Never do a bad deal
It took me 4 years of working in internet retail and I still make the same mistake occasionally (though, hopefully, less often): I do a bad deal with the idea that I will make it up on the “real” deal later.
Let me give you an example - a few years ago a large government contractor called and wanted a quote on several thousand pieces of a popular product that we had a good margin on. I remember the first time I got one of these calls - “This is what’s going to take us to the next level,” I thought. The contractor needed a new driver built for the adapter so we agreed to go to bat for them and contact the manufacturer of the chipset for the device.
My head was spinning from the size of the ultimate deal and how it would impact our bottom line. I couldn’t stop thinking about getting the sale - maybe that makes me a loser since most people wouldn’t take their work so personally, but anybody who has had a chance to work in marketing at Sewell probably knows what I’m talking about.
Almost as an afterthought the customer mentioned that they needed a few hundred initially for some testing but they expected the same price that they would have on several thousand pieces. I immediately agreed and chalked the “thin” margin on the sale (i.e. nonexistent) to a marketing expense required to close the ultimate deal. They received the parts and the driver that we worked with the chipset manufacturer on and tested the part extensively - they would frequently email us with problems and have us talk with the manufacturer of the chipset (the chipset manufacturer refused to work directly with an “end-user,” even in this case where our customer wasn’t the ultimate end-user).
Well, as I’m sure you can guess we never heard from the customer again - I followed up frequently with them and finally realized that after all the time and work we put into the relationship they had cut us out of the equation and probably gone directly to the factory.
Knowing what I know now I would never do this again. Here are my two suggestions when you are put in this situation:
1) Require your customer to provide a blanket PO for all of the pieces and a signed agreement stating that you will be their exclusive supplier on the particular product. I don’t recommend this option because it is hard to enforce these contracts and you have to take the customer’s word that they will honor the contract if you’re not prepared to enforce it.
2) Offer your customer standard pricing on the initial “test” units with the understanding (provided in writing if necessary) that you will credit the difference back when they place their large order. I really like this approach because it weeds out customers who are not seriously considering a long-term relationship and it is flexible enough to compensate those willing to follow through with their agreements.
I know I’m not a sales expert or anything, but I hope that this information is helpful - if anything I hope the guys here at Sewell read this and keep it in mind when we are working with volume customers 
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Was that aimed at me?
I’ve learned, I’ve learned! ‘member how I chewed out Postelwait already on that VR3 deal?
Comment by lewis g — May 21, 2006 @ 7:14 pm
You the man - it wasn’t aimed at you, just a good reminder for everybody and something I can point at instead of getting mad at you in the future - hahahha, jk. If you were disappointed with the margins on postelwait’s deal then I have nothing to worry about with you…
Comment by admin — May 21, 2006 @ 7:31 pm
I especially like the second suggestion. When in a situation like that you can do all of the guessing in the world but you will never really know what is inside the customers head. By structuring it this way, you place the decision on them and then they will give you an honest answer through their actions.
This is really nice for someone that is indecisive like me because then someone else will make the right decision and likely the right one.
Comment by Mr. Outdoors — May 23, 2006 @ 8:47 am