The Conflict Between Cost and Price

John Wolz

“Cost and price are nebulous terms in our business.”
That statement by Lou Boyd of the Olander Co. summed up the opinion of a group of industry panelists during a roundtable discussion at the joint spring conference of the Western Association of Fastener Distributors and the Los Angeles Fastener Association.
“In what grade did we learn the difference between margin and mark-up?” Jay Hebert of Porteous Fastener Co. quipped. “Why can”t we teach salespeople that?”
Panelist Martin Calfee of Copper State Bolt & Nut questioned the practice of giving the salesforce access to actual costs.
“Don”t give the guy selling [the product] the real cost. Tell him what to sell it for,” Calfee advised.
Boyd said the combination of cost plus a standard mark-up is not the best way to determine price. Freight charges and storage costs are too easily excluded that way.
“You have to decide what the items are worth to you. Cost is only a part of it,” Boyd noted.
Boyd recommended setting the price based on what the market will bear, not just prior price history with a customer.
Andy Cohn of Duncan Bolt noted that a single formula to calculate all costs is difficult to achieve.
Speadsheets Compound Margin Loss
As Boyd explained, many fastener executives used to try to keep salespeople from seeing bulk costs so margins would stay higher. But the advent of computer spreadsheets now makes actual costs easily accessible to everyone within the company.
“Most people think, “We don”t need trained salespeople. We need good readers,”” added Cohn.
Hebert said that since spreadsheets have become standard operating tools, Porteous has been deluged with RFQs on single items as people scour the country for the lowest price. Hebert noted that some companies get so caught up in item-by-item price comparisons that they ignore the operating costs incurred by having people conduct extensive searches for individual item prices.
“We”re not looking for new business on our website. We”re looking to reduce phone calls, frankly,” Hebert stated.
Other changes in price structure include the rise of “net price.” Kelly Lehman of Pacific Warehouse Sales said list price sheets have been eroding in recent years as net price has emerged.
The consensus among panelists was that 2005 should be a decent year for business if companies monitor their margins closely.
“Keeping your margins in a time of increasing price is a tricky thing,” Cohn concluded. \ �2005 FastenerNews.com