Buying Groups for LED Lights

BUYING GROUPS . . . THE WHOLE TRUTH

Yes indeed there is a whole truth. Buying groups are excellent devices for like minded distributors to join forces. Usually there are 3~4 meetings per year where folks can get together and share; best practices, trends, challenges, hopes, gripes and the like. Of course the prime purpose and best part of buying group membership is the force multiplying capability to leverage buying power to secure a rebate from the member suppliers at the end of the year. The distributor members work throughout the year to achieve purchase goals and earn a certain percentage of their respective purchases in a rebate from the supplier.

This encourages the distributor during the year to think first of the member suppliers when making purchase and theoretically selling decisions. “We gotta hit the buying group nut if we expect to get that rebate at year’s end.” This kind of focus on conducting business is a good thing. “We’ll even sell stuff at very little profit margin in order to hit the nut, we gotta get that rebate at year’s end.”

THE REST OF THE STORY…

If the distributor is focused mostly on the end of year rebate and does indeed take whatever sale it can get at whatever profit margin can be had, then monthly profit margins are likely to suffer. I contend that the most important asset a distributor owns is a long term profitable relationship with its customers. Now then, during their regular monthly business relations the customer gets used to the artificially lower prices for the brands which are part of the buying groups. Life ain’t so bad…

Then at the end of the year the distributor receives the rebate which makes up for lost profits experienced during the course of the year. Life ain’t so bad…

Next year when the purchase levels may be increased, the same amount of rebate becomes more difficult for the distributor to achieve. That’s OK just sell more at lower margin and make up the lost profit at year’s end. Now, the group and supplier(s) are in control of the profit margin the distributor is allowed to achieve. Yeah but… that’ll never happen… will it?”  Well, if it does happen perhaps the distributor can go to the customer and recover his lost profits. “Hey contractor, my suppliers don’t provide the end of year rebates that make up for my low price profit losses during the year. For that reason, I have to raise your price. You understand don’t you…?”

There is an effective practice that can help protect against such profit risk. Include Westgate as an important part of business planning. Westgate provides a very predictable profit opportunity every day of the year. We work the iMAP program very seriously. Using Westgate, a distributor can count on a profitable transaction in the long term profitable relationship with the customer. The distributor is in charge of the profit margin it makes with Westgate, every day. Then for buying group type distributors a Westgate rebate can be earned at year’s end. This rebate therefore ADDS to the profit margin. It does not merely make up for lost profits during the year.

I am not advocating that a distributor in a buying group discontinue membership. I am suggesting that the distributor augment its business planning by including Westgate as a significant part of the plan.