Some dealers are reluctant to handle our software because the price is too low. They tell us that
even if we paid them 100% commission, they would make less money than if they sold other systems
that paid only 20%. Besides, most of our customers use an annual subscription so the
amount they pay up front is even less.
But that is just a small part of the picture. Most Point of Sale Dealers sell package deals that include everything. They include software, computers, scanners, printers,
touch screens, run-up testing, software installation and configuration, data import, meetings, consulting, training.
Profit margins on the various components vary. And the client's perception of the value of each component is often different from
the real cost. So the dealer dances the "quotation shuffle". Prices on some items are padded to increase margin.
And prices on other components are reduced or included at no charge.
Items included "free" usually don't carry a "hard cost" for the dealer.
Installation, configuration, setup, training and often support. Parts of the quotation
that are padded to make up are things like scanners, printers, other hardware devices and expensive software.
The dealer might be happy with the total margin on the deal as a whole, but none of the component parts
stand on their own. And the high margin the dealer thinks they have on expensive software is an
illusion.
If the total margin in the deal was evenly applied to the actual cost of each item or
service provided, to calculate a realistic price of each component, the true price of the software would
go down, and the true value of the support and services provided by the dealer would go up.
When a customer pays a lot of money for software, they expect a lot to be included.
When they only pay a little for the software, they don't mind paying for the services that would
otherwise be bundled. This allows you to quit the "quotation shuffle"
and it puts more money in the pocket of you, the dealer.
Other Dangers of the "Quotation Shuffle"
- In many cases, the total amount on a full quotation is higher than budgeted for. So the customer starts looking for ways
to lower the cost to make the system affordable. They can't lower the cost of items that are bundled in free of charge.
When you do the "quotation shuffle" the only items where they can save money are the items you have padded to
pay for the "bonuses". This has a disproportionate affect on your margin.
But if the client had the opportunity to reduce cost
by deferring realistically priced components and adding them later, your overall margin
percentage would stay the same.
The "quotation shuffle" effectively locks you into an "all or nothing" situation
because to provde the bundled or "free" components, you must have the revenue from
the other parts of the quote.
But when each part is priced
realistically, if the client needs to reduce the initial cost by 20%, you can take parts out, retain 80% of the margin now, and they can
add the balance later. But with the "quotation shuffle" you lose all your current margin now because the entire sale is delayed,
or else you cut most of your margin through discounting.
- People don't value what is free. If you include free training, they won't be prepared, your time will be wasted and when they forget
what they have been taught, they will expect you to come back and do it again for free.
But if you charge commercially realistic rates for
training, they will be prepared, they will take notes and ask questions, and if you do need to come back and do it again, they will expect to pay you.
- Sooner or later, the client will find out which items have been "padded" when you do the "quotation shuffle".
If you pad the price of the printers, at some time during the life of the system, they will see those same printers at the normal price.
And when they do, they won't thank you for the extra support you bundled free, using the margin on those printers.
They will think that you overcharged them.
Our advice is
don't do the "quotation shuffle!" Set the prices for each component part realistically
so that if a client needs to cut back the initial cost, you
don't care which part of the system they defer because
they are all the same in terms of your costs and revenues.
And don't hang out for the big deal. If a retailer wants to upgrade their system in stages using cash flow to fund the upgrades,
don't try and force them into an expenditure they are uncomfortable with or have trouble funding.
With a "big deal" quotation it is hard to get the sale.
But with smaller steps, once they make a start, you will have that retailer as a customer until either:-
- you screw up.
- they feel they have been ripped off.
and the lifetime value of that retailer as a client is far more than you will ever make on a single sale.
In retail, there is a common practice of using "loss leaders". These are items that almost everyone needs
that are priced so low that the retailer makes no money or their sale, or even a loss. In a convenience store,
items such as bread or milk are often used as loss leaders.
Retailers use loss leaders because they know that once the customer is in the store, they will also buy other items
where they have good margins. Chocolate, soft drinks, potato chips, confectionary.
And the net result is that they make far more in total than if they didn't use the loss leaders and the customers
went elsewhere.
SELLmatix is priced as a loss leader for Point of Sale Dealers. With it, you make sales you would not make with other software alternatives,
and you make those sales more easily. And when you price each part of a system realistically, instead of doing the
"quotation shuffle" the money in your pocket is the same as with expensive alternatives. Often better.
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