How to save $37,500
Cost Plus pricing vs List Less Pricing – How our clients benefit
Not to date myself, but this is going to go way back: 1991. No internet. Bag phones. Right out of college, I went to work for an industrial distributor. Think old school, sprockets, chains, motors etc. On our desks we had these huge binders of multi-colored pages – “price pages” is what we called them. They sat right next to the ashtrays (seriously). Every product we sold, and there were tens of thousands – was somewhere on one of those pages. This is how they worked:
Let’s say list pricing on a 25B9 sprocket (size 25 chain, B-hub and 9 teeth – I can’t believe I remember that stuff) sprocket was $1,000. What you paid for that sprocket depended on the appropriate discount based on the type of client you were. Here’s how it worked:
List pricing – 0% discount – you paid $1,000
Retail – 10% discount – you walked up to our counter – 10% off – you paid $900
Industrial User – (think factory) – 20% discount – you paid $800
OEM – your company made machines that had this product in it – 30% discount – you paid $700
Wholesale – 40% discount – you bought in quantity –you paid $600
Distributor – 50% discount –first step away from the manufacturing chain – best discount – we paid $500
So you can see that pricing varied with the type of customer you were – and there were big swings, many transactions and potential mark-ups along the way.
Jump to today. There are no more price pages (or ashtrays). Often, the big manufacturers (IBM, HP, Cisco etc) work off from MSRP – the equivalent of List. The client pays essentially a “List Less” price. Take this real example: AB456A – 16 GB ram kit for the HP rx8640, rx7640 and Superdome. List / internet pricing on this kit is $40,000. When purchased directly from the manufacturer or a business partner, a client would pay based on a discount. So a healthy discount would be 40%, but let’s go with 60% for the math – that discount would get you down to $16,000 per kit. We take a basic cost structure and apply a markup that allows us to build our business, one client, one transaction at a time – not all in one shoot for the moon list price deal.
Your cost from Maximum Midrange on the AB456A? Approximately $2,500. Amount of savings off from list? $37,5000 – so next time you want a memory price you could call the manufacturer and ask for the 93.75% multiplier… or just give us a call.