Business Purchasing: How Important Is Buying Correctly?

Does your company give the right attention and focus to buying? This video presents how success in buying may have more profit impact than success in selling.

Hi, this is Jack Quarles with Buying Excellence and my question is: how important is buying to your company?

Could it be as important as selling? Could it be more important?

We’ll start to answer that by looking at the basic equation of business: Revenue – Cost = Profit

There’s what comes in, what goes out, and what’s left over.

And if what comes in and what goes out determine what is left over, then at the highest level there are two questions that will define your success in business:

How well do you sell?

How well do you buy?

This is simple, but it’s profound, because the selling part seems to get all of the attention.

What’s the first number used to describe a company? It’s usually revenues.

How many people at your company have been to sales training?

Now, how many have been to buyer training? Probably few or none at all.

What is more important to you personally? If you are not sure, let’s take an easy test. Get a pen handy.

Scenario A:

$100M company.

$5M piece of new business, next quarter.

How happy are you?

Scenario B:

Same company, you’re still in charge

Reduce $5M in expenses this year (without firing anyone and with no impact on quality)

Again, how happy are you?

You’ve got your two numbers… let’s see if you’re right.

Assume our $100M company has a healthy net profit margin of 10%, which means $10M in profits.

The first scenario with the new business brings in another $5M to revenues, and if the average margin holds that will contribute half a million to the bottom line. A quick increase of 5% to the profit. Not too shabby.

But now let’s look at the second scenario. What happens to that $5M in savings? Well, every last dime of it comes off the middle line and drops to profit. That’s a contribution of $5M to the bottom line, or a 50% increase just like that.

So, now let’s go back to your numbers. If your happiness number for Scenario B is TEN TIMES Scenario A’s number, then you got it just right.

Of course this is an illustration, and you can’t build a company without growth, but here’s the point: if you are looking for profit impact, start with those middle line expenses, not with sales.

One dollar in savings is much more valuable than one dollar in sales. When everyone in your company understands that, you’re on the path to Buying Excellence.

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