It’s easy to understand why service costs were rolled into product pricing. Product prices are easy for customers to quantify and compare, and they make it easy for distributors to determine profit margin. Everything becomes a whole lot more convoluted when man hours are involved.

Huizenga says Nichols pays for a software program to help determine operations costs for every task and every position, from sales reps to warehouse pickers. All of these costs come together to help Nichols determine the net profitability of a customer, or even the profitability of a single order.

“It’s a powerful tool,” says Huizenga. “But sometimes you can discover that maybe your larger customers are sometimes some of your most unprofitable customers because of service levels.”

In these cases, something has to give, since a distributor can’t go on knowingly taking a hit on an account.

Again, distributors probably won’t have much luck convincing customers to pay more for all the services they’re already receiving. So, in most cases, distributors are tasked with finding ways to make that customer more efficient, says Huizenga. But the conversation that must then take place between customer and sales rep can be a tricky one.

“It’s an artform,” he says. “You can’t really call their baby ugly and tell them, ‘Man, you are completely inefficient.’ … But you can provide data and metrics and say, ‘Did you know?’”

A lot of times, says Huizenga, a customer doesn’t know that, for example, it is placing orders nearly every day when it could easily get away with once-a-week deliveries. The customer then saves money on deliveries and the distributor saves money on service.

Really, says Lucas, the solution to this problem is the same old solution to most problems in the industry: Distributors must get to know their customers even better.

“It’s really just about getting really clear with your customers and really getting very close to them and understanding how you can be of best service,” she says. “And it doesn’t mean that I don’t provide premium level service on a lot of the products, or most of the products. It means I provide premium level service when it helps the customer.”

To find out which services a customer actually needs and which are superfluous, all a distributor has to do is ask, says Lucas. It also helps to then be transparent with that customer about what that desired level of service will cost. S. Freedman & Sons then allows the customer to unbundle services as they wish.

The earlier example of unbundling paper towel dispenser installation from the cost of the paper towel dispensers themselves was actually a situation Lucas had encountered just that morning with a school district customer. The installation job involved coordinating multiple locations and thousands of dispensers. Lucas explained that her company could do the installation work, but it would it would cost X amount of money. Or the customer could simply buy the dispensers from S. Freedman & Sons and perform the installation on its own.

“Now they understand the cost associated with it,” she says.

The school district ultimately decided to pay S. Freedman & Sons for the installation. And if they hadn’t?

“In cases where we’ve had a discussion with (the customer) and they don’t need the all the services that we were providing,” says Lucas, “no one is ever upset about a price reduction.”

None of this will matter, however, if distributors don’t do the job well when asked.

“When you establish or understand where it is you can be of good service, then you execute that every single time flawlessly,” says Lucas. “People don’t do that anymore. Think about your own customer service. People don’t execute what you need, when you need it, how you need it every time. And there’s a lot of value in that.”

S. Freedman & Sons has a major hospital system as a customer. The distributor used to provide all of the hospital’s housekeeping supplies. Eventually, the hospital moved much of its purchasing to a larger, national distributor. However, that other distributor didn’t provide the same frontline training that S. Freedman & Sons used to provide for free.

“So they kept requesting, ‘Well, how can we get your training?’” says Lucas. “The way that we had always given training is if you bought you chemicals from us. So we’d always say, ‘Well, buy your chemicals from us.’”

Then, one day, Lucas and the sales rep for the account decided that they would provide the training for the hospital.

“We said, ‘We’ll charge you hourly for it,’” she says. “And that’s exactly what we did, and they paid us every month hourly to come in and train their staff.”

The best part? Lucas and her staff executed so well that they eventually won the full account back.

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Unbundling Products From Services