“Cheep”…On a Branch

Monday, July 13, 2015

Many years ago, I was participating in a "negotiation" with a fairly large contractor. His theme was becoming quite clear…In almost these exact words, he asked, "How cheap will you be willing to go to get my business?" In frustration, more than anything, my partner in this dialog blurted out, "Hey! We're already there...my feet don't fit a branch." Translated, a bird will sit on a branch, singing "Cheep, Cheep"… well maybe some birds sound more like "Chirp, Chirp." Anyway, you get the picture.

From time to time, I'll keep swerving back to those elusive words..."Profit," "Margin,” "Margin Performance," etc. The one I always appreciate, and refer back to quite a bit, comes from a boss of many years ago. In going through something similar to what I started with above, that boss commented, "Remember folks, we pay our bills with Margin Dollars!!" Can be a pretty discouraging "revelation" to get to the end of the month, and analyze some of those "Cheep" (usually Volume) sales, and realize just how tiny or meager those final leftover Margin dollars are. If you analyze that deeply, on a timely basis, it gives pause to try to justify, "Why did I go through all that, to get to eat none of what I killed?!!" So, at Kimal we treat this "Cheep" business as a different kind of animal, if we're going to do it at all. Where it tends to work (kind of), is when you're "on budget," or hitting your monthly or quarterly Sales goals, hitting already anticipated margins...Doing great, you've overcome the Over-Head, and now this EXTRA Cheep business is more or less covered in your anticipated "cost of doing business" model. Another justification is, "Hey, I sold the 4-ply at ‘X’ (Cheep) but I'm selling doors, trim, etc., etc. at a much higher margin, so the "'blend" comes out O.K. Or a brand new customer pays good, is "Relationship Oriented," and this "gets us in the door."

Yes, I know all the games, and "Justifications"--been there far too many times. So you have to be very careful. When you play this low margin, meager-profit game, you're setting a precedent...as well as a perception that you're willing to get down in the gutter...So the "game" must be done properly, or you wind up just becoming another "Whore" in the market. When this propensity to "Be Cheep" becomes your Modus-Operandi, you may be headed for real trouble. In the end, low margin, (Cheep) business can be o.k. but always know exactly what you're doing, and the reasons behind it. I always call this "Additional” business....never, ever "New" business. Nough said.

A quick little story. Over 45 years ago, the company I was part of, Lemon Bay Lumber, had been sold to Wickes. In going through the transition, I wound up working with a gentleman by the name of Elliot Paul, from Shepard Lumber in Sarasota that also had a branch in Venice that was soon to be phased out. Elliot was truly a "Lumber Guy": Sharp, knowledgeable, and maybe a bit "Unique"...Anyway, my little Branch lumberyard in Venice was growing fast, so we decided to install a fence around the parameter. As I remember, we had someone come in with a backhoe kind of attachment, and drill forty or so holes for the posts we were going to install...Days later, holes dug, posts in, we strung the wire. I watched Elliott out on the "back forty" moving slowly along the fence line stopping at each fresh post hole. I finally went out to him and asked, "What are you doing, Elliot?" He dead panned: "Just planting my garden"… I left, as I didn't want to pursue that conversation too far!! About two months later, mid or late spring, Elliot was again out at our fence line with a bucket…Of course I walked out to inquire (again) asking, "What are you doing Elliot?" knowing I'd get a unique answer... Turned out he was picking black-eyed peas that vined all along our wire fence.... Lots and lots of peas... There were only about eight or so of us at that little yard, but as I remember, we all got to share in the Pea Harvest!! Can't make these stories up… I guess we're all pretty "Unique" to be in this building material business!"

Al E. Bavry, CEO, Kimal Lumber & Hardware 7/13/2015

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