thousands of small Kitchen producers, closet manufacturers, refacers and remodelers across the country. Small and large, the majority of these companies buy from local distributors. These local distributors typically have a client base of at least 1,000 companies for each warehouse branch in operation. These distributors typically have salaried sales people, milk run delivery schedules, large accounting, operations and warehouse staff. Distributors specialize in handling small, detailed orders but they also specialize in extending credit and collections. Since these small shops need so many items from their local distributor it is critical that they keep paying them. This close relationship creates a symbiotic relationship that is necessary in order for both to survive. Although working with distributors are not for every door manufacturer, I'm a big believer in using them. On average, I have found that many smaller accounts are fine with paying an extra few dollars per square foot for the convenience of dealing with these distributors. The customer would never admit it however the amount of 3D Laminate doors sold through distribution is evidence enough.
One of the key fears that most door makers have in working with distributors is that they'll lose the connection with the customers. There is a fear that if the distributor drops them, they will lose their business.
The biggest fear that distributors have is that they will inject time and money into selling doors and then the customers will, in the end, bypass them and buy direct. Distributors often ask for protected territories to seclude the customer from going direct.
In all manufacturing or distribution there is a cost of doing business. It is not feasible to give the same pricing for 20 doors as it is for a block of 200 or even 2000 doors. The administration and billing required for many single kitchen orders is a high price to pay. It is important that both the thermofoil door manufacturer and the distributor agree to a workable relationship that will benefit all parties involved.
One option open to door manufacturers is to set up pricing that leaves a 30% margin for the distributor, but no territory protection. You can explain that if a customer comes to you then they'll be paying a higher price on a single kitchen order and since the distributor is bundling orders they'd be protected. Essentially the small door buyer would pay the same even if they came direct. Another option would be to private label for the distributor. This would assure that their business was based upon their merits and vice versa. And finally another option would be to give some exclusive door styles to your distributor. Even a slight different shape in the door would make it difficult for the distributor's customers to buy direct. This is not a common strategy but it gives you some ideas of negotiation between you and a distributor.
I do recommend, however, working with larger and more stable distributors who are focused on the cabinet industry already.
IV. HIRING A SALARIED REP: Another option to getting your doors into the market is via a salaried sales rep. The great thing about salaried sales reps is that you have more control over their time. It also gives you greater flexibility to redirect their efforts from cabinet shops to closet companies or to new industries all together. Salaried sales reps can also roll their sleeves up and help in customer service for the day. In general, using salaried reps gives you the most attention and commitment to your company.
V. HIRING INDEPENDENT REPS: This is probably the least understood area by thermofoil door manufacturers. Some companies have said that they'd never go back to Salaried Reps, yet others say that they'd never use an independent rep again. I'd like to explain the nuances behind what makes the Independent Rep / Thermofoil Door Manufacturer relationship work....
First of all, it is possible to use a combination of Salaried Reps and Independent Reps. Actually its more affective to have Independent Reps reporting to Salaried Sales Managers who understand sales and can travel with and train Independent Reps. This seems like doubling up however it does have a more proven track record.
There are two types of Independent Reps out there. The ones that carries multiple lines and the ones that do not carry any other lines. Being an Independent Rep takes a special breed of sales rep. First of all they must be able to work with little management, willing and able to spend their personal money to develop the territory and disciplined not to spread themselves too thin. You will find that the only thing worse than a Rep that has too many lines is one that is unable to make a living with your line alone.
The key to being successful with Independent Reps is communication. You must properly train them, travel with them and let them know that you expect results. We've all heard the adage that the squeaky wheel gets the oil... Independent Reps will naturally gravitate to the lines that give them the most attention and the ones easiest to sell. I recommend communicating heavily with your Independent Reps so that you can show them how to sell your doors more effectively. If you show them the nuances and they become more educated about your line then your line will be the easiest for them to sell. Its common sense, but all too often companies think that they just need to give them samples and they'll be off to the races. Believe me, this is the exception not the rule. In summation, Independent Reps can be a viable alternative if you find the right rep and if you work with them to foster their growth.
CONCLUSION: In conclusion there are multiple ways to get your doors to market. As a business owner or manager, your time is best spent brokering new deals than it is fussing over a small orders or fussing over the CNC. To grow your business, think of new paths to market and constantly be looking for new angles and cooperations. You might be surprised by what you are capable of with the right sales person or right distributor working to execute your well layed out plans...
Some popular options are:
I. Selling yourself
II. No selling but focus on word of mouth
III. Using Distributors
IV. Hiring a salaried Rep
V. Hiring an Independent Rep
Before I begin, I'd like to outline that I have had previous experience in each area I am speaking about. I have experienced being an Independent Rep, as well as a salaried rep and then the business owner trying to decide which path to ultimately use to go to market.
I. SELLING YOURSELF: Many small door manufacturers opt to sell their doors themselves. This can be a great option, however there are many things to consider. Did you start your door business because you are skilled at selling doors, great at manufacturing, or because you enjoy all the aspects? No matter how good of a sales person you are, it is impossible to run a company and to still affectively perform the sales job properly. Assuming that you wish to continue to grow your business, it may be imperative to get assistance in selling.
II. WORD OF MOUTH: There are many door producers that really just rely on word of mouth and their past business dealings to drive the business to their door. When any downturn comes in the market, you will notice that those who are aggressive in going out to get the business will be the ones to maintain it.
III. USING DISTRIBUTORS: We all know that there are thousands of small Kitchen producers, closet manufacturers, refacers and remodelers across the country. Small and large, the majority of these companies buy from local distributors. These local distributors typically have a client base of at least 1,000 companies for each warehouse branch in operation. These distributors typically have salaried sales people, milk run delivery schedules, large accounting, operations and warehouse staff. Distributors specialize in handling small, detailed orders but they also specialize in extending credit and collections. Since these small shops need so many items from their local distributor it is critical that they keep paying them. This close relationship creates a symbiotic relationship that is necessary in order for both to survive. Although working with distributors are not for every door manufacturer, I'm a big believer in using them. On average, I have found that many smaller accounts are fine with paying an extra few dollars per square foot for the convenience of dealing with these distributors. The customer would never admit it however the amount of 3D Laminate doors sold through distribution is evidence enough.
One of the key fears that most door makers have in working with distributors is that they'll lose the connection with the customers. There is a fear that if the distributor drops them, they will lose their business.
The biggest fear that distributors have is that they will inject time and money into selling doors and then the customers will, in the end, bypass them and buy direct. Distributors often ask for protected territories to seclude the customer from going direct.
In all manufacturing or distribution there is a cost of doing business. It is not feasible to give the same pricing for 20 doors as it is for a block of 200 or even 2000 doors. The administration and billing required for many single kitchen orders is a high price to pay. It is important that both the thermofoil door manufacturer and the distributor agree to a workable relationship that will benefit all parties involved.
One option open to door manufacturers is to set up pricing that leaves a 30% margin for the distributor, but no territory protection. You can explain that if a customer comes to you then they'll be paying a higher price on a single kitchen order and since the distributor is bundling orders they'd be protected. Essentially the small door buyer would pay the same even if they came direct. Another option would be to private label for the distributor. This would assure that their business was based upon their merits and vice versa. And finally another option would be to give some exclusive door styles to your distributor. Even a slight different shape in the door would make it difficult for the distributor's customers to buy direct. This is not a common strategy but it gives you some ideas of negotiation between you and a distributor.
I do recommend, however, working with larger and more stable distributors who are focused on the cabinet industry already.
IV. HIRING A SALARIED REP: Another option to getting your doors into the market is via a salaried sales rep. The great thing about salaried sales reps is that you have more control over their time. It also gives you greater flexibility to redirect their efforts from cabinet shops to closet companies or to new industries all together. Salaried sales reps can also roll their sleeves up and help in customer service for the day. In general, using salaried reps gives you the most attention and commitment to your company.
V. HIRING INDEPENDENT REPS: This is probably the least understood area by thermofoil door manufacturers. Some companies have said that they'd never go back to Salaried Reps, yet others say that they'd never use an independent rep again. I'd like to explain the nuances behind what makes the Independent Rep / Thermofoil Door Manufacturer relationship work....
First of all, it is possible to use a combination of Salaried Reps and Independent Reps. Actually its more affective to have Independent Reps reporting to Salaried Sales Managers who understand sales and can travel with and train Independent Reps. This seems like doubling up however it does have a more proven track record.
There are two types of Independent Reps out there. The ones that carries multiple lines and the ones that do not carry any other lines. Being an Independent Rep takes a special breed of sales rep. First of all they must be able to work with little management, willing and able to spend their personal money to develop the territory and disciplined not to spread themselves too thin. You will find that the only thing worse than a Rep that has too many lines is one that is unable to make a living with your line alone.
The key to being successful with Independent Reps is communication. You must properly train them, travel with them and let them know that you expect results. We've all heard the adage that the squeaky wheel gets the oil... Independent Reps will naturally gravitate to the lines that give them the most attention and the ones easiest to sell. I recommend communicating heavily with your Independent Reps so that you can show them how to sell your doors more effectively. If you show them the nuances and they become more educated about your line then your line will be the easiest for them to sell. Its common sense, but all too often companies think that they just need to give them samples and they'll be off to the races. Believe me, this is the exception not the rule. In summation, Independent Reps can be a viable alternative if you find the right rep and if you work with them to foster their growth.
CONCLUSION: In conclusion there are multiple ways to get your doors to market. As a business owner or manager, your time is best spent brokering new deals than it is fussing over a small orders or fussing over the CNC. To grow your business, think of new paths to market and constantly be looking for new angles and cooperations. You might be surprised by what you are capable of with the right sales person or right distributor working to execute your well layed out plans...
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