Sunday, February 1, 2009

Vendor Relationships, Fair All Around

Do you care about the profitability of your vendors?

Before you quickly conclude, “no…that’s their concern,” think about how important the financial health of your vendors is to your own professional well being.

At Strategic Communications Group (Strategic), we are fortunate to work with a top flight set of consultants who are critical to our success. Our corporate attorney has been with us from the beginning. And our CPA firm has taken us through more than four years of annual financial reviews. If they were in distress, I’d surely feel pain and our business could potentially suffer.

It is in every company’s best interests to understand and track the profitability of its key vendors, with an eye towards assuring the financial terms of the relationship are beneficial to all parties.

I face this issue when negotiating a contract with a client. Most are fair, yet some companies are intent on extracting the largest possible scope of work for the lowest price – regardless of the impact on our company or employees. This beat you down mentality is amplified during challenging economic times.

Our approach is to be open and honest about our profit margins. We don’t gouge our clients, yet we demand that an engagement be good business.

It cuts both ways though. While companies should expect to compensate their vendors fairly, they should also clamp down on working with firms that run up their own profits at their customer’s expense. For instance, there’s a PR shop I’m aware of that routinely brags to everyone (but its clients, of course) about the firm’s “industry leading margins.”

Here is another example that probably has hit you directly in the wallet. Most of us got jammed up this summer with exorbitant gasoline prices. They couldn’t be avoided, explained the big oil companies. Surprise, surprise…Exxon Mobil just reported a $45.2 billion profit for the year, the largest ever for an American corporation.

Guess who I will never fill up with again?

1 comment:

That Blair Guy said...

Y'know, I understand how you feel about the gas prices, but I think that's really a better example of how media coverage influences people's perceptions.

Yes, as you pointed out, Exxon had the largest ever profit. They're also pretty doggone big. So it's a big profit in absolute terms, but what's their margin? How does it compare with other oil companies? (I seem to recall reading that the average oil company's margin was around 10%, versus 35% or so for Google.)

So yeah, it's absolutely bad form to brag about your margins (ranks right up there with bragging about your salary), but that's something publicly traded companies are required to disclose.

But it's also important to remember that not all media coverage is good.

(Over the summer, as often as not, I bought my gasoline from Exxon. Despite all the talk on the news about their profits, they frequently had the lowest prices in my area.)