with Claudine Halpern
WOW, you’re business has it’s biggest customer ever, whether your business is a service or product business, there are some really important things to address now.
If you have a product business, you are probably finding yourself in the unenviable position of needing stock that you don’t have. You either need to purchase the stock or manufacture it. If you are well financed then it’s no problem, you go and buy it or make it.
WAIT, how did you set up your contract with your big customer? Let’s talk about some ways to make sure that you can keep your head above water while you’re getting the goods together.
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I very often suggest that a customer give you a percentage of the money that’s owed on contract signing, usually half, that might not cover all you costs but it should get you along the way to fulfilling your deal.
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Or you can get half up front and deliver incrementally, so that you can satisfy your customer and keep your head above water.
I did logistics work for a publicly held major BIG BOY catalogue retailer, it was Mother’s Day and the BIG BOY ordered squeaky bears that were selling for $5 as a bonus with other purchases. In order to save money, the BIG BOY outsourced the bears to China in January, with every expectation that they would show up in plenty of time for Mother’s Day. Each bear cost $2.50, so the profit margin was there. The BIG BOY had orders for over 1 million bears. They were planning on starting sorting and delivery in late March.
A storm hit the South China Sea, and the ship, carrying the squeaky bears, was delayed by three months. Oooooops, 1 million customers were not going to be happy, and the BIG BOY needed to do something fast.
In March, the BIG BOY ordered 1 million squeaky bears, from a local manufacturer, for $5.00 each. So the bears cost $2.50 +$5.00 or $7.50 each, and sold for $5 each. That created a loss of $2.5 million for that quarter, not happy shareholders.
1million bears showed up in July, decorated for Mother’s Day. What to do with 1 million Mother’s Day bears in July? The BIG BOY hired a local firm to redecorate the bears for Thanksgiving at $3.50 each and sold them in the catalogue for, you got it, $5. Total Profit ZERO, Total Loss well you figure it out.
So if you are producing goods for one of the BIG BOYS, Be smart, be careful, price intelligently and have a contingency plan, to keep your reputation intact you need to deliver quality merchandise on time and in budget.
If you have a service business, you may have a little more flexibility in pricing. I always recommend incremental pricing based on milestones. What does that mean? That means that you get paid for getting to the milestone, not for finishing the job. Here’s how you create the incremental milestones plan:
· clearly establish and document the BIG BOYS goals
· break down the deliverable into obvious, smaller pieces
· clearly establish and document what tasks belong to you and what belong to the BIG BOY
· clearly establish and document what the BIG BOY must provide (information, support, office space, technology, coffee, raw materials etc,) and when
· clearly establish and document change control procedures, that means that there are no changes unless all agree and the scope and dates are renegotiated
· clearly establish what you will get paid when you hit each milestones
I had a small software client who got a multi million dollar contract with one of the BIG BOYS. We wrote the contract following the rules above. We always got paid on time, even though we did not always hit the milestones, we could always prove that we didn’t hit the milestone because of something the BIG BOY promised and didn’t deliver.
When working with the BIG BOYS, Be Smart, Be Effective, Be Thrifty, Have Contingency Plans, Be Realistic, Be True to Yourself and Your Company, good ideas for business and good ideas for life.
Next Time; Building on current BIG BOY business to get more BIG BOY business.
About Claudine Halpern
Claudine Halpern is a chameleon; she has worked in many different situations during her more than twenty-five years in business; as a management consultant, Claudine advised many of the major brokerage, insurance, and financial houses, completing more than fifteen major corporate initiatives during the past ten years. As a crisis manager for major corporations, Claudine successfully brought in projects and products that other firms would not touch. As a specialist in business and management consultancy, Claudine consults to emerging businesses across the spectrum.
EMAIL chalpern@theychgroup.com
http://www.linkedin.com/in/claudinehalpern
For more information, please visit Claudine's TNNW Bio.
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