Wednesday, March 27, 2013

How to Make Huge Profits By Buying Better: Cost & Buying

The Cost in Costco Isn't About Your Cost - It's About Their Cost - Cost of Goods and Services is the #2 Secret to Marketing

You have great fans of your business.  They love what you sell or the services you provide.  You have plenty of traffic.  Almost too much to handle.  Your sales are fine.  But the profits are just so-so.  Years ago a mentor told me, "You will always make more money on the buy side than the sell side."

I am a HUGE fan of Costco.  I just so appreciate their quality.  Sure, they have low prices, too.  But I'd go if their prices were higher.  What Costco does to create quality at low prices has to do with Buying.  If you'd like to learn more than I can possible teach in this blog, check out the documentary video created by CNBC about the Costco Craze.

But here it is in a nutshell.  Costco pays attention to buying like no one else in business.  I have sold the buyers at Sears, JC Penny, Target, Toy R Us, KMart and many others.  The decision made by the buyer or the buyers committee is made on the basis of snap judgements and loyalty to businesses and reps.  By comparison, Costco treats each product they carry as if they were the inventor and solely responsible for its success or failure.  And sometimes they are.

As a business owner, this should be your mantra, too.  Why should you carry 10 products in a category, if 8 of them are not great values.  Costco only carries 7,000 products. That compares to Walmart at 100,000. Only carry the ones that offer great value and train your sales people to sell that value.  As a result of that concentration you will increase your volume in those items, and that should result in more leverage with the supplier, resulting in a lower landed cost.

"I Can't Sell From and Empty Basket"


I can hear the screaming now:  "Does this mean we sell from an empty basket?  Do we ignore customer demand?  Can we afford to send customers out the door, because we don't carry what they want?"

Costco does, and all great companies do.  No one can carry everything.  So you will ultimately make choices about what you do and don't carry.  Therefore you will lose some customers.

And you do sometimes have to carry slow turn items in order to be complete as a retailer.  But, study after study shows that customers are confused by the choices.  And worse, so are your sales people.

Limit Your Product Selection and Become Passionate About Your Selected Items

Here are the basics:
  1. Find some products to love.  Limit variety.  Train your staff to sell what you have.
  2. Pressure buyers to find ways to reduce costs through larger purchases, free freight, rebates.
  3. Use your suppliers to keep you informed on trends, new products, and discounts.
  4. Reward suppliers who give you the best margins.
  5. Repackage products or add value to differentiate your offering from the competition. 
  6. Set up displays around preferred items, create signs and brochures, train sales to sell these.
If your industry normally works on a 50% margin, and you can save just 5% of that by buying better, you will be better positioned for driving your competition out of their minds or out of business than through almost any other method.  That 5% goes right into your pocket.  That's the beauty of lowered costs.  You would have to raise the price by 10% to get the same margin result. 

Did you catch the #1 Marketing Secret.  Can you guess what it is?

You might want to catch my new video series on Google Places and Google+ Local and how to optimize your business in local search

If this makes sense to you, share it with your friends with a +1 or a Like.  I'd love to have you connect with me on LinkedIn.

Maybe you don't agree with what is outlined above.  Tell me about it below.  Maybe you agree and you'd like my help growing your business sales and profits.  310-910-1848

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