Why You Shouldn’t Try To Make It Up In Volume
It’s the oldest story in the books, a businessman selling for less than the product costs him to make, believing he will make it up with volume. How silly, yet I hear it and see it every day.
The reason for this is personal emotional weakness, allowing yourself to be controlled by what others think feel and say about you, wanting to be liked and wanting to feel successful, as if selling to a major at a loss makes you successful. Being accepted by the “big buyer” feels like success because the order may be large and the visibility of your product being on the shelves of a major retailer makes you believe you are successful and are now important, a valuable person.
Unable to walk away from a sale even if it is an unprofitable sale because of this emotional weakness, you kid yourself with this bit of fiction, that you will make it up with volume, that you will attract additional big ones and the volume will bring down your costs so you will eventually make lots of money. But it will never happen because it can’t happen. Lost profits are lost forever.
Yes, traditional thinking states that costs of goods come down as volume goes up, but, I believe the additional reduction is marginal at best compared to the large discounts demanded and received by large chains. Overhead may get spread over more pieces thus effectively lowering the price per piece by a small measure but the typical discount demanded by large clients will reduce the profits into nonexistence. What’s the point in that?
Business owners are so hungry for the big order from the major chain that they will accept any price because it flatters their ego to think they have made the big time when they sell to a major chain. Big deal. Either make a reasonable profit or forget it, lose the order. Say “No thanks, buy at my lowest price or do not buy,” should be your mantra.
It is OK to share some of the lower costs based on efficiencies of scale when a large order is placed but seldom is this carefully calculated and even if it’s done, the discounts required usually far exceed the reduced costs. Business owners further neglect to add in the additional overhead burden of dealing with the majors such as the costs of accounts receivable being net 60, the free goods and the cost of shipping which they insist you absorb.
It’s a mistake to even consider the offer as it is impossible to make up lost profits with volume. In fact, the opposite is true. If you lose a penny on one item you lose ten thousand pennies on ten thousand items. It gets worse, not better. You cannot make it up with volume. It never happens and never will. There is no such thing as a loss leader, it’s a loss, period. Call it what it is. Better not to ship than to ship at a loss.
Lose the ego. The need to feel successful because you made the big sale is an immature act and must be routed out of your system as it makes little sense at all.
