If you’re working with fast moving consumer goods, pricing-in the cost of delivery in the overall cost of the sale is crucial. In fact it is one of the most significant factors in whether you will make a profit on the sale.
This article we discuss how setting minimum order values, minimum pack sizes and using online ordering software can help make every delivery profitable.
In outsource delivery, it is often the case that delivering a pallet of goods costs you the same as delivering half. The delivery company will charge for a full pallet regardless of whether it is full or not. (This is a good example of the delivery company setting a minimum order size.)
Even with your own delivery vans, it can be tricky to accurately price-in the cost of delivery, especially if they are delivering somewhere that’s not on the regular route. Time, labour, transport costs, opportunity cost, all need to be factored in when using your own delivery vans.
The best way to price-in the cost of delivery to your trade customers who are on new/irregular routes or who need to be serviced by a third party delivery company can be simply pass on the delivery costs to your trade customers and let them do the math. This might work well for one-off orders (Amazon.com does it), but I think there might be alternatives to build a long-term, regular, high-volume relationship.
At the end of the day your trade customers are thinking about the overall cost per unit. It seems to me that a crucial part of the supplier’s job is to figure out how to keep the unit costs down for their customers. Here’s some ideas that might help for all deliveries.
Minimum Order Policies
One simple way to ensure deliveries are profitable is by setting a minimum order value and size for groups of trade customers. Let’s say you have a customer ordering from you from a geographic region, whom you would love to service. However the cost of delivery to that region would make the overall unit cost of your products prohibitively expensive, if the delivery costs are not optimized. For example the cost of shippping half a pallet would simply make your products uncompetitive. In this case, you might simply set a minimum order size for customers in that region.
You could say:
- ‘We’re happy to accept orders from Misty Falls, but the minimum order volume needs to be equivalent to one pallet or more’.
- ‘We’re happy to accept orders from Misty falls but the minimum order value needs to be €500 ex VAT.”
- Or you could combine both: ‘Needs to be more than 1 pallet, and more than €500 ex VAT.’
Once you’ve set your minimum order policies, enabling deliveries to areas that are off your regular routes become easier. With the right minimum order volume policies, it becomes easier for you to ensure that that every delivery is profitable, AND still provide for a reasonable costs per unit price.
To ensure each trade customer orders a minimum of one pallet per order just set a minimum pack size.
Minimum Pack Size
Let’s do a hypothetical example. You sell cereal bars made from nuts, three kinds – Almond Bar, Peanut Bar, Brazil Nut Bar. Let’s say each of your pallets consist of say 1000 units (e.g 10 Boxes, with 10 packages per box and 10 units (cereal bars) per package (10 x 10 x 10 = 1000). It may be tricky to ask your trade customer to order a pallet (1000 units) of each bar. They may not be able or willing to keep this many items in stock. However they may be happy to order in boxes, for example:
- 5 boxes of Almond Bars (500 units);
- 3 Boxes of Peanut Bars (300 units);
- and 2 boxes of Brazil Nut Bars (200 units).
So you might set the minimum pack size to being a ‘box’ and the minimum order to being a ‘pallet’. The maths here is pretty simple too. This kind of order could be worked out without the assistance of a calculator, simply putting pen to paper.
Online ordering software helps
Now let’s give a more real-life example: What if trade customers insist they need to be able to order in packages of cereal bars instead of boxes and the number of cereal bars in each pack size vary. They come in the following pack sizes:
- Pack (12 Units)
- Box (60 units) (5 Packs)
- Pallet (600 units) (10 Boxes)
- Pack (18 Units)
- Box (90 units) (5 Packs)
- Pallet (900 units) (10 Boxes)
Brazil Nut Bar
- Pack (18 Units)
- Box (108 units) (6 Packs)
- Pallet (1080 units) (10 Boxes)
Working out how many packs fit into a Pallet is not as easy anymore. Quick question: If the customer says they want 6 packs of Almond Bars, and 4 Packs of Brazil Nut Bars, how much space is left in a pallet?
Let’s say you have 20 products, or 100 products. Getting the order to a minimum order size becomes even more complex. This is where online ordering system for wholesalecan really assist to make your life and your trade customer’s life easier.
You can set the minimum order values and sizes and when your customers place an order, the system figures out what’s required to fill a pallet. Your trade customer will be able to pick and choose what to put in their order, subject to the rules you’ve set. They’ll only be able to pick from the pack sizes you set. Unlike the customer trying to figure out the maths in excel or on the phone with you. This means they’ll have instant gratification on when they’ve reached the minimum order amounts.
Delivery to the World – profitably
With minimum order values, volumes and pack sizes, I believe you can profitably deliver to more areas and routes. This can includes regions that you may not have previously considered as viable options. Furthermore, if you use an online ordering system for wholesale, like iStockist, your trade customers can create orders in a self-service way, and place orders that match your minimum order sizes, volumes and pack size criteria you set. A win for everyone.