How much commission should I offer?

[Marcomc]

This is my first time bidding on a location. I'm a one man operation, and part of me feels like I might be out kicking my coverage. I'm putting together a bid for a location (state prison), that's looking for 17 machines. (7 drink, 5 snacks, 3 sandwich, 1 coffee, 1 ice cream). They're saying the estimated yearly gross is $145,000. Aside from having to come up with all those machines, I'm trying to figure out how much commission I should offer. I was thinking between 20-25%. Is that too high or not high enough? I don't want to be out bid because I didn't offer enough in commission. Thoughts??

[AngryChris]

It depends on your area.  You will be competing with big boys and medium sized companies too.  It's a big bite and you would be putting a lot of eggs in one basket.

Around here, 15-20% is very possible for that, and pricing has to reflect that.  As a little guy, your disadvantage is that your product costs can be higher, so that 20% can hurt quite a bit.  But the advantage is you don't pay any labor.  I recommend small vendors avoid these accounts because one little thing can potentially cripple you.  And, for the money, you can get quite a few really nice locations.  You should be more worried about other factors than commission, such as equipment costs, having the ability to stock enough product, transportation, etc, but of course commission is a big deal too.

[Southeast Treats]

Good question.  On a very large account like that they are probably looking for over 15% at a minimum.  I am presuming this will be open to inmates?  Do you have to install any special types of payment systems/ prepaid cards? 

One way to protect yourself is to offer a scaled commission based on meeting certain sales volumes.  For example, if the machines sell less than $10,000 a month you might offer 12%, but more on sales up to 15K a month, and more over 15k.    It can be offered as staggered or you can offer to pay the highest commission for the month (or quarter or whatever) on all sales for the month.   And of course you are going to set your prices presuming the highest commission rate so that you don't lose money. 

If the machines are not for inmates but only for staff, I would question their sales estimates and be concerned that they want too many machines for their own convenience.  Remember, any location is trying to get the most for the least, and government locations often offer the worst deals.  Who is their vendor now and how long have they been there?  Why are they leaving?  How long will your contract run?  

If you have a solid contract in hand, there are a number of ways to get your machines financed.  You might also consider getting bottler machines for the drink units; but if you are not already connected with a bottler, you should make those contacts in advance of making an offer, so that you can factor in the higher cost of drinks when you have those machine deals.

[lacanteen]

No one has mentioned price points yet. Start there, then run your proforma. 

[AZVendor]

Unless you are a highly experienced vendor with many years under your belt and experience with cold or frozen food you will bury yourself with time.  Those accounts require tons of time to get in and out of, move between buildings or staff areas, require an escort, require searches and inventories of everything you take in each day, AND you must have a pristine background.

[CapitalCityVendingLLC]

Yea.  Seems like a potential headache as AZVendor has stated.  Those frozen machines open up another can of worms potentially.  The scaled commission might be good idea.  When I make bids, (I rarely have in the past) I never offer too much.  Offer what you feel comfortable with.  If you don't get it, no sweat.  You wasted little time.  The last thing you want to do is offer the world and then hate going there.  More details about the bid would help.