Thread by @joshuamschultz

On making money and keeping customers.

Here is something from the inside playbook no one shares, and we aren't supposed to talk about.

If you are fresh out of B-School, this will seem like poor business. If you have a few years... you'll get it.

Margins, Favors, and Lies...

Most customers, the ones I enjoy dealing with, you do straight up business, all the time, and build trust.

However, there is a customer level of corporate size and machinery, that when you get to, they no longer have a desire to relate with you, they want to own you.

Business needs to be transacted differently here.

One of my mentors used to say "when you can make money, make it".

I thought this was bad business, unethical, and not as good as being straight and even with pricing and quotes.

... then I got some experience.

Large companies... very large companies

1. Will push many internal mistakes to their customers because they have the power to declare, and it is cheaper for them to push the problem upstream than deal with internally. You will end up eating a bit of margin on their errors.

2. Are extremely aggressive on pushing costs down on suppliers. Many suppliers underbid to get the business and make up for it later. They will double auction, and then rebid a quote you thought was the last bid and went your lowest... just to squeeze.

3. Assuming you get the business, they have aggressive, and annual, cost-cutting targets. So coming in at a fair margin will lose you money if you want the business more than 3 years.

4. Will be your highest demanding customers with a lot of extra work per deliverable. You may even need to hire more people to keep up with the demand.

Assuming you find yourself with a customer like this and want to keep it, you'll have to employ a few buffers...

Buffer 1: Margin buffer. Back to where we started, make money when you can. When there is high pricing variability, low industry knowledge, or some other edge that allows you to make more - make it. Stay away from pricing everything at 30% (or whatever across the board).

Buffer 2: Another Margin Buffer. Once you have the business, you have a much higher likelihood of getting future related business. So raise your margins on these, they prob aren't pricing it out to others.

Buffer 3: If they get in a jam, or if volume goes really low, margin!

Buffer 4: Goodwill Buffer. Let's say they forgot to order a part. They will be line down in 4 weeks and the part is 12 week LT normally. You call a machine shop and get it done in 1.5 weeks. Do not deliver!

This is shady but, if they see you as saving their butt, it will build a goodwill buffer you may need down the line. So wait, call them about how you are working on it. Prevent the line down later.

These are NOT STANDARD BUSINESS PRACTICES. I consider these to be questionable.

However, when you are a $10 million shop dealing with a 15 billion dollar customer - they will crush you unless you have extra margin and some goodwill.

Build it where you can.

Or my preference.. find new customers :)