Calculating the actual outcome of a negotiation session - the real P&L of the deal...

As we begin (!) to emerge from the effects of the global financial crisis, survival-minded suppliers and retailers can benefit from maintaining strict financial measures and controls in optimising the joint-profitability of their trade partnerships.

One area that may need attention is ensuring that deal-evaluation includes the factoring-in of all concessions, both financial and non-financial. 

The following approach may help. 

As you know, negotiating a deal is essentially a process of compromise, in that instead of simply selling product at the regular price and making our normal supplier gross margin (50%) on the deal, we effectively dilute that margin by making additional financial and non-financial concessions to the buyer.

Financial concessions:
Financial concessions could include discounts, rebates, advertising & promotional allowances etc.

Non-financial concessions:
Non-financial concessions could include advertising & display material, POS, demonstrators, analyses of Sales, Promotional and Category data, etc.

We try to dilute the negative impact of giveaways by ‘insisting’ on receiving equivalent concessions from the buyer that ideally will replace any losses in negotiation.

For this reason it is essential to convert all concessions into their financial equivalents in order to keep a running check on giveaways and receipts during the negotiation process.

In practice, it is best to develop and manage a Negotiation P&L as follows:

Deal Analysis
Total sales to the customer in this deal at list price                             £250,000
Less Gross Margin of 30%                                                                 £75,000

Net sales to the customer                                                               £175,000

Less the Price concessions we gave:
- Quantity discount 3%                          £5,250
-   Advertising allowance 7%                   £12,250
-   Early payment discount 1.5%              £2,625
-   Listing fees                                         £6,500

Less the non-Price concessions we gave
-    POS material (estimate £5,000)          £5,000
-    In-store demonstrators                        £3,500
-     Samples                                            £2,500                                                

Total given away                                                                              £37,625

Less Concessions received from the customer
-  Earlier payment                                      £2,500
- 20% increase in facings                           £8,750  (estimate 10% sales increase)                                                                                                i.e. assume supplier 50% gross margin                                                                          
-  Exclusive in-store promotion                   £10,500 (estimate 12% sales increase)
i.e. assume supplier 50% gross margin

Total received from customer                                                          £21,750    

Net amount given away in negotiation                                            £15,875 
i.e. 9.07% of sales given away in negotiation

The above application hopefully demonstrates why factoring in the non-price concessions and insisting on buyer reciprocation is vital in negotiation.

It then remains to add value and devalue to optimise concession-exchange in the process.....simple!  

When the Buyer wants to negotiate via your local annual report

The growing sensitivity re. corporation tax compliance has made the issue of local profitability a talking-point, and thereby increased the possibility of challenges in negotiation.

B:   Following our last discussion, I downloaded a copy of your global annual report from your site and a copy of your UK report from Companies House, cost me £1, which I would like to see reflected in your trade terms…

S:   Fine, no problem with crediting you with £1, I can take it off the refund allowance because of your Hounslow branch non-compliance last month..Seriously, have you had time to read the reports?

B:   ...well a few things stood out: First, I had not realised that your UK operation was so small, it looks like we represent 45% of your business – we need a bit more support

S:   As it happens, a couple of our high-compliance partners are supplied direct from our French business, which helps them get faster replenishment. This means their purchases do not appear in our local figures. Incidentally, this is an option available to yourselves, providing we can tie down promotional execution a little better. Any other points you would like clarifying?

B:   Well it looks like you give an average 30 days credit in the UK, yet your global figures show 45 days, you seem to be taking advantage of your UK customers, and us in particular at just 28 days

S:   First of all, in common with many global operators, we offer different total packages I different countries including national average trade credit of 50 day in France, 90 days in Italy and 150 days in Greece!  But each country has different trade margins to compensate

B:   OK, explain our UK position

S:   As far as the UK is concerned, we can look at debtors in more detail.  Glad you have your calculator handy. I know you were in a rush before the meeting and you probably the Debtor figure of £7.5m off the P&L, and on that basis against our UK sales of £900m, we give an average credit of 30 days. [£90m/£7.5m = 12.    365/12 = 30 days]. But if you notice the Notes13 beside the Debtor figure and turn to that Note at the back of the accounts, it explains that Debtors of £7.5m is made up of Trade Debtors of £6.5m  and other debtors of £1m.

B:  So we are one of the Trade Debtors?

S:  Yep, and if you run the same calculation on that basis, it shows an average credit of 26.4 days, so you are getting a little longer to pay, with your 28 days average…

B:  The big surprise was your 9.5% net margin in the UK, vs. our margin of 3.4%, we need some of that

S:  I wondered how long it would take, but it stands to reason, given that it comes at the bottom of the P&L… You remember our pre-Christmas negotiation when we focused on relative profitability, well that that was when we agreed why the difference was down to our different business models  (See here)

Buyer:  I also notice that you are sitting on loads of stock, compared with this time last year, moving from a stockturn of 8 times a year down to 6 times a year, effectively 2 months stock [ sales/stocks = stockturn.    365/Stockturn = number of days stock]

SuperNAM:  Great, that’s really why I came to see you. We are building stocks of our new line because early response indicates a surge in demand.  Let’s discuss how we can use that to make us both some real money…

Adventures of SuperNAM (21)

Improving the buyer's Net Margin, without giving more Gross Margin

B:  I’m glad you’re here. Following last week’s release of our latest annual report, I’m getting a lot of grief from upstairs about our overall margin being lower that other retailers, so we need extra margin on your lines

S:  Yep, interesting reading, especially your 3.5% net vs. most of your competitors hitting 5%, minimum. One of the reasons I booked our appointment this week was so we could build your latest data into our discussions and explore possible synergies

B:  I said more margin…

S:  OK, let’s clarify a couple of basics. As you know, your report P&L is showing your overall Net Margin, having covered all costs in the business. First we need to be clear that our selling prices to you, compared with your selling-out prices, gives you a Gross Margin of 27%, the same margin we give to all other retailers. Second, I am not able to increase your Gross, it is just not going to happen, we are already operating on a knife-edge, what with the trade funding, free credit and the time I spend on your account

B:  Well, if it’s too much trouble looking after your biggest customer…

S:  Not quite our biggest, but certainly one of our more important ones, especially because of the potential to help you improve your net profit on our lines..

B:  Tell me more

S:  Fine. As you know, our different business models mean that you have to focus in-depth on your 400 category business, whereas we being a supplier focus on our category operating in every route to consumer. In other words we need to be expert in every possible way of retailing our particular category. We need to know a lot about a little, while you need to know a little about a lot…

B:  Well, if you are going to waste the final few minutes of this meeting doling out clichés…

S:  Apologies, just been on a workshop, was dying to try that one out…

B:  Five minutes!

S:  OK, we can help by pointing you at what other retailers do to optimise our category

B:  I hope you don’t tell them our secrets?

S:  You know me better than that, we are talking about broad principles of retailing, if only to reassure you that others have found different ways useful, without compromising any of us

B:  OK. How can you improve my net margin?

S:  Great! Essentially, like other retailers, it costs you 15% of your sales to run a shop, add 2% for thieving and wastage, 5% for Head Office, leaving 5% from our 27% gross margin as Net Margin. You should be making at least 5% on our lines ( give me more detail and I can be more specific)

B:  Keep going…

S:  As I see it, your problem is you are carrying too much cost in the system, in other words, your operational costs are taking up too much, vs other retailers

B:  How come?

S:  We have a pretty efficient delivery system, and other retailers get more out of it by letting us have guaranteed forecasts early enough to schedule deliveries optimally. They also share a lot of insight with our people to help mesh the two systems and reduce overlap and the need for excess buffering. Also, by knowing more about your systems we can configure our shipments to help you have easier, more economic process at your end, all the time cutting your costs. The improved integration means less damaged or defective stock, easier handling, more economic use of labour, and ultimately, more economic use of space

Buyer:   What do you need from me?

SuperNAM:  Great!  First we all need a meeting involving our distribution and logistics teams, so we can set the parameters and then let them get on with it. You and I can then focus on the really interesting stuff like how our category plans can drive your top line…


Adventures of SuperNAM (20)

When the Buyer says your supplier margin is too big....

With retailers struggling on 4% Net Margin, whilst many suppliers are in trouble on anything less than 9%, the buyer may claim that you are taking advantage.

S:   Glad to see you have looked up our latest published accounts. I obviously keep up to speed on your profitability, so now we can jointly explore ways of optimising your net margin, without driving me out of business

B:   Well, you are always banging on about lack of money, so I thought I’d call your bluff: Here you are making 9% and we only have 4%

S:   On the surface, it looks bad, and it had me worried first time around. However, deep down we are each trying to balance reward and risk, it’s just that we work in two  different business models..if you take more risk, you need more reward

B:   How come? …and I haven’t got time for a lecture on finance

S:   No way. For me to understand it, it has to be simple: As a manufacturer, we have to research and invest in product ideas up front, a big risk we are prepared to take, provided we can convince our shareholders that the rewards will be adequate. We also have lots of money tied up in state-of-art plant and equipment, whilst you can operate from leased premises, if necessary…

B:   We all take risks in business

S:   Agreed, but your risk is limited to taking in two weeks stock of our new product, and if our advertising and trade funding is not enough to move it, you can sell it at cost and de-list it. No harm done, except to our bottom line…

B:   Yes, but I could have given that space to something more successful

S:   ….and sacrificed an opportunity to experiment with a bit of innovation that might have given you a competitive edge. But let me explain more about why we need our margin to optimise your profitability…

B:   Ok, I buy the need for innovation, but I need to improve my bottom line

S    Fine, we need to manufacture big runs and hold at least 6 weeks buffer-stock of finished goods to cope with fluctuating demand. This allows you to operate on two weeks average stock. In fact, with our daily delivery of main SKUs, your average stock on our lines comes down to 2.5 days, reducing your risk even further.

B:   More like 3 days, but I take your point..

S:   Great, so when it comes to optimising your profit, the closer we work together, the more we can each make…you make more sales, we waste less money..

B:   How come?

S:   Think about it. Our biggest investment is in advertising (5%) and trade promotion (20%). See, you already get the lion’s share! So if we can coordinate our above-the-line campaigns with bespoke instore activity geared to your traffic flow, we get more for our buck, and the more you optimise shopper demand. Provided you manage potential wastage, the increments go straight to your bottom line.

Buyer:   So what do you need from me?

SuperNAM:   Now you are talking! If you give me guaranteed forecasts, we can optimise factory output. If you can pay a bit faster, we don’t have to fund so much free credit, but the real payoff can be via improved compliance instore…

Adventures of SuperNAM (19)

Reduced value packs - how it sounds to the buyer….

Given the latest Which? report showing that household brands are disguising price increases by reducing pack sizes by up to 25%, and sometimes adding a price increase, NAMs may prefer to raise the issue with buyers upfront, rather than be forced to go on the defensive when the customer makes it an agenda item…

S:     Just to let you know, we have managed to minimise the shelf price increase. We are recommending an increase of 6%
B:    …and keeping the pack contents the same?
S:     Well, not exactly… We are actually reducing the pack size by 15%.  Our research shows that the consumer won’t even notice…
B:    Hang on a second. There are a lot of savvy consumers out there, and they are even more value- conscious in the aisle…given all the price comparison tools available… and we even encourage the process instore. Are you guys doing the right research?
S:     As champions of the consumer, we are very sensitive to their needs…
B:     In reality we like to think that the consumer-shopper regards us as their champion, and given the latest Which research, they seem to need our help..
S:     Well, as joint-champions of the consumer–shopper, we feel that  the new pack represents good value for money..
B:     So, let’s take your 750g pack, currently retailing at £3-25, giving us a margin of 18% i.e. cash of £0.585 . This gives the shopper a cost per 100g of £0.43.
Reducing the contents by 15% increases the cost per 100g to £0.51, an increase of 18.6%!  Suppose we add your proposed 6% price increase, this makes the new retail price £3.45.
On a price per 100g of £0.54, that makes it a total price increase of 25.6%.  And you think they won’t notice?
S:     But the consumer doesn’t think like that..
B:    We believe it gives us a competitive advantage to help them think like that, which is why we are putting the price per 100g under every shelf price…
S:     Well, other members of the category are experiencing the same ingredient cost-pressures so they will have to follow our lead…
B:    As you may have noticed, our private label has a 20% share of category, and we have not seen ingredient cost increases of anything like 15%.. and besides, your competitors have not moved yet…
S:    But if you raise your shelf prices on our brand by our recommended 6%, you will generate additional margin of ...
B:   You don’t get it. The sales of your brand are going to fall, making even less money for both of us, thereby diluting our category margin…
S:    Perhaps you could lower your shelf-prices to maintain rate-of-sale….?
B:    Presumably you will compensate me via increased margin?
SuperNAM:    I hadn’t  actually factored that in…
Buyer:               Byeeeee…..

Adventures of SuperNAM (18)

Settlement discount - how to negotiate earlier payment

Given the news that HMV and Blockbuster 'owed £490m' to creditors when they collapsed after Christmas, it is important that suppliers attempt to reduce credit periods in unprecedented times. Calculating and explaining the financial benefits of an appropriate discount for earlier payment therefore becomes a required skill in the NAM role…

S:   Given our need for reduced exposure, coupled with your constant requests for lower cost prices, we may be able to help each other out…
B:   Agreed, but I don’t see the exposure on your side? We are one of your biggest customers…
S:   So was HMV in the home entertainments category, yet they went bust ‘overnight’ leaving suppliers to find incremental sales of £4.9bn to cover losses of £490m!
B:   ??
S:   Another time…let’s focus on our trade partnership. As you know our annual sales to you are £14m, and you pay us in 45 days net.
B:   Those are our standard arrangements for all suppliers
S:   Let’s just focus on you and I…. Given the global financial turmoil, our company would feel more comfortable with 25days credit, a reduction of 20 days, and we are prepared to pay to reduce that risk…
B:   How much?
S:   Great you find it interesting… Let me work you through the calculation…
B:   Convince me…
S:   At the moment you pay us 365/45 times a year, i.e. 8 times a year, meaning you owe us £1,7m at any time… (i.e. £14m/8 = £1.7m)
B:   So?
S:   We want you to pay us 365/25 times a year, i.e. 14.6 times a year, meaning you owe us £0.96m at any time…(i.e. £14m/14.6 = £0.96m), a reduction of 20 days
B:   We would need a big discount for 20 days…
S:   I thought the same, until I worked up the numbers.  Let me show you…
B:   I have another meeting in five minutes..
S:   Won’t take that long. At 45 days you owe us £1.7m, and at 25 days the amount you owe is £0.96m, a difference of £0.74m
B:   Like I said, I’m busy…
S:   Say the cost of borrowing is 9% interest per year, so the cost of borrowing £0.74m for a year is £0.067m
B:   Where is this heading?
S:   I am trying to show you how little you need off invoice to beat 9% interest on your money…
B:   OK, another minute…
S:   That £0.067m represents 0.5% of our annual sales to you i.e. £0.067/ £14.0m x 100 = 0.5%
B:   ??
S:   In other words, 0.5% off invoice is equivalent to an interest rate of 9% per annum on your money!
Buyer:             Run that by me again?
SuperNAM:    No problem, and I’ll leave you a couple of slides to talk it through with your finance guys…

Adventures of SuperNAM (17)

Discounts for ‘investment in joint growth’ - how to say 'no'…

With retailers hoping to recoup trading losses via additional discounts on agreed invoice prices, it is vital to refuse. This is not only because of the profit implications, but also as a matter of principle.
How you say it can determine the future relationship.

S:    I think I must have missed something. You are asking for a 4% discount on the prices we agreed 7 months ago? …and you want to apply the reduction to all deliveries made since that date?
B:    Correct!
S:    So, the agreement you and I made was unauthorised? Should I be seeing someone else to agree price increases?
B:    No, I have full authority
S:    Therefore, if I can show you why we cannot roll back the agreed price increase, the original agreement stands?
B:    No, this is an order from on high, it over-rides all agreements…
S:    Obviously your call, but it seems like your board is now doing the buying…..perhaps I can provide you with some outside rationale that you and your colleagues can use internally?
B:    I’m listening…
S:    First, your request is unique, no one else is asking for retro-reductions, so me and my colleagues have to assume that we have robust agreements with all other customers, companies that stand by their decisions. If we gave in to your request, we could de-stabilise the rest of our trading relationships.
B:    This is just you and me, the others need never know…
S:    Wrong, nothing is ever just you and I. Your demand means that, as an ethical company, I have to walk away.
B:    So be it
S:    Before I go, let me explain the size of your potential loss.   As you know, in our part of your category, we represent of £840k of your annual sales, ex VAT.
B:    How do you know that?
S:    Easy. With a 27% retail margin our annual sales to you of  £605k translates into £850k sales out, ex VAT, apart from trade funding and credit. Now, given our precise fit with your target shopper, the loss of our business would obviously be possible but a bit of unnecessary hassle to replace. Besides you and your colleague-buyers will most likely come up against similar resistance to going back on agreements in the market place.
B:    That’s our business
S:    Right. Now let me explain why we have to walk. We make a Net Margin of 6.7% on your business. From our published accounts, you can see we sell £7.5m per annum in the UK, on a Net Margin of 9%. This means you are already diluting our UK profitability. Also if we gave in to you, as an ethical company, we would have to offer the same deal to other customers.
B:    Just because they cannot buy properly is no reason to penalise us…
S:    No, think about it. If we reduced our overall Net Margin to 6.7% we would reduce our net profit by £172.5k   ( 9% of £7.5m = £675k, 6.7% of £7.5m = £502.5k, difference is £172.5k)   This means we would need incremental UK sales of £2.6m if we gave in to your demands. (£172.5/6.7 x 100 = £2.6m)  So you can see it’s not going to happen.
B:    I still need the money….
S:    You obviously know your bosses better than I, but are you saying you need the reduction in principle, or the money it represents?
B:    I think the money would do it for now…
S:    OK let’s talk about what’s involved if we count a 4% reduction on 7 months purchases.  (£605k/12  x 7 x 0.04 = £14k)  So you want an extra £14k from us
B:    I hadn’t realised it was so little…

SuperNAM:    Depends on how you look at it. With your net margin of 3.2%, it represents incremental sales of £437.5k… What we need is a bit more support instore for our additional £14k. How about an extra  couple of facings that currently cost £7k each, with a couple thrown in, free-of-charge so we can share the possible over-facing risk?
Buyer:           You reckon you can generate incrementals of … ?
Adventures of SuperNAM (16)

Measuring value for the buyer? When the buyer needs convincing his gain is greater than your cost...

S:    …and, as you know, we still need to solve this problem of your out-of-stocks Thursdays…how about upping the weekly order?

B:    No way, I am already hitting my buying limits. How about delivering more frequently?

S:    Unfortunately, the 20-unit size of our shipping outer means you would then breach your on-going stocking quantities. I really want to help, but I need some basic information…

B:    I thought you were meant to be the expert on our business?

S:    I can give you some general solutions based on my assumptions, but the more data you let me have, the more precise will be my recommendations. Let’s agree the size of the problem first.

B:    I lose a day’s sales by running out of stock on Thursdays because your inflexible distribution system delivers to our depot on Fridays…

S:    We deliver on Fridays to optimise our coverage of this part of the country, keeping your cost-of-goods low. So, what are your daily sales of our brands?

B:    Confidential…

S     OK, let’s use assumptions for now:  you sell £5.5m of our brand per annum, making it just over £15k per day, at a gross margin of 35%, right?

B:    Near enough, but where is this getting us?

S:    So, if I could eliminate your out-of-stocks on Thursdays, it would represent £15k extra sales per week, £780k per annum, an annual extra gross margin of £273k  (£15k x 52 =£780k x 0.35 = £273k)

B:    How can you help?

S:    The obvious answer is for us to deliver on Wednesdays, but that means re-routing, extra mileage and other costs. Our logistics guys tell me it would cost us an extra £1.5k per trip, making it £78k per annum.

B:    Just a cost of doing business, and £78k is not a lot to improve customer service level.

S:    As a matter of fact, with our published net profit of 12%, this incremental cost of £78k needs incremental sales of £650k for us to break even (£78k/12 x 100). Your extra sales of £780k of our brand means £507k sales for us (£780k x 0.65, allowing for your 35% gross margin), so I need something from you that will generate additional sales of £150k per annum.

Buyer:          …I suppose if we are getting incremental sales of £780k per annum…
SuperNAM:     Great!  How about the two extra facings I’ve been wanting this past few months? 

Adventures of SuperNAM (15)

When the buyer says 'the retail margin is too small'... How to shift the buyer's point of view

S:   ....and with our retail margin of 22%....

B:    It's too small.  Our average margin for the category is 28%

S:    So, your average category margin is bigger than your overall company gross margin of 23%?

B:    How do you know that?

S:    Simple, I downloaded your annual accounts from Companies House @ £1 per document. See, on the P&L, second line....  But anyway, let's work with your category margin, providing you tell me your average category stockturn per annum.

B:    No, our stock rotation details are off limits... I shouldn't even have told you our category margin...

S:    Hang on, the more information you give me, the more I can tailor-make a business solution for your category. I have a limited sized cake, and the better I slice it, the greater the value for you. But anyway, for the moment, I can work with your company data.

B:    I'm listening, but make it quick...

S:    Right. As you know we deliver our top selling SKUs to you daily, a stockturn of 250 times per annum, but let's take an average of weekly delivery for the brand, 50 times per annum.

B:    So?

S:    So, our annual sales of £350k of the brand to you means that at any time you are sitting on £7k stocks of our brand, £350/50...

B:    And?

S:    And, with our 22% retail Gross Margin making you £77k Gross Profit per annum on a stock investment of £7k, in other words, you are making £77k Gross Margin Return On Inventory Investment (GMROII*) on our brand. As you can see, £77k divided by £7k times 100 means you are making a Gross Return of 1100% on our brand, a little better than the 22% you were complaining about earlier?

B:    I don't quite get it...

S:    No problem, it took me a week to get my head around it. Our brand is a bit like a bank in which you deposit £7k and you get interest of £77k per annum. In other words 1100% interest!

B:    We make that on all brands....

S:    In your dreams...joking!...   Let me explain?

B:    It had better be good....

S:    Your average company Gross Margin is 23%, in other words £184m on sales of £800m, and your average stock-turn is 17.5 times per annum, as you can see from your balance sheet showing Stocks of £45.7m. Dividing the £45.7m into your sales of £800m on your P&L, means your company is making £184m on your average stocks of £45.7m, an average GMROII of 403%, compared with your GMROII on our brand of 1,100%!

Buyer:            Suppose I told you that our average category stockturn is 27......
SuperNAM:           Now you're talking....

Adventures of SuperNAM (14)
* GMROII  

When the buyer wants too much - how to say 'no'...

S:    Sorry, we don’t give Early Payment Discounts…

B:    We have a new policy on invoice payment and we are asking all suppliers for Settlement Discounts

S:    I appreciate you have to ask, but I would like to explain why it is not going to happen with our business

B:    So, you are refusing to cooperate with one of your biggest customers?

S:    Cooperation is not the issue. I could say ‘no’ and walk. But, given our relationship, I felt you deserved an explanation

B:    Well, It better be good…

S:    As you know, based our £1m annual sales to you, a 1.5% settlement discount would be £15k

B:    So, no big deal…

S:    Hang on, there’s more... Being an ethical company, we would have to offer our other UK customers the same discount, amounting to £2.3m on our £150m sales

B:    So you are not interested in growing your UK business

S:    I didn’t say that. Because we are a global company we would have to offer the discount worldwide, amounting to £38m on our £2.5bn turnover, so you can see why it’s not going to happen.

B:    I don’t know….

S:    So if your company needs a line on our invoices reading 'payment discount', no way. However if you simply want to earn an extra £15k on our business, there may be ways…

Buyer:             Sounds interesting…
SuperNAM:    Great, now let me tell you what we want…

Adventures of SuperNAM,  Part 13

When the buyer does not benefit personally/directly from your rebate..

S:   …and of course, you also have a 2% early payment discount…

B:   ..that money goes to the Finance department.., it doesn’t benefit me..

S:   So, you’re saying it’s not important…

B:   Correct!

S:   Tell you what, I’ll take it from the Settlement  Discount bucket and add it to your margin, how about that?

B:   No, you can’t do that!

S:   You just said it wasn’t important….

B:   Well, it is important to my company, you can’t just remove it

S:   I am not taking it away from your company, I am simply transferring to a more important bucket…the total value stays the same…

B:   No, I can’t authorise that..

S:   Now let’s start again…. I represent the whole of my company in these negotiations. I had assumed you represented all of yours…

B:   Correct!

S:   But you have just implied that you are not responsible for all of the cake… I need to talk to someone who is responsible for the whole deal with us, someone who can factor in each piece…

Buyer:    I am responsible for the whole deal…

SuperNAM:   Great, so taking into account the 2% Settlement Discount, that makes your company’s total take equal to….

Adventures of SuperNAM! (12)

When the buyer knocks your trade spend…

S:   ….and I am offering £50k to support this price promotion, subject to conditions,…

B:   £50k is not very much…

S:   How come?

B:   Like I said, for a company of your size, a drop in the ocean…

S:   How much profit do you think we make?

B:   How should I know?  Lots…

S:   Our Pre-Tax Net Profit is 11%

B:   So?

S:   This means that when I put £50k trade spend on your desk, I need to see incremental sales of £455k before I let go of the money…

B:   That’s your problem…

S    OK, Sunshine, let’s talk about your problem… You think £50k is nothing…?

B:   Agreed!

S:   Your business makes 2.5% Pre-Tax Net Profit, right?

B:    How do you know that?

S:   Companies House online, £1 for the latest Annual Report. See, I’ve invested in you already, we call it preparation…

B:   Wish I had the time to surf the internet… Anyway, so we net 2.5%...

S:   This means that my little £50k is equivalent to giving you extra sales of £2m……

B:    Prove it !

S:    Fine.  Our £50k trade investment comes with no handling costs (except bank charges!!!), so it goes straight to your bottom line. It therefore represents 2.5% of sales, in your business model.

B:   So?

S:    £50k divided by 2.5 and multiplied by 100 gives you sales of £2m, bingo!

Buyer:    What do I have to do?

SuperNAM:  Now you’re talking…..


Adventures of SuperNAM! (11)