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Quoting and quantity discounts oh my

March 14, 2018

For small business quoting jobs is a difficult endeavor. The costs of keeping a facility are climbing and downward price pressure from larger companies is on the rise. There is this standard game of quantity discounts being played. My experience and random thoughts on this subject.

 

•To many individuals and companies when trying to bring a new product to market concentrate on setting the retail price first and the wholesale price as a second thought. The problem with this approach is the wholesale price is way undervalued. The appropriate approach is to decide at the beginning of the process are we going to sell at wholesale and then set out to find out if you can make your product or service and have a profit at the wholesale price. 

 

•Quantity discounts are really just a take money out of my pocket game. If you think about your processes when you do a production run there are a few items you can divide into the number of parts completed. These are the items such as set up that divided into the part quantity can bring down the cost per part. As part quantity grows the the cost reduction gains if you will diminish and the complexity of producing those parts goes up. So if you have started giving discounts based off of the cursory cost of making a single part or short run of parts you are giving away your own profits. If the customer is asking for discounts then base your pricing off of the largest discounts being given and work your way back to single part and short part pricing. I think you will find that in most cases you were undervaluing the single part and short run pricing. The working your way backwards on pricing also gives you a defense with companies ordering less than the quoted part quantities which I find happens more often than not.

 

•Cheap Chinese products have ruined peoples and companies perspective on what products even custom products should cost.

 

•Many times companies will ask you for a quote and give you their annual quantities and want a quote based on those annual quantities. In most cases the actual orders are in small frequent amounts. If you have quoted based on the annual quantity figure you have undervalued each order. You also run the risk of the company not honoring ordering the annual quantities.

 

•When a potential customer states if the price is right there will be more work quote the job as if it is a one time order. Do not make concessions in the hope that more work will be following that order. The simple statement if the price is right is a clue that price is the most important thing to that potential customer and nothing else.

 

 

 

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